The crucial role of risk management in future supply chains

[Transcript]

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Hello and welcome to another episode of the Auto Supply Chain Prophets Podcast. Let's check in with my co-host, Cathy Fisher. What have you been up to lately?

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And so, they leveraged our 24 Essential Supply Chain Processes to see where they were at. Now good thing that they did it after the ramp is that they were able to see how that went, what went well and what didn't. And so, it became very clear as we went through the 24 processes with them where they needed to improve.

A lot of "aha" moments. So, they really see the benefit of using automation as they begin to do their mass ramp.

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It's like you've taken all the knowledge of the industry and boiled it down into a nice, easy-to-read document. And I love that. I'm all about easy-to-read documents. Well, talking about documents, let's talk about our main focus for today's episode, which is risk management. Now, when we talk about supplier risk and supply chain risk, I will tell you in my life in supply chain, when I think about that, my mind immediately goes blank.

And I think, oh no, there's so much risk, and gosh, we've seen it, haven't we, lately? I mean, we've had COVID, we've had chip crisis, we've got the strike. There is risk at every turn and somehow supply chain leaders, we have to think about that. We have to have a process to be able to identify it, to mitigate it, to put plans in place. So, tell us about your latest white paper that you've written. So, Cathy, tell us about it.

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We recognized, especially since COVID, how much more important risk is. It's always been important, right? But I think certainly the experience that all organizations, all industries even, but especially the automotive industry has experienced as a result of COVID and the resulting ripple effects, semiconductor crisis, et cetera, has really elevated the focus on risk-based thinking and incorporating risk as a key focus, not only within the organizations, but also in managing the supply chain as well.

So, we went back through the work that we had done and refreshed it with the experiences the lessons learned from the past several years since COVID. And also put a lot more emphasis on the expectations around contingency planning and helping to really clarify. Where contingency planning comes from as a result of risk analysis or performing that risk assessment up front first and then figuring out what do we really need to be building contingency plans around.

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And today that is just, it's not possible. You can't do that. It wasn't effective before, but it's even more ineffective now, mainly because the interconnectedness of what's happening in business and the reliance on the supply chain as well, especially as you look to the lower tiers in the automotive industry and exactly what we experience with the semiconductor crisis. So, we're really encouraging and highlighting in this updated version of the white paper that organizations come together as a cross-functional team. And when they're looking at supply chain risk, you really have to have the voice, not just of supply chain and purchasing and the voice of the supplier, but you also have to incorporate the voice of the manufacturing, the voice of the customer, of course, and even from the business perspective. So, it absolutely has got to be a cross-functional activity. And along those lines, the other mistake that we see a lot of organizations making because they're staying siloed is that when they are creating contingency plans or even doing risk assessments then they're actually missing a lot of the interfaces or interrelationships of risks and making sure that as an organization they're planning collectively for addressing those risks and that's where organizations oftentimes are going to get caught off guard when they realize those risks and they don't really have a holistic plan for addressing them.

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And when I say, show me your supply chain disruptions. They don't think about it, I need to look at transportation. What if my ASNs don't get there on time? Packaging. Quality people just don't think about that. And that's why you got to break down the silos and do it together.

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Unfortunately, they may not have the right. reach and leverage in the organization to bring all parties together, and certainly, they're not necessarily going to have that broad-based perspective that the CEO's office can then encourage when we get all those leaders from the different sectors of the business sitting together and assessing those risks.

The other thing too is that the ownership of those risks ultimately lands with the CEO, and with the top leadership of the organization and especially the contingency plan. So when I go into organizations and contingency planning has been delegated to another department, I'm like, this is not a good situation because the resources that are going to be necessary to support that contingency plan, the focus on testing performing routine drills around those contingency plans, and even just the global perspective of the types of risks that are emerging may not be within the organization. And typically, the CEO has a lot more external focus in terms of the position of their business relative to the overall industry and just even to the global markets that they're serving.

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So when you look at risks that may impact the organization, it's very important that as part of that risk assessment, you're looking at what could be the financial impact to our business; if we shut our customer down, if we are not able to continue running our operations and paying our employees, if we're having to shift our supply from a current supplier to another supplier, or even shift our entire production to another location to overcome a disruption that may happen in our plant.

All of those scenarios have costs associated with them. And it's not impossible to figure out what those costs are. I mean, that information can be generated. It's not necessarily going to be 100 percent accurate, but as long as you have a general idea of what those costs are going to entail, that'll help the organization in prioritizing the resources. It'll also help in terms of the organization determining where should we focus our time and efforts in communication, drilling the process, making sure that those contingency plan actions of business continuity activities are going to be viable when we find ourselves in that disruption.

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As a supply chain leader, and our audience are all supply chain leaders, why would I devote my time and attention to reading this white paper? What am I going to get out of it?

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What could be the impact to our customers and other stakeholders when we are innovating and we're able to realize if we have not the desired result out of those innovations, we understand what the impact is going to be. We don't have any surprises on the other side of that. So, you know, embracing risk assessment and risk-based thinking in your business is it actually helps you be a better innovator than if you're just not looking at the risks at all.

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