{"id":14790,"date":"2022-08-23T09:50:33","date_gmt":"2022-08-23T07:50:33","guid":{"rendered":"https:\/\/eyeonplanning.com\/?p=14790"},"modified":"2024-01-18T09:52:39","modified_gmt":"2024-01-18T08:52:39","slug":"a-different-perspective-on-supply-chain-risk-management","status":"publish","type":"post","link":"https:\/\/eyeonplanning.com\/blog\/a-different-perspective-on-supply-chain-risk-management\/","title":{"rendered":"A different perspective on supply chain risk management"},"content":{"rendered":"

An article by Ieke le Blanc<\/p>\n

\u201cFixing a hole where the rain gets in\u201d<\/h3>\n

\u201cFixing a Hole Where the Rain Gets In \u201c is a song by the Beatles from 1967. Today’s supply chain managers might know this feeling all too well. Risks are everywhere, which supply chain risks to manage before something goes wrong, and the rain gets in, is the key question.<\/p>\n

\"SupplyRecent supply chain disruptions caused by the COVID-19 pandemic or the current war in Ukraine prove how easily supply chains can be disrupted and indicate the inability of many businesses to react rapidly to unforeseen changes in demand or supply. The tension between China versus Taiwan \/ the US is another example: We should not underestimate possible implications. Next to the vulnerabilities related to the semiconductor industry, the Taiwan Strait is a key route for ships passing from China, Japan, South Korea, and Taiwan to points west; according to Bloomberg<\/a>, 88% of the world\u2019s largest ships passed through the waterway this year.<\/p>\n

With reduced gas supply from Russia and the current labor and raw material shortages, it doesn’t look like we are going back to \u2018normal\u2019 anytime soon. Rethinking supply chains for resilience is not optional anymore. It has become a mandatory duty for the supply chain professional and business leader.<\/p>\n

Conventional supply chain risk management assessments don\u2019t work!<\/h3>\n

\"riskConventional supply chain risk management assessments typically follow a three-step approach:<\/p>\n

    \n
  1. Brainstorming possible risk events<\/li>\n
  2. Assessing the probability of risk events<\/li>\n
  3. Determining possible mitigation actions<\/li>\n<\/ol>\n

    Brainstorming might be a \u2018fun\u2019 activity, but how well have we been able to come up with the multiple crises we currently face in the world? Humans have been notoriously bad at estimating probabilities too.<\/p>\n

    Having recognized the above weakness, companies should stop thinking about risk events, and focus on the importance of the individual links in their supply chains. An approach already taken, for example, to manage supplier risks. It often starts with making an ABC analysis based on yearly spending. Using the Pareto principle: 80% of the spend is with 20% of the suppliers (A). For these most important suppliers or components, strategic buffers are created and alternative suppliers are contracted. However, the approach is prone to fail.<\/p>\n

    Even the tiniest missing chip or screw, can stop an entire factory with a knock-on effect through multiple chains. The availability of materials we have taken for granted has become scarce and disruptive.<\/p>\n

    The solution: time-to-recovery and time-to-survival analysis<\/h3>\n

    Back in 2014, Simchi-Levi et al. published an article describing a different approach, by making use of mathematical modeling techniques. This approach identifies supply chain dependencies and bottlenecks by removing a \u2019node\u2019 from the network and determining the impact on performance metrics compared to the baseline. A node can be a supplier, a factory, a production line, or a warehouse, but also more granular, to the level of a bill-of-material item. Key elements in the approach by Simchi-Levi are the concepts of \u2018time to recovery\u2019 (TTR) and \u2018time to survival\u2019 (TTS):<\/p>\n