accenture new game supply chain risk management

8/13/2019 Accenture New Game Supply Chain Risk Management

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The New Game of Supply ChainRisk Management

Pursuing high performance in uncertain times



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No one knows this better thancompanies that rely on a chain ofsuppliers and service providers todeliver the goods and services theyneed to meet customer demand. That journey from source to destination hasalways had its risks and uncertainties.But never quite like this.

Changes on nearly every front havedramatically altered the dynamics

of the supply chain. Global sourcingand production, information andcommunications technology, consumerexpectations, pricing volatilityand product availability, financialconditions, regulation and compliancerules—shifts in all of these combine tomake managing the supply chain a newgame now. With new vulnerabilities.

Consider those vulnerabilities. Ascompanies source supplies and producegoods all over the globe, the extended

supply chain now has additional pointsof potential failure. And as customersraise their expectations, companies arepushed into rapid-fire product cyclesto stay ahead of consumer demands.But any disturbance in reliability andquality of supply will affect sales anderode loyalty and brand value. Forpharmaceutical companies, the issuesgo beyond customer expectations.Patient safety and product securitydemand heightened supply chainintegrity, especially as issues such as

counterfeit drugs have become anincreasing global problem.

In this world, service becomes adifferentiator. Still, outsourcingsolutions, efficient as they may be, cancompromise that. And for all players,information and communicationshave transformed the culture, makingearly dissemination of information a

competitive differentiator. Then therelooms one other major vulnerability inthe supply chain: catastrophic eventssuch as natural disasters. When theIceland volcano erupted in 2010, forinstance, Europe’s air space was shutdown by the ash for weeks, disruptingsupply chains around the world.

The combined effect of these shiftsis to make today’s supply chain not

so much a linear, one-way chain as anetwork of two-way relationships—with operational risks in everystrand. Risks at any one point havean impact on multiple other points.What happens on the raw materialsside can have a downstream effecton everything else. What happens inmanufacturing can have an upstreameffect on the business as well as adownstream effect on distribution tothe customer.

To understand and manage the risksin this new interconnected supplychain, companies need one thing aboveall: a holistic view of risk across theenterprise.

Without that overview of risks, theconsequences can be costly. Evendevastating.

They range from mild customerinconvenience to a disaster that candamage the business, even bring it to

a halt and jeopardize its continuity.Many companies have found that outthe hard way. At a plastics plant, aworker accidentally tripped a shut-offswitch causing a two-week shutdowncosting millions in lost profit. At aglobal pharmaceutical company, thelack of a well-documented supplychain for a medicine put the businessunder fire after patient deaths and

allergic reactions. A global automaker had to halt production at allits factories in one country for aweek because of earthquake-induceddamage at a major parts supplier.

Given this interrelated network of linksand nodes, supply chain managementwithout a full understanding of therisks to the enterprise is incomplete.It is no longer enough to manage

the supply chain. Only with a risk-integrated approach can a companysee the interdependencies in the supplychain and understand how making adecision in one function may affectadversely the entire organization.

There are options on how to implementthat. The risk capabilities may bestand-alone functions that drivemanagement processes includingthe supply chain; or they may beinstitutionalized in some other way.

But these capabilities must be present.At the same time, supply chainrisks are operational risks and canbe difficult to quantify or measure.But for any company determinedto meet its objectives in a morepredictable way—and ultimatelyenhance revenues— risk managementincorporated into supply chainmanagement from top to bottom,across the business is not an option;it’s essential.

For all its clear benefits and amazing advances,twenty-first century life is undeniably morecomplex.



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Critical as it is, supply chain risk is oftenprecariously undermanaged at manycompanies. For understandable reasons,perhaps. The last several years have

been brutal for the balance sheet andwringing out costs has been priorityone at most companies. As a result,many supply chains are not thoroughlyevaluating the risks in the business.

This, even though supply chains nowoperate at higher risk levels as theyare forced to do more with less. Afteroptimization initiatives, there may besix links in the chain instead of 10; andindeed one or two of the omitted mayhave been redundant. But chances are

some of the missing links helped tomanage certain aspects of the supplychain risk. Consequently, the companycould unknowingly be taking on a levelof exposure that in fact has a morenegative impact on the businessthan any benefits derived fromeliminated costs.

What supply chain risk managementbrings to the company is a balance ofefficiency and effectiveness—through

an awareness of risk issues that needto be addressed. Risk management andoptimization are of equal importancein managing today’s supply chain. Both

need a place at the corporate table asboth will help ensure business successand resiliency.

But even as they make seriousefforts to manage supply chain risk,companies often approach it less thaneffectively. They may look at risks insiloed parts: procurement, logistics,distribution or manufacturing—separately. What they miss is thenetwork-wide view that would enablethem to recognize similar risks that

should be managed from a company-wide perspective. Yet that is preciselywhere the value is.

The value comes from being able topredict and realize how a decision inone function may affect—positivelyor negatively—the entire organization.And the impact of not proactivelyidentifying, managing, monitoringand communicating key risks canbe staggering.

That was exactly the experienceof a large asset management firm.The sales team created a new 401Kinvestment product for employees

of a major corporate client. But theteam failed to verify and understandthe full upstream and downstreamramifications of offering thatproduct. As it turned out, the assetmanagement firm did not havethe capabilities to deal with all theadministrative, legal, regulatory,reporting and client implications ofthis new product. While the salesfunction did its job in creating anattractive product, the investmentcompany ended up overwhelmed, its

expected return on this product vastlyreduced and its reputation damaged.

Had the company looked at the wholesupply chain that would be affectedby that product from creation to clientdelivery, it would have realized therewere serious risk issues to be addressed.

On the upside, companies that stayon top of their supply chain risksmake their businesses more resilient.

How are companies doing?



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They can enhance the company’scompetitive position, support growthand produce measurable returns.

That is the path followed by one rapidlygrowing global bio-pharmaceuticalcompany. Poised to potentially doublerevenues in a few years, the companytransformed its supply chain riskmanagement. In just two years theymoved from a highly personalized,silo-driven risk approach to one thatinstitutionalizes the managementof risks across the supply chain. Thecompany realized that product safetyand reliability must not be compromisedat any point. To oversee that, they

assigned global owners to any riskaffecting multiple parts of the supplychain. No longer a silo-by-silo series ofone-off efforts, this rapidly became aninstitutionalized, holistic, top-to-bottommanagement of supply chain risks.

As such, it provides vital undergirdingfor the company’s drive to sustain itsrapid growth and expansion.



To stay ahead of the risks, companiespushing for high performance aretaking more risk-adjusted approachesto their supply chain management.

Realizing the stakes, they are lookingclosely at their supply chains witha view to enhancing fundamentalstrengths and addressing weaknessesthey might have overlooked in bettertimes. At the same time, they realizethe business must be nimble. Andquick to respond.

The point, after all, is not to avoidrisk. All business activities haveuncertainties attached to them.The key is to understand and manage

those uncertainties in a way thatallows the company to reach its goals.The way forward, given the inevitableand necessary presence of risk, is touse supply chain risk management totake those risks in a smarter, moreinformed way.

Much as one network-equipmentindustry giant did. By driving hard touse risk management as a competitivesupply chain differentiator, this

company achieved top-three ranking inthe supply chain risk management field.

One major consumer productscompany leveraged supply chainrisk management to beat the marketaverages in growth. It succeeded,gaining number one status in two ofits primary product categories.

As companies transform their supplychain risk management strategy andapproach, they obviously do so against

a backdrop of unrelenting performanceand competitive pressures. Reducingcosts, developing new markets,focusing resources on core value-adding activities, addressingcomplexity—these dominate corporateagendas. But these initiatives come

with their own risks. Outsourcing ofactivities, for instance, though costefficient, increases the chance ofdelivery delays as third parties execute

more of the core logistics activities.

Still, fierce competition and a diff iculteconomy create an imperative fora company to use every source ofadvantage. And for many, holisticsupply chain risk management remainsone advantage yet to be tapped to itsfullest potential.

Moving forward in the new game

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To adjust to the risk interdependenciesin the supply chain, some companies,especially those in consumer goods,are evolving new operating models to

help address risk. They are scrutinizingglobal vs. local processes to determinewhich functions should be centralizedand which should be managed locally,with guidelines, given the risks. Tobe effective, this new supply chainmodeling depends on the right levelof risk information and companies aresystematically considering and/or usingpredictive analytics to provide that.

Robust and sophisticated vendormanagement is another corporate

response to heightened risk in thesupply chain. Rather than rely onone supplier, dual sourcing is used,especially for critical components, ormultiple sourcing in a tiered approachto suppliers. Critical suppliers may bemanaged with specific contractual

obligations and a more active levelof monitoring and relationshipmanagement. There may be integrationthrough technology. And to stay ahead

of any changes in the risk profile,vendor information is kept up-to-date.Communication is continuously opento understand the current financialand operational health of key suppliers.Second-tier suppliers are also managedclosely because they may at any timebecome critical to operations if first-tier suppliers fail.

With any critical supplier, regularnegotiations are part of the process.Likewise, risk sharing. If a specified

event should occur, many companiesspell out what risks will be sharedwith critical suppliers, includingboth financial and operational risks.Inventory staging may also be included.

Risk is becoming part of the daily journey of people in the supply chain—and these are some ways companiesare anticipating and managing risks

before they get out of control. Whatbecomes clear is that effective supplychain management requires morethan efficiency and optimization ofprocesses. To work, it must becomesomething new, something more—and in a holistic way address theunrelenting swirl of uncertainties thathave an impact on the business.

How can companies cope—and compete?

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The goal of supply chain riskmanagement is to make sure effectivemitigation strategies are in place allalong the value chain. The point is to

create value for the organization andAccenture’s approach is to managesupply chain risk as a business issue—not a standalone concern. In thisapproach, corporate attention andresources are focused on beginning-to-end solutions that support risk-based decisions for the good of thewhole enterprise.

In Accenture’s view, the high-performance company from here onwill approach all the components

of the supply chain—procurement,logistics, manufacturing, planningand all others—as a unified whole.Certainly each of these will carry itsown particular risks and associatedmeasurement and metrics. In addition,the finance function often owns credit,operational and liquidity-relatedrisk management areas. But thereare also common operational andstrategic risks that stretch across thesupply chain and these will need tobe aggregated from the beginning of

the supply chain to the end. Includingvendors and the vendors’ vendors.With a full understanding of upstreamand downstream effects, and how

mitigation actions at one point affectrisks across the business.

From our work with clients aroundthe globe and comprehensive andongoing research, Accenture seesthat companies move toward highperformance in supply chain riskmanagement in a three-part approach.1) Assessing supply chain risk; 2)Designing a framework to managesupply chain risks; and 3) Implementingthat framework to proactively address

supply chain risk.

Here is a look at each.

1. Assessing risk

It all starts with assessing supply chainrisk. But first, some basics. Exactlywhat do you mean by your supplychain? Define its components. Defineyour suppliers, the players that comein and out of the process across theentire supply line. Look at third-party

vendors and counterparties. Make sureyou understand who your partners are.What is their operational and financialrisk profile? If you are counting on

supplies from a vendor, what happensif you don’t get those raw materials?Reliable delivery here depends not onlyon the vendor’s financial condition butalso on that vendor’s risk managementprocesses. Managing your company’srisk exposure requires clarifyingthis overall risk picture—withoutoverlooking any points.

In developing a sourcing strategy forthis extended and interconnectedsupply chain, the fundamental tasks

remain. They include assessing risk,selecting suppliers and partners andmanaging established relationships andprocesses. Making an inventory of keyrisks is always required, and evaluatingtheir potential impact and thelikelihood of their occurrence with risk-quantification tools. It’s about morethan probability and magnitude, withfactors like detectability, detectionlead-time, time to recover, and cost torecover separating resilience successfrom failure. How skillful the company

Accenture’s approach

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can carry out these fundamentals,starting with assessment, is now muchmore important.

Consider the company that decidesto move into an emerging or frontiermarket. Here companies face awhole new order of risks. Let’s saythe goal is to grow 15 percent thisyear by launching products in threenew markets. There will be capitalinvestment. Perhaps a distributionfacility, a factory, retail stores. Tounderstand how to operationalizethe company’s capabilities in thatenvironment requires looking atrisks across the whole supply chain—

backwards, forwards, up and down.The financial analysis might lay outthe best, most-likely and worst-casescenarios, but often this has little todo with the operational and strategicrisks involved. Often not factored inare the labor force, political, regulatoryand other issues that may add hugelyto costs—and deflate those financialprojections. Yet as they move intothese unfamiliar markets, manycompanies do so flying blind—or witheyes only partially open.

But assessing risk, important as it is, is just the beginning of a holistic approachto supply chain risk management.

2. Designing a frameworkto manage the supply chainOnce assessed, supply chain risksneed to be managed via a frameworkthat integrates all of the key riskcapabilities required. Designing aframework to provide that meansembedding risk considerations into allbusiness operations and linking themwith important business processes.

From deep global experience as well

as extensive research, Accenture hasidentified the key components that gointo enterprise-wide, risk-based decisionmaking. They are incorporated hereinto our risk management framework.The framework considers the risk thatlies along the entire supply chain fromdesign to delivery of the product tothe customer, and possibly the returnback to the supplier. It puts in place thestructure to assess, evaluate, analyze,manage and monitor risk from up and

down the corporate hierarchy andacross business units.

The framework applies to many risksin many areas. It is a consistent,standardized approach. It applies tologistics, procurement, production andmany other activities, at any level inthe organization.

The critical aspect is that this frameworkaligns risk-based decisions withoverall corporate and related supplychain objectives. By understandingall its supplier interrelationships andinterdependencies, the company canmanage supply chain risks with a

proactive view rather than with after-the-fact response.

Five process pillars support this

risk-based decision making. They are:

Organization and governance

The complexity of the supply chain andthe organization’s goals and objectivesmay vary in each company, but one riskmanagement basic is constant. Theremust be a well-defined organizational

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structure with explicit roles andresponsibilities to manage risk. Onlythis way is it possible to direct andtrack decisions at different points

in the organization. The company’sgovernance structure might be arisk committee, an independent riskmanagement function or a supplychain risk management function—withsupporting policies and procedures.Whatever form it takes, a governingbody will review progress and emergingtrends as well as results. It will providecounsel and be authorized to directreallocation of resources if the riskpicture so warrants. Supply chain riskmanagement efforts have a direct

impact on business results. A stronggovernance structure makes it clearwhere responsibility for those results isfocused. It identifies risk ownership inthe organization.

Risk Management Processes

Is there a process for identifyingcritical supply categories? Are vendorssegmented to identify and prioritizethose critical to business continuity?What risks are captured and how

are they assessed and measured?How is the action planning processimplemented and monitored? Whatmonitoring activities are in place to

ensure risks are being managed andaction plans are followed? Are thereproactive risk aggregation activities toensure: 1) risk interdependencies aretaken into account and are managed;and 2) costs for managing risks areleveraged effectively? Have risk appetiteand risk tolerances been defined andsocialized throughout the organization?These risk management processesmust be consistent throughout theorganization and link operations withother important business processes.

Risk Analytics

Every company needs a robustmethodology to identify, measure andmonitor its operational risks. The rightanalytical tools quantify the impacts ofuncertainty. They sharpen the company’sview, providing stronger capabilitiesin supply chain risk prioritization, riskmeasurement, scenario analysis andstress testing. Analytics and metricsallow a company to see when and

where an operational risk appeared andcorrelate it to management initiatives.In launching a new activity, it’s possibleto mine that data to see what made for

success. What supply chain risks did thecompany really manage well? That canbe predictive of how the company willdo in a new but similar effort, how longit will take and what impact it will haveon the balance sheet.

Qualitative methodologies can assesseffectiveness. Quantitative measuresaddress linkages between risks andoperational performance. Powerfulanalytical risk management tools andtechniques are readily available for this,

including becoming more predictiveand hence more resilient. They cannot only mitigate risk but also provideinsight on opportunities. To enhance thecompany’s ability to leverage risk forbusiness advantage, metrics matter.

Risk Reporting

Many companies produce voluminousreports, but are those reportsfocused and relevant? Do they deliverkey information in a timely way—

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information essential for effectivesupply chain risk management? Whatreports are you looking for and howcan you use them? What data do you

need to capture to be able to producethose reports?

Once the data is captured, what typesof analytics are necessary to predictan identified event or risk in yoursupply chain?

Answers to these questions formthe backbone of the company’s riskreporting framework. Reportingshould also include metrics on currentsupply chain risk management efforts,

changes in the risk environment, andindicate when intervention is required.

And importantly, the company’s riskreporting needs to be visible to topmanagement. Reporting should bestructured to ensure visibility onkey risk and mitigation strategies, inaccordance with an overall enterpriserisk management strategy. Too oftensupply chain risk management reportingis limited in its distribution, leaving topmanagement insufficiently informed

on what risks are being raised and howthey are being controlled.

Information Management and

Data GovernanceIn the interrelated network thatsupply chains have become, managingsupply chain risk depends heavily oninformation at hand both internal andexternal. To maximize performance,companies must synchronizeprocesses, streamline material flowsand coordinate across organizationalboundaries, processes and regions. Theonly way to do that is by managingand making transparent the company’s

dominant asset: information.Communicating out, up and acrossthe supply chain strengthens therisk-based decision making thatis the goal of this framework. Badnews, good news, it all has to becommunicated immediately in an openand transparent culture. For one pointin the chain to sit on information isharmful to the entire company.

What this framework does is takea company from yesterday’s linear

supply chain where each point was itsown center of the universe—to holistic,continuous and proactive managementof supply chain risks. What emerges is

a vital, enterprise-wide picture of riskthat informs better decision making.

3 Implementing supplychain risk mitigationDesigning an appropriate riskmanagement framework ensures thateffective risk mitigation strategiesare in place. Of course to work, thosestrategies must be implemented. Forthat, the company needs a robustaction plan. A plan funded with

appropriate resources to address thecore of the risk issues and implementtreatment—not just symptomatic relief.

The value, after all, is only realizedwhen the framework is implemented.

The value of the right organization andgovernance framework, for instance,can be in alerting the company torecurring risk in the organization. Itcan expose a common risk or identifyan exposure—driving action. It might

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be something as simple, and at somecompanies potentially crippling, asthe projected truck driver shortage inthe United States. That is expected to

reach 111,000 in 2014.When it comes to informationmanagement, the value is in capturingenough data to recommend profitablestrategies. Data can be produced thattells management, if we manage thesefive areas well, if we deal with these 20risks well, we can expect these results.Information becomes more predictive—and eventually has financial impact.

With open and transparentcommunication, the value is in driving

superior performance. Planning ormanufacturing may be alerted to apotential problem on the logistics side.If there is an issue around shippingfreight, red lights are set off. That’s thekind of information one major high-techcompany needed to know when a fireat an overseas manufacturing facilitycompromised its ability to meet demand– and contributed to a $1.7 billion lossfor the year. Does the company havesufficient backup inventory? If not, how

does it plan to live up to contractualguarantees or maintain the company’sstandard of reliability?

A comprehensive, top-to-bottom action

plan gives direction to supply chainrisk management. It enables a new,risk-based decision making to permeatethe company. It becomes, in short,simply the way the high-performancecompany does business going forward.

In putting that beginning-to-endaction plan to work, companieswill want to look at best practices.Here are some that support thehigh-performance company’s abilityto mobilize its risk-management

framework effectively.

• Obtain buy-in from the top of

the organization. Integrate supplychain risk management practicesacross all business functions toensure understanding, commitmentand alignment.

• Integrate Enterprise Risk

Management principles. Identify,measure and prioritize risks throughmapping out of the supply chain

“ecosystem” and rating of key riskareas based on likelihood, impact andother key factors.

• Implement dynamic supply chains.

Develop flexible operations, adiversified supplier portfolio, globalvisibility, and options to scale andcontract so as to minimize disastrousevent impacts.

• Simulate potential scenarios.

Use probability modeling toidentify unknown risks and developcontingency business continuity plans.

• Incorporate comprehensive

quality management. Enforce qualitymanagement for supplies and finishedgoods through all supply chainprocesses to ensure optimized qualityand efficiency.

• Employ robust partner risk

management. Manage supplier andservice provider risk by performingupfront due diligence. Set clearexpectations in contracts. Hedge riskby intelligently obtaining insurance.

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Two points summarize our messagehere. One, a business that aims forhigh performance today, and evensurvival tomorrow, must be acutelyaware of the array of interrelatedrisks all along the supply chain. Andtwo, it must manage those risks ina holistic way to support risk-baseddecision making across the enterprise.That calls for effectively merging theperspectives and processes of supplychain management with the risks anduncertainties identified in supply chainrisk management.

Certainly supply chains have alwaysrequired managing uncertainty and

risk. But today that risk componenthas a never-before impact on theability of the company to achieveits goals. That drives supply chainmanagement and supply chain riskmanagement to become a hand-in-hand effort—with the resiliency ofthe business on the line.

From global work with clients, fromdeep experience in supply chainsand supply chain risk management,Accenture has a strong understandingof how to help organizations managethe risks and support the continuity,the profitability, the resiliency ofthe business.

We can help you bring it all together,from beginning to end. And in the end,help you build a company that is readyfor the next uncertainty, the nextunknown.

Accenture and your next moves



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Jade Rodysill

Jade is senior director – Supply ChainManagement, based in Dallas/FortWorth, Texas. Jade has more than 16

years of experience as a consultant,business development director, andoperations manager, helping clients inchemicals, natural resources, energy,industrial products, transportation,and communications industriesimprove their performance throughinnovative supply chain strategies andsolutions. His experience across thesupply chain – planning, procurement,production, and fulfillment – and focuson building supply chain resilience forclients through improved monitoring,

management, and mitigation,helps organizations become high-performance businesses.

Giovanni Giacchetti

Giovanni is a manager, Supply ChainManagement, based in Milan, Italy.He has broad experience in the

areas of Sourcing and Procurement,including Strategic Sourcing,Supplier Development, PerformanceManagement and CommodityManagement. With a focus onProcurement Risk Management,Giovanni helps major companiesimplement successful Supplier RiskManagement models and CommodityRisk Management Analytics. Workingmainly with Consumer Goods,Industrial Equipment & Retail clientsin the manufacturing sector, Giovanni

helps these clients become high-performance businesses.

About the Authors

Michael Chagares

Michael is executive director –Risk Management, cross industrylead based in Washington, D.C.Michael has more than 20 years of

experience as a consultant and banker,providing business and enterpriserisk management services to largecompanies in a variety of industriesincluding healthcare, pharmaceuticals,biotech, manufacturing, constructionengineering, hospitality and realestate. His specialization in EnterpriseRisk Management (ERM) and extensiveexperience in assisting clients design,develop and implement customizedERM frameworks and infrastructureshelps them become high-performancebusinesses.

Daniella Datskovska

Daniella is a senior manager - RiskManagement, based in WashingtonD.C. With over 13 years experiencein industry and risk management

consulting, Daniella has provencapabilities and skills in planning anddirecting large scale enterprise riskmanagement initiatives form currentstate analysis and assessment tooverall design and implementation. Hersolid financial analysis background,governance and complianceexperience, global market experience,and specialized in enterprise andoperational risk management,Daniella helps clients on their journeyto becoming high-performancebusinesses.



About Accenture RiskManagementAccenture Risk Managementconsulting services work with clientsto create and implement integratedrisk management capabilities designedto gain higher economic returns,improve shareholder value and increase

stakeholder confidence.

About Accenture SupplyChain ManagementAccenture Supply Chain Managementconsulting services help clients developmore dynamic supply chains byaligning operating models to supportbusiness strategies, optimizing globaloperations, and enabling profitableproduct launches.

Copyright © 2011 AccentureAll rights reserved.

Accenture, its logo, andHigh Performance Deliveredare trademarks of Accenture.

About AccentureAccenture is a global managementconsulting, technology servicesand outsourcing company, withapproximately 211,000 people servingclients in more than 120 countries.Combining unparalleled experience,comprehensive capabilities across allindustries and business functions,and extensive research on the world’smost successful companies, Accenturecollaborates with clients to help thembecome high-performance businessesand governments. The companygenerated net revenues of US$21.6billion for the fiscal year ended

Aug. 31, 2010. Its home page iswww.accenture.com.

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accenture new game supply chain risk management

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