Today, an alert to a CFO.com article: Reputational Risk: Put Someone in Charge and Act Quickly, certainly caught our Supply Chain Matters attention and was worthy of further amplification and comment.
The article communicates to CFO’s that too often companies wait until their brand reputation is damaged before making a bona-fide effort to assess overall implications of a natural disaster, service or IT disruption. The conclusion drawn is that reputational risk is very commonly manifested in major disruptions that occur within the supply chain. It acknowledges that for many years the main focus for supply chain managers had been in driving efficiency and removing cost from the supply chain. Overly lean supply chains obviously introduced the potential for increased risk when an unplanned major disruption occurs.
Readers are certainly welcome to search our past commentaries under the category of supply chain disruption or supply chain risk to gather how reputational risk is indeed affected by major disruption or unforeseen development that occurred within the supply chain. Brands such as Johnson & Johnson, Toyota, Novartis, Trader Joe, to name just a few, were companies with previous stellar reputations for quality and trust of products, only to suffer the effects of brand reputational risk because of lapses in quality monitoring or supplier related snafu’s. Perhaps the most high profile and visible has been that of the cascading product recalls affecting the McNeil consumer products division of Johnson & Johnson, where Supply Chain Matters has mapped the consequent impacts to the brand. Toyota’s reputation has been a literal see-saw, with the latest incident being yet another high-profile global product recall of vehicles because of a supply component.
Because this article is directed at a CFO audience, it probably cannot go further and perhaps directly suggest that the reason supply chain teams focused on many years of supply chain efficiency was because of the top-down directives from the office of the CFO to specifically reduce overall supply chain cost. Management reward and measurement mechanisms were consequently established toward how successful senior supply chain leaders were in removing overall cost vs. perhaps adding more business risk. OK- so much for letting us rant and get that off our chest.
The CFO article however does deliver important messages that need to be echoed and supported by the broader supply chain community. Reputational risk is indeed far more prevalent in today’s 24/7, always on, news cycle echoed by social media. We witness that every single week. Further noted is that there really is no chief reputational risk officer overseeing the firm’s risk, along with no senior manager in the supply chain organization accountable for performance of the entire B2B supply chain ecosystem.
Our Supply Chain Matters perspective has always been that every firm and every supply chain organization needs to have a supply chain risk identification and mitigation plan. We have not been bashful in expressing the need for senior risk management accountability at the top of the management pyramid, a focus that is not aimed solely on avoiding financial exposure, but the broader aspects of reputational and business risk. That in our mind raises a question of whether that responsibility falls solely under the umbrella of the CFO, and is more of a cross-business risk steering group.
If there is one clear takeaway that can be shared from our keen observation of supply chain disruptions over the past four years, it is that events which seem at the surface to be non-consequential can indeed be significant, and today’s supply chains need broader and deeper assessment and response management capabilities.
Here’s a suggestion. Forward the mentioned CFO article to your finance team with a few notations of the implications for supply chain capabilities. Alternatively, forward this commentary.