SUPPLY CHAIN MOVEMENT, No.40, Q1 2021


fifth had identified a pandemic as a pos- sible risk but had not drawn up a plan of action for it. Only 8% were somewhat prepared for the virus outbreak. Based on the responses, the researchers calculated the maturity of the companies’ supply chain risk management. Organi- zations that had created a stand-alone role scored 3.4 on a scale of 1 to 5. Com- panies without such a role scored 3.0. A score of 5 represents a broad-based, well-coordinated, structural approach to supply chain risk management, but only a handful of companies came close to that maximum score. “Many compa- nies do some degree of risk analysis, but it is fragmented across different depart- ments. All sorts of things happen, but there is often no coordination between them,” says researcher Carsten Knauer, Logistics Section Leader at BME. Fel- low researcher Michael Huth, Professor of Supply Chain Management at Fulda University of Applied Sciences, finds this surprising: “In our personal lives we cover ourselves against all possible risks, with insurance for almost everything. But in business we don’t think about it,


or at least not in the same structured way as we do at home.”


Why change?


The two researchers cite several reasons for the lack of a structured approach, including the persistent belief among senior executives that the costs of sup- ply chain risk management outweigh the benefits. “Another thing that doesn’t help is the strong focus on eliminating waste. If someone says that the company needs to build additional safety stock or con- tract a second supplier, that clashes with the lean principles,” states Knauer. In addition, a lengthy absence of dis- ruptions can lull companies into a false sense of security. “Why should they change anything if they haven’t had any substantial problems in the last ten years? They’re doing fine, right?” explains Huth. Another


thing that


doesn’t help, according to him, is the fact that supply chain professionals have excellent fire-fighting skills; they repeat- edly manage to find a solution to every operational problem. “They keep the operation up and running. The solution


TOOL ENABLED AGCO TO LIMIT THE PANDEMIC’S IMPACT 38


Many businesses have made grateful use of innovative solutions provided by young tech companies during the pandemic, with solutions for supply chain visibility and supply chain risk management being particularly popular. One such customer was Agco, which produces tractors and agricultural machinery at 41 loca- tions around the world. Using Riskmethods’ tool, Agco was able to predict the Italian lock- down seven days before it happened. This was crucial information, as Agco had 184 suppliers in hard-hit northern Italy. In an interview with research firm ARC, Agco says it used the extra time to get supplies out of the area. As a sup- plier to the agricultural sector, it also managed to obtain the designation of ‘essential company’ so that its own three facilities in Italy plus those of its key suppliers could remain open. While many other companies in Italy were forced to shut down, those suppliers continued to oper- ate for a further two weeks. Agco took the same approach in other regions, which helped to limit the impact of the pandemic on its supply


chain. According to Riskmethods, this is a good example of turning a risk into an opportunity; being able to deliver longer than its competitors gave Agco an opportunity to increase its market share. Agco’s success is the result of conscious choices. When the company decided to cen- tralize global purchasing in 2004, supply chain risk management was given an important place in it. The purchasers were evaluated on not only cost savings, but also on the risks associ- ated with their purchasing decisions. This led to a balanced mix of flexible, agile suppliers from the region and cheaper suppliers from more distant, low-wage countries. Or as Greg Toornman, Vice President of Global Materials, Logistics & Demand Planning at Agco said in the ARC interview: “Suppose something goes wrong. What’s the cost of putting it right? It’s hard to teach people that. Everyone likes to plan as if the glass is completely full. But the glass is always only half full or three-quarters full, never completely.”


might not always be efficient or effective, but the senior executives don’t see that – they only see the end result and conclude that it’s not necessary to pay more atten- tion to supply chain risk management.” The big question is whether companies now regard supply chain risk manage- ment as a priority. Knauer sees opportu- nities: “Everyone – even the consumer – has experienced the pandemic’s impact on the supply chain. It’s now up to pro- curement and supply chain professionals to keep fuelling the discussion about this until the topic makes it onto boardroom agendas.” Huth is somewhat less optimistic. “Look at major disruptions in the past, such as the nuclear disaster in Fukushima or the flood in Thailand, which affected entire supply chains. We’ve had plenty of reasons to set up an effective approach to supply chain risk management. Of course we’re seeing some improvement now, but it’s still not enough.”


Business case


But things are changing, according to the new generation of tech companies such as Riskmethods, Sixfold and Pre- wave. The interest in their supply chain visibility and risk management solutions has grown exponentially over the past year. “The right tools are available now, unlike in the days of Fukushima and Thailand. Back then, companies were aware of the vulnerability of their supply chains but didn’t have the technologically advanced, easily applicable and scalable solutions to do anything about it. Until recently, supply chain visibility involved lots of emails and even more phone calls. Nowadays, dashboards provide at- a-glance overviews,” says Harald Nitsch- inger, founder and CEO of Prewave. Before the crisis, conversations with potential customers often revolved around the business case, says Wolfgang Wörner, co-founder and CEO of Sixfold. “Previously, in order to get companies to agree to the investment, we had to organize visits to existing customers or pilot projects to demonstrate what sav- ings our technology could achieve. Since the pandemic, however, everyone clearly understands the added value of real-time visibility.”


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