SCRC Meeting Themes Emphasize That Building a Supply Chain Risk Capability is a Multi-Dimensional Journey

The Supply Chain Resource Cooperative concluded its two-day meeting on the theme of “Building a Supply Chain Risk Capability”, which proved to be one of the most popular themes yet that resonated with our audience.  We have over 175 executives, students, and faculty attending the event.  We enjoyed hearing from an “All-Star” lineup of risk experts, who presented a number of different perspectives illustrating the multi-faceted nature of risk, and challenging participants on new ways of thinking about risk.

I provided an initial overview based on the work our SCRC Risk Analytics team has been engaged on this past year.  A lot of this work involved beginning to include traditional supply chain risk analyses, but utilizing new methods introduced by the Intelligence Community.  Specifically, we have been working on a risk project with a large manufacturing partner, focused on utilizing Structured Analytical Techniques to identify sources of risk, including tools such as Alternative Competing Hypotheses, Scenario Analysis, Sensemaking Diagrams, and Bayesian modeling approaches.

This was followed up by a tremendous presentation by David Shillingford from Verisk and Sung In Marshall from Maplecroft, describing the approaches they have been engaged in on risk analytics.  The Maplecroft approach emphasizes having a unified and integrated approach for measuring risks, in order to be able to connect risks and assets at risk in the supply chain.  They also pointed to the challenges of developing predictability as an element of risk management, especially around issues such as Human Rights and Societal risks.  Maplecroft is a unique product that utilizes a number of resources, including US State reports, Human Rights Watch reports, and NGO’s to develop a quantitative score for these criteria.  They are also able to drill down to the regional and industry level (e.g. NAICS code level) that provides a basis for understanding specific risk issues.  The approach also leverages the huge amount of data developed by Verisk as a partner with the insurance industry, which is updated whenever raw data is available.  Risk quantification is indeed an exciting development, but both Sung In and David pointed out that putting a dollar figure on risk is key, as the issue of “Who Owns Risk” determines ultimately the Value Proposition for putting resources behind the mitigation of supply chain risk…

The next presenter, Steve Fecho from Merck, shared insights on how Merck has developed a global Center of Excellence for supply chain risk.  Steve has recently been appointed to a newly created role tasked with looking at supply chain risk.  Merck has already established a Center of Excellence for market intelligence, and utilizes a variety of sources to develop insights into how to develop insights into supply markets across the globe.  In his new role. Steve was quick to point out that most firm’s response mechanisms aren’t prepared to deal with risks.  For instance, he pointed out that we were 3/4 of the way through the day after the Nepal earthquake, and no one in the room had received any word of the net impact of the earthquake on their supply chains, even though most people had supply chains that extended through Asia!

This was followed up the next day by a panel discussion (composed of Randy Pherson, Judith Johnston, and Stacy Kaminski).  The focus was on risk analytics, which included former analysts and intelligence officials.  The panel focused on the use of analytical methods to improve techniques of managing supply chain risk.  One of the presenters, Randy Pherson, pointed out that in his former role as an intelligence analyst, he often relied on his own judgement in reporting information, and often didn’t have the benefit of formal structured approaches.  In many cases, analysts do NOT have access to detailed data, and it is difficult thus to use detailed models.  Today, however, analysts have more structured techniques that will allow them to begin to fill the gaps, and think about problems more transparently that lay out their assumptions and observations.  Research shows that when there is input from experts on intelligence and risk studies, the result is greater than 90% accuracy, as expert judgements are able to better fill in the gaps with data.

Many of the problems supply chain risk analysts face involve what the panel called “squishy questions”….as they don’t have definitive structure.  For this reason, it is important to establish a structured framework to enable analysis of these types of questions – that determine “where things go” in a more structured manner, to ensure analysis doesn’t go “off the tracks”.  The panel also pointed out that putting things into a framework might often convert a perceived “threat” into an “opportunity”, that enables being able to get “ahead of the curve” on the problem.  This was also mentioned in an interview I conducted with Rick Hughes, former CPO of Procter & Gamble, who mentioned that “procurement can take advantage of situations where the market is going up or it is going down, but there is little we can do when it is stagnant!”