The Point by Buyers Meeting Point
Book Review: Supply Chain Risk
Supply Chain Risk, by John Manners-Bell, provides a structured look at risk by establishing a series of intersecting dimensions. First the author outlines external risk categories: Environmental, Economic, Societal, Security, and Technological. Each has several sub categories that provide additional detail and clarity. Then he delves into a number of industry sectors to consider their resiliency factors and concerns: Automotive, High tech, Consumer goods/retail, Food, Fashion, and Pharma/healthcare.
The coverage from both perspectives is equally detailed and illustrated with numerous case studies. In their intersection, for instance where Economic risks intersect with the Automotive industry, any supply chain professional will find the information they need to quickly come up to speed on key areas of concern as well as strategies for assessment and mitigation.
The most interesting part of the book in my opinion is the Introduction. In three brief but compelling pages, Manners-Bell not only makes the case for the connection between successful management of risk and sustained corporate competitive advantage, he explains some of the misperceptions associated with risk’s seeming growth as a concern. These pages are particularly enlightening for readers with a procurement perspective, as they focus on the identification and reallocation of costs.
By outsourcing increasing amounts of internal production to suppliers, companies reduce their direct costs, but at a price. Manners-Bell points out that while companies do not necessarily create additional risk by outsourcing, they make it harder to monitor existing risks. These risks, that they used to have direct control over and clear insight into, become harder to monitor and anticipate. “What they have done is to transform measurable ‘internal’ risks into more difficult to measure ‘external’ ones” (p. 1). Some outsourcing decisions introduce risk through response delays, regions of geopolitical instability, or longer supply chains. In many cases, however, the same risks are simply moved behind the veil of another company’s operation.
The translation of this principle into costs has to do with the mindset of the executives tasks with oversight of the spend in question. “The vulnerability of supply chains has been exacerbated over the last 30 years by strategies aimed at keeping labour and inventory costs to a minimum” (p. 1). As procurement professionals, we are the ones who carried out this exacerbation – albeit unintentionally. We did exactly what we were supposed to do, but a longer term view on the strategy reveals valid concerns.
Many procurement organizations are already trying to bring their objectives into better alignment with the goals of the rest of the organization. This means winning over executive teams struggling to see procurement as effectual beyond negotiating savings and managing contracts. In many cases, the fact that we carried out risk-related initiatives such as supply base consolidation, outsourcing, and offshoring means that we are also the best positioned to strengthen the supply chain’s weak points.
Fortunately, Supply Chain Risk does not focus on the elimination of risk so much as it outlines how to build resiliency. Building is always better received by corporate leaders than elimination, not only because it is a more positive message, but because the corporate desire to fuel its own growth is never ending. If we accept the premise that risk can not be avoided, but can be weighed, considered, and balanced as part of the overall corporate strategy, it becomes an opportunity for competitive advantage and differentiation. This book will assist procurement and supply chain professionals as they make that argument internally and then carry out the resulting plan.