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Viewpoint 09


Who’s responsible for supply chain risk?


Creating a culture where risks aremapped,measured and balanced is an important step to creating a robust supply chain that is capable of serving the businesswell and protects the integrity of its corporate reputation.


G NICK ALLEN


Nick Allen is Supply Chain Standard’s contributing editor, supply chain.


iven the wide diversity of supply chain risk thatmost companies are exposed to,


shouldn’t we be thinking about just who in the organisation should be responsible for keeping tabs on it? Supply chain risk exists in many


varied forms. Damage to revenue may be inflicted by transport disruptions, natural disasters, strikes, political unrest – all of whichmay interrupt supply of product to the consumer or components to the factory. For these forms of impact to the


supply chain, a logistics or materials operations management role might be considered an appropriate position tomonitor and respond to such issues. However, risk within the supply


chain exists, too, with regards the way suppliers behave and run their businesses. Non-compliance to Health and


Safety requirements, poor Corporate Social Responsibility policies, a lack of attention to quality and, in the present harsh economic conditions, a supplier’s potential to fail financially,may all impact a buying organisation’s revenue and, perhaps,most critically,may cause huge damage to corporate or brand reputation. For these issues, which arise


from a buying organisation’s relationship with its suppliers, it would appear more appropriate for someone in a procurement role to be responsible for monitoring risk. Clearly, understanding and


mitigating supply chain risk needs to be recognised as a critical activity within the business and, therefore, should be signposted as such from the most senior level - the board. Creating a culture where risks


aremapped,measured and balanced is an important step to creating a robust supply chain that is capable of serving the business well and protects the integrity of


Supply Chain Standard September 2012


Damage to revenue may be inflicted by transport disruptions, natural disasters, strikes, political unrest...


its corporate reputation. The problemformost


organisations is that risks within the supply chain often fall between different functional silos. Somemay see responsibilities residing in procurement, others perhaps, in logistics. In some organisations where


supply chain encompasses procurement and logistics a central, co-ordinated approach to supply chain risk may be possible. But in general, different departments have different responsibilities and this lack of co-ordination can introduce risk. Enlightened companies that


recognise the role their supply chain has on the performance of the business have supply chain directors on the board. Surely, this is where


responsibility for supply chain risk should ultimately reside. The issue is, we need more supply chain people at board level.


High Flyers, high stakes How should exposure to risk be apportioned in the highly complex supply chains of aircraft manufacturing? Demand for new jet airliners is


booming. The order backlog for the world’s two largestmakers of passenger aircraft, Airbus and Boeing, is reported to be more than 4,000 passenger jets on each order book, which is pushing the manufacturers to aim for an estimated 40 per cent increase in single and twin aisle passenger aircraft between now and 2015. However, gearing up


production places considerable pressure on the supply chain to perform and will, undoubtedly,


require suppliers to invest in order to meet these aims. The aircraft manufacturers are acutely aware of the weaknesses within their supply chains. Boeing suffered a three year delay to the delivery of its 787 Dreamliner due to issues within its supply chain and only last November Airbus’ parent company, EADS, announced that problems with suppliers was to push the entry into service of the A350 back to the first half of 2014. In order to strengthen their


supply chains, Boeing and Airbus are keen to see consolidation between aerostructure suppliers - and tier-two and tier-three suppliers are obvious targets for consolidation. But asking its supply base to


forge closer financial links places greater risk on those suppliers. Making such decisions will


Asking its supply base to forge closer financial links places greater risk on those suppliers.


require considerable confidence on the part of those suppliers that the aircraftmanufacturers are accurate in their estimates of future demand and will require the manufacturers to back those initiatives with greater commitment, both contractually and, perhaps, through financial incentives. Slowing growth in global


economies and a burgeoning passenger aircraft industry in China could impact confidence. Sharing the risks across the supply chain through a process of consolidation and partnerships, supported by the manufacturers, may well be the best approach to creating amore efficient and reliable supply chain for the passenger aircraft industry.


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