Missing Links: How to ID Supply Chain Risks

Supply chain woes were headline news during the pandemic. Since then, the blockages in the Suez Canal and Maryland, the Russia-Ukraine war and the Israeli-Palestinian conflict are just a few examples of what else can go wrong. Businesses and their supply chains must continue to increase their resiliency so they can minimize the effects of bottlenecks before they cause existential business and customer-related issues.  

“Many companies have digitized, left, right, and center. One large company I was speaking to had 150 to 200 different software [solutions] that they were using. And this is a nightmare for the CIO in that organization,” says Gautam Prem Jain, CEO of GoComet, a supply chain visibility platform. “[T]he CIO said, ‘Oh, my God, I'm managing these many systems differently in the company. Now, how do I know [which] is the single source of truth among these?’ He has his job cut out [for him] because they are now working on making sure all systems talk to one another.” 

Another company uses two different systems to create one document. They are manually downloading data from one system and uploading it to the other. In more than 20% of the cases, those documents do not match because the two applications utilize different fields. If the documents do not match when a shipment reaches a port, it can cause delays that translate to a demurrage and detention cost.   

Related:Improving Supply Chain Security, Resiliency

Visibility and Predictability Are Necessary 

What organizations need is end-to-end visibility throughout the supply chain from planning and procurement to delivery.  A 2022 McKinsey survey reveals that 67% of supply chain leaders have implemented digital dashboards to achieve end-to-end supply chain visibility, but only 6% report having full visibility.  

“Technology enables visibility into the status and location of materials and parts within the supply chain so they can ensure programs stay on track and flag issues as they happen. Technology also plays a crucial role in addressing many of the issues around sourcing, procurement, and labor shortages,” says Dave Evans, CEO at a global manufacturing company Fictiv, in an email interview. “Activities like managing existing suppliers, onboarding new suppliers, requesting quotes, requesting order status updates, troubleshooting order issues and triaging disruptive supply chain events are incredibly resource-intensive -- particularly if you don’t have the right technology systems and business workflows in place.” 

Supply chain and manufacturing decision-makers are often so focused on putting out fires it’s not always easy to adopt new technologies, but the benefits outweigh the risks.  

Related:IT Must Clean Up Its Own Supply Chain

“I’m talking to more leaders who are implementing emerging technology like AI to overcome challenges with labor costs and material shortages, improving supply chain operations, and more,” says Evans. 

Other things companies are doing include using digital twins to understand their end-to-end supply chain, overlaying a risk scoring capability that aligns with the CEO-level KPIs and using AI to traverse extremely large models to better understand and manage risks, according to David Petrucci, managing director at global consulting firm Protiviti. 

“Supply Chain risk [assessment] is not a run a model and measure risk once a year [exercise.] In today's world, risk is changing constantly, and you need to be able to reduce risk [and] also respond to scenarios as they happen,” says Petrucci in an email interview. “These types of systems are not present in today's traditional COTS vendors, but we are seeing companies asking for early warning systems that allow them to understand at a [bill of materials] or supplier tier x level to pinpoint actions that need to be taken, so they can focus their limited resources [on] fixing specific items to keep the business moving and generating revenue.” 

Related:Supply Chain Leaders Turn to GenAI

One of the biggest hurdles organizations face is being too reliant on archaic ERP systems that can no longer run supply chains efficiently.  

“ERPs are archaic in nature and though they are transactional, there are too many layers to get to where the real transaction is happening, and they los[e] too much context [about] what is really happening,” says Petrucci. “We are just starting to rethink supply chains and how to best measure risk, and how and where to focus on the true challenges versus trying to boil the ocean every time.” 

Organizations are also using risk management software that includes Monte Carlo simulation capabilities to understand the probability and likely outcomes of various risk scenarios, so they can plan for them. 

Who’s Responsible for Supply Chain Resilience and Effectiveness?

Supply chain management is a team sport, with several titles involved. Petrucci says historically, that would have been the Chief Procurement Officer (CPO), the Chief Supply Chain Officer or even the COO, but there has been an increasing focus coming from CFOs, CEOs and boards because boards realize the impact the supply chain can have not just on the bottom line with items like working capital and inventory, but also the top line from a revenue assurance standpoint.  

“While the VP of Supply Chain Management shoulders the ultimate responsibility for identifying supply chain risks, a successful approach requires a collaborative effort,” says Mahesh Rajasekharen, president & CEO of ecosystem integration software company Cleo in an email interview. “The Supply Chain Risk Manager plays a crucial role by leading a cross-functional team and utilizing a risk management framework to proactively assess and manage potential disruptions. Additionally, key stakeholders from other departments contribute valuable expertise. The CFO provides insights into potential financial risks, while the CIO offers a critical perspective on cybersecurity threats, the resilience of IT systems and automation processes. Through this collaborative approach, the team can gain a more comprehensive understanding of potential supply chain risks and develop effective mitigation strategies.” 

Meanwhile, the CPO role is evolving. 

“Today, CPOs and their teams play a highly strategic role; it’s not just about tactical engagement for obtaining goods or services. CPOs leverage their skills in engaging and managing a large supply base and have translated these skills into supporting risk management programs,” says Jarrod McAdoo, director of product marketing at procurement, spend and supplier management software provider Ivalua, in an email interview. “This is one of the several areas where procurement can add value from increasing operational efficiency to ensuring compliance with fast-changing regulations.” 

Where Supply Chain Management Is Headed 

Current events seem to indicate that supply chain resilience is something companies need to master, sooner rather than later. To get there, they need real-time, end-to-end visibility into supply chain issues and the ability to proactively plan for various types of supply chain risks. 

“We have discussed the next best action for decades in our supply chains and operations, but realistically, we have never had the flexibility in our process and systems to enable that,” says Protiviti’s Petrucci. “As the world is adopting cloud and more cloud-native design and thinking it will enable us to move close to breaking away from the traditional systems and design more capable supply chain risk, execution, and next best action capabilities. We have started to enable our customers in moving in this direction.” 

Supply chain strategies are also expected to shift. 

“The increasing risk of being tied to one region is now at the highest level ever, and I believe we’ll continue to see a shift in supplier sourcing strategies, with the pendulum swinging towards regional diversification,” says Fictiv’s Evans. “Regional optionality continues to be top of mind for supply chain leaders based on geopolitical uncertainties and the need to mitigate risk where possible. Poignant recent examples include the attacks on container ships in the Red Sea, and looming trade wars. Without a diverse supply chain, you lose a significant advantage and are really at the mercy of a single location.” 

He also says more companies will move toward globally connected digital manufacturing networks and away from static single-source supply chains. 

“They’ll continue to invest in new regions to achieve their goals, reduce risks and cost, as well as embrace AI,” says Evans. “I think all of these factors will help solve manufacturing’s biggest challenges.” 

While AI and ML are helping to transform supply chain risk management, organizations still face some challenges according to Ivalua’s McAdoo. These include a massive amount of data that is available to be integrated with other data sources to realize the value of predictive features. Another is the transformation from highly manual supply chain processes to highly technical processes that require a different set of skills, shaping how the next generation of supply chain personnel is trained.