Counter Disruption In Supply Chain With Strategic Collaboration

The rate and also the impact of disruption is increasing in all ways.  It seems this year has been a watershed event from a disruption perspective and the current waves of disruption are continuing with new disruptions created as response to the previous disruptions.  This is an important factor in developing a response to disruption; you must continuously evaluate, develop and respond in order to survive.  This is not, and cannot be, viewed as a stand alone effort because the disruption is across the market.  This requires a collaborative approach from the market as well and this requires strong partnerships across the network.  You cannot hope to successfully react and respond to every disruption that comes along and you cannot hope to successfully sense every disruption in time to develop a successful response.

I suggest the solution is to incorporate your collaborative partners in a type of ‘disruption games’ strategic exercise that brings you together to review scenarios and market conditions in a collaborative manner to identify and deliver a strategic response that supports the partners and the market. This is a major factor in the review and update of your supply chain strategy.   It seems to me that a key challenge that hinders the success of the strategic response is that when you only view your internal impact and response you do not necessarily see the market level impact of the disruption and then the individual response to the disruption.  As we have seen highlighted to the ‘Nth’ degree this year a disruption can create new disruption based on the response, and most importantly, a potential disruption can be eliminated more effectively if the disruption is identified early and the response is collaborative across the market.

This highlights the importance of a strategic collaborative practice that brings your extended supply chain together to share risk and develop cohesive market strategic responses that most effectively respond to the disruption.  This builds on the current business continuity practice to discuss and plan for market continuity.  As a result of market globalization and the number and type of partners in the supply chain required to support this global market, it is no longer enough to develop a business continuity plan.  We must collaborate across our extended supply chain partners to develop a market continuity plan that takes into account the business risks identified by each partner.  The outcome of this market continuity plan is a cohesive response plan that improves the ability of the supply chain to sense disruption early and then respond in a cohesive and collaborative market based approach.

This collaborative market approach will reduce the risk of unintended disruption and further impact across the supply chain because the market continuity plan already takes into account the potential impact across the extended partners and then provides the strategy and plan to react to the disruption to limit the impact across the market.  I strongly believe there is no other way to succeed in this global market during the extreme disruptions we are experiencing.   

Tom Brouillette

Contact: tbrouillette@ncspartners.com

@ncspartners

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Tom Brouillette discusses supply chain trends and provides strategic business & technology advice to his followers and companies.

Risk Scenario Analysis

Risk scenario analysis requires imagination and most importantly collaborative brainstorming in order to identify all risks, even and especially risks that today seem outlandish. As an example, I would have never considered Amazon stopping non-essential product shipments but this is exactly what was enacted as a response to this pandemic. One of the consequences of this action has been a significant impact on small businesses that utilize Amazon for their warehouse and order filling support. This in-tern impacted the success of a great deal of small businesses that were dependant on the Amazon fulfillment services which impacted the livelihood of many employees along with the success of the small business. This then fed into the overall economic impact from the pandemic. This is a great example of the relationships and overall impact of seemingly unrelated decisions on a wide range of people and businesses.

The above example is the key reason why it is so important to perform robust risk scenario analysis. In the example above the impacted businesses now must evaluate the risk of the fulfillment disruption and how they can react to this disruption to support their business. Business must develop a strategic risk management process that views scenarios for any and all risk to the business. Starting in the beginning of this yea the waves of disruption experienced to date have shown that you cannot eliminate a risk because it will never happen. We have gone through a series of disruptions that previously were simply unimaginable as a real risk and so there were no response strategies developed.

The first step is to identify and fully document the risk scenario. This means that the risk scenario must not only identify the potential risk, it must also identify the potential impact to the market and also the business. The definition of the risk is not complete though until you have identified and documented how to sense the risk so that you can execute your planned response. This means that you should identify and document 'outlandish' risks as well as generally accepted risks. The outlandish risk may never materialize however it is important to call out the scenario so that you can take steps to minimize the potential as well as prepare for the realization of the risk.

This is an important point - one of the objectives of the strategic risk analysis and a key outcome are steps that can be taken that will minimize the potential for the risk. This is a concept that needs to become a focus of every risk mitigation strategy because the best way to react to a risk is to eliminate the cause of the risk. Simply defining the risk and the potential impact to the market in general and your business specifically will help to identify how to sense the risk. This exercise of risk identification and early recognition will provide the framework to define the steps necessary to eliminate the risk from occurring.

Risk scenario analysis and mitigation has always been an important aspect of project planning and management. We must institute this same practice now in the supply chain management and business continuity process. As a result of the rate and impact of disruption hitting the market and businesses we must recognize that risk analysis can no longer be viewed as an inward facing exercise. As a result of the disruptions hitting this year we must finally recognize that business continuity must be and outward facing strategy that recognizes early the factors developing of the disruption and takes steps to mitigate and avert major impact.

Tom Brouillette

Contact: tbrouillette@ncspartners.com

@ncspartners

Strategic Risk Management To Counter VUCA

Hope For The Best And Plan For The Worst should be a consistent and shared mantra for all businesses as a means to focus on strategic risk management. The importance of this has increased to the highest level as a result of the COVID-19 pandemic and the activities to both recover and prepare for the next disruption. This requires a significant investment in strategic risk mitigation definition and development and must include partner risk management in the scenario development and risk mitigation strategy. This includes all partners and integrations in the extended supply chain. The weakest link in the supply chain will continuously change depending on the type of disruption and your strategic risk scenarios must be developed to define a response for all scenarios.

One critical activity, or requirement, is implementing a regular risk scenario review process that evaluates the likelihood of scenarios and most importantly, new scenarios. As we have seen from the many disruptions experienced so far this year risk scenarios and potential changes continuously with new risks rising and other risks declining and disappearing. You will never in a million years be able to identify all risks, and the point is that a regular review process provides the means to review so that you can add and remove scenarios as necessary.

The next activity is developing and implementing the appropriate data analytics capabilities that will support the ability to sense the reactions to disruptions and most importantly, the reaction to combinations of disruptions. The risk scenarios must identify the reactions to combinations of disruptions and then you must have a means to measure the responses. This is where data analytics comes into play, along with a healthy helping of imagination. Different disruptions and combinations of disruptions will cause different reactions in the supply chain and these reactions must be identified quickly in order to determine the appropriate response. The risk scenario identification and evaluation is important but it is based on assumptions and personal viewpoints of the team that developed the scenarios. Data analytics brings the facts to the table to help to determine the appropriate response.

The glue that connects these processes and activities is imagination. Risk scenarios require imagination to create, risk response exercises require imagination to develop, data analytics requires imagination to develop the queries and identify the appropriate data and source to identify the reaction to the disruption and then to validate the effectiveness of the response. As you can imagine, this is not a ‘once-and-done’ exercise. This requires continuous review and evaluation in order to grow and evolve with the market and the supply chain. Each disruption and reaction to the disruption creates a new reality stream that changes scenarios and potential for disruption and it is important to continuously evaluate and develop new scenarios.

Data analytics is a very nebulous practice that requires continuous experimentation and evaluation to validate assumptions. The data analytics initially produces the outcome reaction to disruption and combinations. This is only the start, however, because after identification of the outcome you must then try to trace back the results through the responses and combination of responses if you want to tie them back to a particular disruption. I’m not sure that it is critical to tie everything back to a specific disruption though. The point of this whole exercise is to identify a reaction to mitigate the specific business disruption that has occurred and this should be the initial focus. After the mitigation exercise you will need to go back and evaluate the actions that resulted in the disruption on another day.

Tom Brouillette

Contact: tbrouillette@ncspartners.com

@ncspartners