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Risk management, the next big thing

Companies should be shaping network designs to make their supply chains risk-proof amid volatile financial and environmental conditions, logistics provider Lexian has argued.

Business development director of Lexian Solutions Greg Webster said managing risk was likely to be the key topic of the supply chain industry in the coming years, with major international businesses identifying supplier failure as the industry’s biggest fear.

Mr Webster said the supply chain sector was most vulnerable to the knock-on effects of natural disasters and the geo-political conditions, and the only way to counter supply chain risk was to implement a responsive risk management strategy.

“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, with oil prices, the credit crunch…and an on-going legislation surrounding carbon emissions also lining up as pitfalls waiting to happen,” he said.

“There are very few certainties left in supply chain logistics. The only ones you can count on are that disruption is likely to happen, ad that when, rather than if, it does, if will be beyond your control and several thousand miles away.”

He said the clear example was the NokiaPhilipsEricsson 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 $1.68 billion loss in Ericsson’s mobile phone division. 

He said only the companies with recovery procedures in place would be able to remain resilient and minimise the impact of a disruption.

According to Mr Webster, software such as Barloworld Optimus’ new risk management tool, CINO (Combined Inventory and Network Optimisation) would help businesses better respond to shifting landscapes.

The technology, to be released following several months’ trials in South Africa and the UK, enables to model supply chain complexities by combining the route-to-market roadmap with the cost/risk trade-offs.

“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.

“One of the biggest failings by companies is being blinded by business as usual. Predicting the results of any potential disruption, whether geo-politic, natural or man-made, is the first line of defence,” Mr Webster said.

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