Unknown Unknowns

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Andrew K. Reese, Editor, Supply & Demand Chain ExecutiveThe economic downturn has driven a great deal of handwringing in the supply chain community about risk management. Much of the debate has been around whether supply chain executives should be spending more time proactively scrutinizing their suppliers to identify "at risk" vendors, or proactively putting in place back-up plans in the event of a supplier failure. The consensus, of course, is that supply managers ought to be spending ample time doing both.

One danger, however, in concentrating too much effort on the "now" is that supply chain executives might not be prepared for the "next." "The current recession has seen many companies scaling back on facilities and staffing for production or warehousing/distribution to a point that it will be difficult for them to scale up to meet demand when the economy rebounds — making this one of the greatest risks facing the supply chain today," notes Mark Humphlett, director for supply chain solutions marketing with Infor (www.infor.com). Humphlett believes that companies need to understand that risk management is pervasive and, just like quality management, needs to be built into daily practices — examining how fluctuations within the supply chain affect production, customer service levels and, ultimately, the bottom line.

Another danger is that by focusing on the "known unknowns" in front of them, supply chain executives might miss the "unknown unknowns" coming at them from behind. Rory King, an executive with IHS (www.ihs.com), likens it to drivers who worry about the highway patrol officer with a radar gun behind the billboard along the side of the freeway. While a speeding ticket is no doubt an inconvenience, the real threat to life and limb is the reckless driver coming up from behind and swerving into your lane, says King, who is my co-author on the report "Supply Chain Readiness for EU REACH and Global Material Regulations" in this issue.

The looming danger, in this case, is the potential for supply disruptions as the effects of environmental legislation begin to ripple throughout the supply chain. Based on our research, many companies have yet to recognize the significant impact that these regulations will have on their continuity of supply. As a result, they are leaving themselves open to being blindsided as engineers are forced to redesign old products to incorporate new materials, as suppliers "end of life" components that no longer have a large enough market, or as companies are compelled to realign their entire supply networks around new carbon tax and trade costs — to list just a few of the potential impacts.

Call to Action: We'll be continuing our look at supply chain risk in subsequent issues of Supply & Demand Chain Executive, so write me at areese@sdcexec.com to let me know what you view as the greatest risks to your supply chain, how you are responding to those risks, and where you see the greatest danger from "unknown unknowns" in your supply networks. Your feedback will help shape our coverage of this topic. I'll look forward to hearing from you.

— Andrew K. Reese
Editor, Supply & Demand Chain Executive