How to attack supply chain risk?

Filed in archive Point of view on September 21, 2007

As the companies grow and become global, their supply chains also become more complex and thus they face more risks compared to the past. So, what should they do? Well, we can not say that they shouldn´t grow; at the end of the day it´s a matter of growing fast or slow but there are also a number of supply chain strategies which tend to cope with the risks.




David Bovet, the vice president in the value nets practice at Mercer Management Consulting, suggests in his new HBS Working Knowledge two strategies in order to effectively balance risk and opportunity:

- Shorten the supply chain in order to reduce cycle time and disruption risk
- Optimize the portfolio of supply chain sources and locations in order to gain flexibility through diversification.

Not all the companies can go for the former strategy (This might be a good solution for an automotive part manufacturer but definitely not for a fashion company like Limited Brands). Specifically, the first strategy prevents a company from taking full advantage of the economic benefits of extending the supply chain globally.

The second strategic approach may offer some as-yet-untapped advantages. The idea of optimizing a company's portfolio of sources, assembly locations, and distribution points derives from financial portfolio theory and offers a valuable framework for assessing risk/return tradeoffs. The goal here is to create a supply chain strategy that best fits the overarching needs of the firm through a process of modeling that clearly shows decision makers the benefits and risks of different sourcing tactics. Through portfolio modeling, firms can mix and match different tactics in pursuit of The Arrangement of sources, locations, and so on that maximizes the supply chain's ability to support a specific company strategy.

What do you think?