Avnet Advocates Multi-Echelon Supply Chain Risk Management Approach

Regardless of size, industry or market, modern for-profit businesses typically share two common characteristics: a goal of providing superior and consistent customer service while increasing revenue and margin; and a heavy reliance on their supply chains to meet this performance benchmark. This is why it is crucial for today’s supply chain professionals to support and protect this competitive asset with a proactive multi-tier supply chain risk management program.

Risk is inherent in every supply chain—a supplier fails to deliver according to contract, forecasts miss the mark, customers change their minds—these are just a few of the basic risks businesses deal with every day. Now, add hurdles that arise from globalization, outsourcing and emerging markets—such as economic, geo-political, regulatory, environmental, quality and reliability, demand volatility and increased threat of natural disaster. What you have is an extraordinarily complex supply chain that could easily break under all the pressure. But, a best-in-class risk management approach can enable even the most complicated supply chains to not just survive, but thrive, amid the many perils of global business today.

Define & map your strategy

Establishing a baseline definition of risk management is a good first step in the development of your supply chain risk strategy. According to the ISO 31000 standard, risk management is the identification, assessment and prioritization of risks. A risk management plan is then designed to control exposure to risk or reduce its negative impact on supply chain performance.

While there is no one-size-fits-all supply chain risk management strategy, Avnet recommends that our partners follow the same five-step process we use internally: identify, analyze, plan, act and track/control (see infobox for details).

Since the supply chain is intrinsically collaborative, the process of identifying, assessing and prioritizing risks within the supply chain should, ideally, also be collaborative. When players—from a raw materials supplier to an end-product/service provider—actively manage the vulnerabilities within their particular portion of the ecosystem, supply chain risk can be significantly mitigated. When they don’t, a relatively minor disruption can easily turn into a major crisis.

Communication and transparency of information among trading partners is key to this collaboration. Yet, despite increased cooperation among supply chain participants, visibility, particularly beyond Tier I suppliers, remains the most common barrier to creating an effective multi-echelon supply chain risk program.

A time for change

To change that within the electronics supply chain, Avnet created a new “Control Tower” offering. Part of Avnet’s Enterprise Risk Management strategy, the Control Tower is led by Chief Logistics and Operations Officer (and SDCE 2012 Pro to Know) Gerry Fay to provide visibility through multiple tiers of the supply chain—both upstream and downstream.

As a distributor, Avnet has the advantage of being uniquely connected to the full scope of participants within the supply chain—from our component suppliers’ suppliers to the various manufacturing and integration providers that may come into play throughout the production process to our eventual customer, the OEM. Douglas Kent, Vice President, Avnet Velocity, pointed out that the function of Control Tower is to serve as a collaborative execution-based hub for all the supply and demand data Avnet collects from these different players. Members of Avnet’s extended supply chain can access this information and use it in the event of a supply chain disruption to quickly assess the situation with visibility into the status of each player within that supply network. Examples of the kind of information that can be found through Control Tower include demand forecasts; channel inventory; SKU level sell-out; WIP inventory; shipping data; and purchase orders.

With visibility into the array of potential risks resident within your supply chain, you must then determine which will be addressed. Not all risks are created equally and each company’s strengths and vulnerabilities will determine which risks are significant enough to warrant investment in proactive mitigation. One method for evaluating each risk factor is the “Value at Risk” (VAR) metric from the Supply Chain Council. This metric enables users to calculate the probability of an event and multiply it by the expected monetary impact of the event (i.e., if this happens, what does it mean for my organization?). This data allows companies to determine the most effective allocation of resources based on a methodical ROI assessment.

Once you’ve prioritized potential risks, the next step is to choose an appropriate risk response: acceptance, avoidance, transference or mitigation. Assign risk “owners”—individuals responsible for managing the assigned plan—and set your plans in motion.

The final, and potentially most critical, aspect of your risk management plan is the tracking/control phase. A “set it and forget it” approach won’t work. Risks are not static—they must be managed in accordance with the ever-changing dynamics of the global supply chain. A commitment to continuous improvement is a must. Regular audits assure your time and resources are well spent.

Risk management is not an option. In today’s global business environment, supply chain risk management can no longer be perceived as an optional or expendable part of a corporate strategy. The stakes are too high and the risks are too prevalent to leave to chance. Without a calculated strategy to mitigate supply chain threats, companies run a higher risk of being challenged with lower revenues, higher costs, poor asset utilization and loss of reputation and credibility.

Those companies that take the time to “prepare for the worst” and develop robust processes that are sufficiently flexible to meet unexpected challenges can not only diminish the downside impact of the inevitable supply chain disruption, but also capitalize on their competitions’ lack of planning to create a significant competitive edge.

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