Supply Chain Risk Management and the Three Blind Mice

The following posting can also be viewed and commented upon in the Kinaxis Supply Chain Expert Community forum site.

As parents of small children, we often sing various rhymes to our children, and perhaps readers may recall the rhyme from the song “Three Blind Mice”

Three blind mice,
Three blind mice
See how they run
See how they run!

They all ran after
The farmer’s wife.
She cut off their tails
With a carving knife.
Did you ever see
Such a sight in your life
As three blind mice?

I was recently speaking with Bruce Spurgeon, supply chain manager at OSspray, Ltd., and sometimes guest blogger and industry observer for Supply Chain Matters. Bruce raised a rather interesting observation concerning the state of supply chain risk management in many industry supply chain environments today.  He cited the familiar rhyme above in the context of a question: Who actually owns overall responsibility for supply chain risk management?

If a product has dire quality problems, if a manufacturing process is not adhering to consistent quality standards, or if one or more suppliers is teetering on the edge of financial or operational failure, who delivers the news and who is designated with the cross-organizational responsibility to resolve overall supply chain risk?

As we discussed this further, we both noted that perhaps supply chain professionals are not really equipped with the motivation or management skills to ‘own’ overall supply chain risk, primarily because the stakes are so high.  Too often, risk takes the context of ‘beyond my pay grade’, let those in the ‘C’ suite deal with that.  This has perhaps been made worse by the continuing cutbacks of personnel and resources, not just supply chain but across the organization.

Because this tenet of management continues, organizations discover far too late that supply chain risk has cost the company millions of dollars in lost sales, remediation, or even damage to the brand itself.  The incidents are all around us and are permeating the business headlines every week.  Global supply chains are at risk, yet few managers seek to bring visibility for fear of actually having to be held responsible or accountable for a problem for which they are not equipped to deal.

Bruce also asked another interesting question- Where do managers really learn about managing supply chain risk?

On the one hand, the Supply Chain Operations Model (SCOR) from the Supply Chain Council or other risk identification methodologies can provide means to measure aspects of supply chain risk, but where exactly is the curriculum that addresses the overall management of supply chain risk identification, communication and mitigation?  Colleges today address supply chain management curriculum from a functional or vertical lens when perhaps a horizontal lens can provide a more meaningful roadmap for managing overall risk in the supply chain.

What I suggest our community needs is the supply chain equivalent of risk governance, which is a discipline coming from CFO related circles. When I conduct workshops on this topic or speak with procurement or supply chain operations executives, I advocate for a team-based approach toward managing risk.  After all, who wants to be the sole bearer and owner of bad news?  A team approach not only provides different perspectives of the potential risk, but also a quicker means towards mitigation.  Companies such as Cisco or Procter and Gamble, who do this successfully, do so from a risk management team perspective. Having the most up-to-date information and business intelligence also helps.

I do not pretend that there are standard answers or practices to address this situation, but we, as a community, had better find a way to raise awareness to a growing problem.  Risk surrounds the global supply chain, and who has a better lens to understanding and mitigating, as much as possible, the conditions of that risk than a cross-functional team led by supply chain management.

How about you- do you feel that your organization or your team owns identification and mitigation of supply chain risk? What do you need to make this work?

Bob Ferrari

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1. Jan Husdal says:

   September 29, 2010 at 7:55 am

   Thanks for a thought-provoking article worth pondering. I think you are spot on when You say that supply chain professionals are not really equipped with the motivation to ‘own’ overall supply chain risk. That’s true CEOs do get rewarded for taking risks, they even receive severance payments if their risk-taking behavior results in a major loss for the company. SCM professionals simply lose their job over such mistakes. A cross-functional team does provide the lateral sight that is necessary to view the whole risk and to take the necessary steps towards mitigating these risk. A joint decision from a joint perspective usually fares a lot better than a single(-minded, pun intended) decision.
2. Bob Ferrari says:

   September 29, 2010 at 8:25 am

   Hello Jan,

   Thanks for sharing your observations. Sadly, it seems that indeed CEO’s get the most rewarded for risk management, regardless of the outcome. As noted, having a team approach toward managing overall supply chain risk provides both consensus as well as an organizational umbrella. My sense however is that determining who will lead this team can also be a challenge. Perhaps we need to discuss the alignment of individual compensation goals with the overall management of risk.

   Bob Ferrari
3. Srinivas Ambatipudi says:

   October 4, 2010 at 6:10 am

   Hello Bob,

   Thanks for bringing to fore an interesting subject. I do agree with you that currently supply chain professionals are not really equipped to manage the risks that are inherent within a supply chain and neither do the academics teach the subject with that perspective.

   The question that keeps on coming to my mind though is why?. While all of us would agree to the fact that managing a supply chain (depending on the size and complexity) would be no less complex than managing an organization with the stakes being similar or higher, as a supply chain would cut across multiple or atleast two organizations for sure.

   To manage the risks inherent in such a situation,I think that we may surely want the support of the CFO’s office, the legal office, the HR, IT and all other support functions that an organization would normally require.I would like to visualize that managing a supply chain is very similar to managing a independant organization within the boundaries of existing organizations.

   This way you would atleast set up an environment that would be capable of handling the risks within a supply chain and can also be held accountable.