McKinsey recently published the results of its global survey on managing global supply chains. To boil down a seven-page article: they aren’t managing the risk. Or to quote the article: “relatively few respondents…say that their companies are translating the importance they place on these [risk] factors into corporate action.” Are we surprised at this conclusion? Of course not. Managers who are not addressing risk seem to be a favorite whipping post lately for supply chain pundits.
So if risks are so important, why are they not being addressed? And, can risks really be avoided or overcome? There are several possible reasons why executives are not addressing risk. Perhaps they are unclear how to do it. Risk is not something that you can eliminate, as many articles on supply management seem to imply. The probability of some supply risks can be reduced, but many catastrophes or supply chain failures cannot be prevented, only mitigated once badness occurs. There is no magic solution. Or perhaps companies have focused global supply chain management on chasing the lowest price for goods and services and have not paid attention to the resulting supply chain complexity and increased risks. In the process of seeking to lower cost with lower price suppliers, companies may be giving up reliability and sustainability. Another contributing factor to global supply risk is that businesses processes, including supply chain processes, simply evolve over time and are not consciously designed, planned or improved. The resulting processes can become out of control or just inefficient, ineffective and prone to failure.
While it’s discouraging, McKinsey’s study comes to the same conclusion as other similar studies (e.g., Aberdeen Group’s report, “Supply Risk Increases as the Market Stands Still” – subscription required) – supply risk management is still in its infancy and not yet widely adopted. It’s still in the lots of talk but little action stage.
What can companies do about supply risk? I discuss this in Chapter 9 of my book, Supplier Evaluation and Performance Excellence and will post some more thoughts on the subject in future blogs.