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.