Monthly Archives: May 2012

Risk – scary word but we deal with it every day

Risk, the word connotes so many things. Some people want to avoid it at all costs while others love being “risk takers.” These folks look risk in the eye and laugh, take chances and defy the odds. Or do they? Aren’t we all risk takers by just waking up every day and going about our lives? Risk is all around us, risk is in everything we do. What we wrestle with is the degree of risk we are willing to tolerate.

But the simple act of drinking a glass of water entails a degree of risk. Did the reservoir from where the water was collected contaminated? Are the pipes that brought the water to your home free of bacteria? Is your glass damaged because your 4 year old ran accidentally dropped his Tonka truck on it and a small shard of glass broke off? I realize that these events are an extreme and the probability they would occur is minimal. But, instinctively we weigh risk every day of our lives, both personally and professionally.

So let us look at another area where there is always risk, much more tangible and real risk: your supply chain. The art and science that comprises supply chains are really looking to deal with three areas of concern – cost, revenue and mitigating risk. Risk is really the element that impacts both cost and revenue. It is also much more elusive in regards to how to measured and control.

You might take on a strategy to eliminate safety stock in order to reduce costs and free up cash flow, but the risk is if your forecast is wrong or your cannot produce in time you will suffer in terms of lost revenues or even financially having to pay SLAs.

So what are steps you can take to put in place the tools that will address your exposure to risk?

Gain greater visibility. Okay I know this is everywhere, and as the old adage goes: I can’t fix what I cannot observe. The real question becomes, can you observe what is important and can you handle the deluge of data and information available? Risk comes from many angles and extended supply chains have an every growing and shifting number of blind spots. Shining light on a greater area allowing you to see more, is vital to understand how to deal with risk.

 

Understand what you are observing. Sometimes just seeing something isn’t helpful. You need to also understand from where you are observing how is your situation impacting what you observe. There has to be contextual understanding of what you are observing, what am I am viewing and how does it relate to the environment and other events.

 

Put in place simple triggers: simple rules are important to have place to bring color to what your see. Gartner has started to speak about pattern recognition within your supply chain, but doing so in a real time manner being able to look at events as they are happening, not looking at historics which could very well be irrelevant by they time they are acted upon.

 

Trust your people. At the end of the day the human still remains the greatest tool to manage risk. But the human needs with the appropriate tools can make a better decision. Technology is not the panacea but allows for the decision makers to be better armed to take corrective action. Ensure that your people have the tools as well as the knowledge to empower them to be able to function in a world full of risk.

 

Practice practice practice: Just like many things in life the more your prepare the greater the chance you will be able to react quickly, decisively and appropriately when situations do arise. Scenario planning will not guarantee that you will cover every possible situation, but having rehearsed and practiced will allow you to be ready when you have to act.

Risk will always be with us whether in our supply chains or in our every day lives.  Our instincts allow us to make the necessary trade offs and analysis to deal with this risk. When it comes to our supply chains we need to make sure these instincts translate into procedures and tactics that will ensure we can mitigate whatever risk we may incur.

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Plan Do Check Act – coming to a Supply Chain near you

I have been fortunate enough to have had worked for some incredible visionaries and leaders during my career. One such person is Sanjiv Sidhu, one of the founders of i2 Technologies. I learned a tremendous amount from my time spent at i2 and much was gained from the passion, intelligence and vision exhibited by Sanjiv. One simple, yet powerful, mantra Sanjiv preached was the notion of “Plan – Do – Check – Act.”

Granted this was not original to Sanjiv but rather a process by which companies can seek to find continual improvements to business processes. The beauty, as in many things, is in the simplicity of this saying for supply chains. The need to be able to plan well – how will I determine my end goal, allocated resources, make investments and distribute my assets. Then being able to do – execute towards the end goal, in a expeditious and profitable manner. Once the execution begins the need to constantly monitor how the process is trending – establishes milestones or alerts to indicate whether or not I will be able to achieve the goals I set. And finally to be capable to act – if and when events impact my ability to achieve my goals, can I take the appropriate actions to re-sequence my supply chain and get back on track. The simple process of PDCA allows enterprises and their supply chains to have a constant feedback loop on where they stand with regards to completing the goals they established.

When it comes to supply chain management we have spent much treasure and effort in giving solutions for planning and doing – just take a look at the landscape of solution providers that allow you to plan and then execute. The ability to do the check and act has not been as evident within supply chain management. I realize vendors and service providers have tried to bring true visibility to end to end supply chain processes – with minimal success.

Today with flexible applications, the cloud, greater mobility and other advances with our systems and architecture we are closer to being able to finally round out PDCA. As we start to have true extended supply chain visibility coupled with complex event processing – tied to business process management – supply chains can truly check their process, understand the impact of events and act or re-sequence to ensure their end goals are met.

We are getting closer to true closed loop supply chain management.

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