New insight into supply chain risk management

Everyone agrees supply chain risk is a growing issue, but how to manage it, that’s the big question. Douglas Kent, principle at eKNOWtion and senior supply chain consultant for Technology Forecasters, offers a preview of new insights into supply chain risk management soon to be spelled out more completely in a white paper by the Supply-Chain Council (SCC).

Specifically, Kent writes, the SCC’s risk management Special Interest Group will offer a new definition of supply chain risk management as a starting point to understand and mitigate risk. The group has taken a further step by proposing a method for measuring risk. Kent says the SCC expects to incorporate the topic of risk in the next release of the Supply Chain Operations Reference (SCOR) Model — version 9.0 due in March 2008.

As outsourcing grows and supply chains become increasingly complicated, with more partners, leaner operations, shorter lead times, zero inventory and other efficiency traits, they also become more vulnerable to even minor disruptions. With this in mind, practically everyone is thinking about risk these days, as we noted recently.

“Supply chain has a significant impact on the company’s value,” Kent writes in eKNOWtion’s December newsletter. “The ability to measure risk is necessary for us to manage it. The SCC has taken a major step forward in terms of standardizing the definition of SCRM and provides its members for the first time, the ability to calculate Value at Risk and consider this new metric in measuring end-to-end supply chain performance.”

According to Kent, the SCC defines Value at Risk as “the sum of the probability of events times the monetary impact of the events for the specific process, supplier, product or customer.”

The full white paper will soon be available on the SCC web site, and on the eKNOWtion web site.

While we’re on this topic, Kinaxis, a strategic partner of Technology Forecasters, always has interesting things to say about managing risk and disruptions. For example: Its blog of Dec. 13 on how supply chain risk can impact shareholder value.

Posted by Bill Roberts, December 27th, 2007

Filed to Supply chain management