SUPPLY CHAIN MOVEMENT, No.40, Q1 2021
News & background
MANY COMPANI ES DO NOT HAVE AN EFFECTIVE APPROACH TO SCRM EVEN RISKS LIKE COVID-19 can be foreseen
Supply chain risk and resilience is a topic that needs urgent attention. However, many companies do not have an effective approach to supply chain risk management (SCRM), according to a recent study by Fulda University of Applied Sciences in con- junction with the German supply chain association BME. So what can be learned from this research? And where should you start if you don’t want something as ‘unpredictable’ as coronavirus to take you by surprise again in the future?
By Mirjam Hulsebos
The disaster at the Fukushima nuclear power plant in 2011 caused supply chain disruption worldwide, mainly among second and third-tier suppliers. One might expect companies to have learned from that and to have improved their view of what is happening further upstream in the chain – but unfor- tunately they haven’t, as the first wave of the coronavirus pan- demic illustrated all too clearly. This picture is confirmed by the SCRM research conducted by Fulda University of Applied Sciences and BME. It reveals that, although companies are investing in tooling and processes, they are still failing to pay sufficient attention to aspects such as culture and organization. Since these aspects play a key role in the optimal use of the pro- cesses and tooling, the results of their SCRM activities remain sub-optimal.
Not a black swan
Prof. Dr. Michael Huth from Germany’s Fulda University of Applied Sciences was involved in the study, which was con- ducted in May and June 2020 among 214 companies in Ger- many and Austria. Speaking during a recent webinar organ- ized by Supply Chain Media, he kicked off with an observation: “Many people think that COVID-19 was a black swan event, but nothing could be further from the truth. In our professional cir- cle, there were already warnings about a worldwide pandemic as long ago as 2012 including a very detailed description of how such a pandemic would impact on global supply chains. All this knowledge was available publicly, so any companies that say the pandemic caught them off guard simply didn’t do their home- work.”
Lack of insight 6
The SCRM survey was held during the period when most organizations were assessing the damage caused by the first wave of the pandemic. It shows that in most companies the purchasing and logistics departments are the ones most likely to think about supply chain risks, and only 20% of organiza- tions have an independent SCRM function. In 80% of organi- zations, it is “a secondary task” for buyers and logistics pro- fessionals. This is mainly due to two reasons: the fact that the subject has not been top of mind among senior executives, and that companies associate risk mitigation with additional costs
Prof. Dr. Michael Huth from Ger- many’s Fulda Uni- versity of Applied Sciences: “Many people think that COVID-19 was a black swan event, but nothing could be further from the truth.”
which conflicts with their substantial investments in a lean approach. According to the respondents, 40% of them look beyond their first-tier suppliers when assessing supply chain risks. “But in practice this probably means that 40% will look at the second tier when sourcing some goods, but by no means for all prod- ucts,” clarified Huth. “Moreover, most companies have no idea what goes on even deeper in the chain, at the third and fourth- tier level.” Huth and his colleagues also researched the companies’ sup- ply chain maturity in terms of four different aspects: culture, organization, process and methods. “The first two are much harder to achieve than the last two, but they are the prerequi- sites,” commented Huth. Therefore, it is somewhat concerning that the companies score much higher on processes and meth- ods than on culture and organization. “It’s not just about set- ting up a process or purchasing tooling. What matters is that SCRM becomes part of your culture, that you make people responsible for it and that those people also have far-reaching decision-making power. As long as that doesn’t happen, noth- ing will change at the core and companies will continue to focus on short-term costs instead of long-term profit.”
Assessing the risks
Although it is too costly to mitigate every conceivable risk in advance, it is wise to identify all the risks – both upstream and downstream – and calculate their impact. You can further mini- mize the chance of a disruption in your supply chain by also ensuring that you are alerted to those risks you choose not to mitigate at the slightest indication that they might occur.
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