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Managing risk set to dominate supply chains for foreseable future

Managing risk is likely to be the major topic of the supply chain industry in the 21st century and companies should be shaping network designs based on when disruption occurs, not if…
That's the view of Fraser Ironside, Global Business Development Director of software developers and consultants Barloworld Optimus.

He said his views were 'soundly confirmed' at the recent events that he attended, representing some of the world's biggest commercial names were asked what they considered to be the greatest threats to business in the foreseeable future and what factors they are least equipped to handle.

'Supplier failure' emerged as the supply chain professionals' greatest fear, with corporations most vulnerable to the knock-on effects of natural disasters and the geo-political state of the world.

Almost half the delegates at the key trade show pinpointed China as the region posing the greatest degree of risk – accounting for more supply chain jitters than Eastern Europe and India combined.
According to Fraser Ironside, the response indicates that risk management is likely to dominate supply chain thinking over the next few years, and that the only way to counter supply chain risk is in having a resilient and responsive supply chain underpinned by an effective risk management strategy.
He said this week that the delegates' response came as 'no surprise at all…'

“Globalisation and expansion into low-cost countries have made supply chains inherently unstable for a number of reasons and most supply chains today are characterised by great distance, poor visibility and increasingly complex communication issues, with time-zone differences, language barriers, longer lead-times, and shorter product life-cycles all thrown in to keep supply chain professionals constantly on their toes.

“At the same time, we're hearing about more and more natural disasters – seemingly freak weather conditions, earthquakes, tsunamis and other eco-situations – with oil prices, the credit crunch, Stock Market corrections, terror attacks, labour relations, Government policies and on-going legislation surrounding carbon emissions also lining-up as pitfalls waiting to happen.

“As a result, there are very few certainties left in supply chain logistics. The only ones you can count on are that disruption is likely to happen, and that when – rather than if – it does, it will be beyond your control and several thousand miles away”.
He says that companies employing early warning and detection systems will be the first to recover from any disruption, because the sooner they know about it, the sooner they can fix it…

“Those that have planned recovery procedures will recover fastest and minimise the impact of a disruption, and those that learn from the event and redesign their supply chains to make them more defensive against disruption will be more resilient” he said.

Software, he said, holds the key and that as the element of risk grows 'almost daily', developers including Barloworld Optimus have been directing more energy and resources into risk management technology – adding that the company's major new tool, CINO (Combined Inventory and Network Optimisation) is poised for release following several months' proving trials in South Africa and the UK.
Specifically developed to model supply chain complexities by combining the increasingly complex 'route-to-market' roadmap with the cost / risk trade-offs associated with potential sourcing, replenishment and inventory solutions at both strategic and tactical levels, CINO primarily ensures that supply chain service targets are achieved at the optimal cost within the various constraints of the network.

The software- a hugely-effective combination of many of the most powerful features already included in the firm's world-beating CAST and Optimiza software tools – also allows users to gauge the impacts of decisions and future events on supply chains.

“Risk and its management is the next 'Big Thing' in network design for the simple reason that ours has become a world characterised by infinite variability in place of stability and order, and scenario modelling – in short, predicting the results of any potential disruption whether geo-politic, natural or man-made – is the first line of defence” he said.
According to Fraser Ironside – who this month hosted a live weblink to the US supply chain industry – although software tools cannot easily assess unforeseen risk, they can model the effects if asked to, and one of the prime in-built features of CINO is the ability to build and compare complete 'what if?' scenarios.

Highlighting the Nokia-Philips-Ericsson episode when a 10-minute, seemingly petty fire in a manufacturing plant escalated all the way up the supply chain to result in a staggering $1.68billion loss in Ericsson's mobile phone division, he said that one of the biggest failings by companies is being 'blinded by business as usual'…

“What that amounts to is that you're going to end up unprepared for the journey ahead. Understanding the risk in the supply chain and the costs of buffering for that risk to protect service levels will add the missing dynamic to your supply chain to give you competitive advantage” he said.

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