E-Handbook: Planning for supply chain risk assessment and mitigation Article 3 of 3

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Supply chain risk management tools vary from generic to niche

Specialized supply chain monitoring and risk tools exist, but you're more likely to use an assortment of general-purpose analytics, financial and GRC applications.

To succeed in today's era of globalization, organizations must strengthen their supply chains to ensure that the right products get to the right customers at the right time.

Not being able to do that can damage their reputations, causing them to lose customers and revenue. To gain greater insight into and control over their supply chains, companies can deploy supply chain risk management tools to help manage the problem.

Various types of supply chain risk management tools are available to enterprises, including predictive analytics, enterprise risk management (ERM) systems and sensors, according to Justin Bateh, supply chain expert and professor of business at Florida State College at Jacksonville.

"When managing supply chain risk, it's important to control for financial risk, inventory risk and procurement risks," he said. "Several tools are available at a company's disposal, with the most important generally being a system of predictive analytics."

Predictive analytics allows a supply chain leader to manage risk by better preparing for inventory demands, purchasing needs and cash flow management, according to Bateh. Organizations can build simple algorithms using basic spreadsheet software, or they can use more sophisticated ERM systems.

"As far as predictive analytics, you can have the data analyst and the business analyst draw up sophisticated algorithms," he said. "Or you can buy predeveloped Excel spreadsheets that would allow you to input your own variables into it and you can come up with your own demand management, inventory demand [and] purchasing needs."

What's important with predictive analytics is being able to identify future demand, lead time and economic order quantity -- what companies need to order and when they need to reorder it.

"All of those can be pumped out of Excel or any basic spreadsheet software to run those predictions," Bateh said.

Risk content providers and spreadsheets a powerful combo

Spreadsheet software is great for analyzing logistics and supply chain issues, as they "allow analysis from many different perspectives and can be modified and enhanced to reflect new situations and options," according to The Hackett Group report, "Emerging Options for Supply Chain Risk Management Software."

There typically isn't a one-size-fits-all approach.
Eliot Arnoldchief data officer, Crunch Data Inc.

For example, companies can use Microsoft Excel and Access to track information on suppliers, such as supplier financial risk, said Christopher Sawchuk, principal and global procurement advisory practice leader at Miami-based The Hackett Group and one of the authors of the report.

"That's because financial risk can impact your assurance of supply," Sawchuck said. "Financial risk content providers out there, such as Dun & Bradstreet, can provide information to assess the viability of these supplier organizations and [companies] are keeping that information in their spreadsheets. Some organizations employ home-grown tools similar to spreadsheets but using different technology platforms."

Staying in sync with each part of the supply chain in real time is also important, and tools such as smart sensors allow managers to track the locations of sourced materials and adjust expected arrival and delivery times, according to Bateh.

"A lot of ERM systems will do predictive analytics for you and will track [goods] in real time, especially if you have sensors connected to your pallets or your trucks," Bateh said. "You're able to be alerted when something is off schedule, when there's a quality issue [or] when it's time to reorder."

Although there are many types of supply chain risk management tools, not all of them address the same types of risk, according to William McNeill, an analyst at Gartner, based in Stamford, Conn. The key is to match the technology to the types of risk to be managed.

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Learn about the details of successful supply chain management and how to implement it in your organization.

Eliot Arnold, chief strategy officer at Crunch Data Inc., a systems integrator in Thousand Oaks, Calif., agreed with McNeill that it is critical to match the tool with the business problem.

"There typically isn't a one-size-fits-all approach," he said. "In reality, a more heterogeneous environment is what companies, big supply chain firms, end up with -- a mix of best-of-breed technologies that solves a particular problem."

In addition, the tools that can best measure risk relative to supply chain performance are those that contribute significantly to managing risks, according to Arnold.

The adage "you can't manage what you can't measure" is critical for risk prevention, he said.

ERP, GRC software help provide holistic view

When it comes to measuring risk, business intelligence tool sets, analytics or data management tool sets can be used to identify defects within a company's data assets, Arnold noted.

"These tool sets can be used to profile information to understand whether the consistency or accuracy or quality of the data is or isn't there," he said. "And that data can be applied to an analysis of a broader supply chain risk like defect rate or cycle time on a manufacturing line."

Keeping in mind that a clear understanding of operational risk is critical to understanding what tools fit the purpose, ERP software often has modules that help companies manage risk, according to Arnold.

"Operational risk has many faces to a business [and] some of them are central to the customer experience or customer journey," he said. "A major tool set that is designed for risk management relative to defect rate or customer complaints are all modules within ERP systems or order-management platforms."

Once a company is made aware of a risk, it might try to mitigate that risk or execute on it in the ERP system, perhaps by changing an order or delivery, according to McNeill.

To manage risk holistically across the enterprise, companies could deploy governance, risk and compliance (GRC) tools.

"You're using that kind of tool to manage your supplier or supply chain risk and also to manage more of your enterprise risk, your broader risk, including internal factors," McNeill said. "Some companies might try to use GRC tools to manage all risks at once."

GRC tool sets are also very important in driving standards within supply chains, according to Arnold.

"They're used to help provide business process documentation [and] workflows and compliance standards around the different protocols that a supply chain company -- or supply chain in general -- needs to comply with relative to the other parties in that chain," he said.

Blockchain is another technology that has the potential to reduce risk in the supply chain by expediting transaction processes by speeding up identity verification of the individuals who are transferring the assets and receiving the product shipments, Arnold noted.

In addition, top supply chain risk management tools can be used to measure external events in the supply chain, such as weather risks or transportation risks, according to McNeill.

"Ideally, you want to use [that software] for more than just monitoring. You want to use it to predict the impact on your supply chain," McNeill said.

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