Designing Organizations to Manage Supply Chain Risk

By Tony Aloise, Purchases/Global Material Supply Manager, Procter & Gamble

Resilient corporations don’t get that way accidentally. Mitigation of end-to-end supply chain risk starts with a fundamental understanding of your current and desired organization design. The work requires a careful analysis of your current organizational structures and processes including identifying what works well and; what needs increased attention. Once the current state has been assessed, attention should turn to the desired future state. This future state addresses the current weaknesses and adds benchmark thinking in areas such as strategies, culture, tasks, decision-making, etc. The final step is to develop and implement the action plan to transition to the desired outcome. Table 1 presents a simplified view of the key elements of organization design to enable a successful risk management program.

Important to successful organization design is leadership involvement and support. Many corporate and supply chain strategies acknowledge that customer service is the number one objective; however, that is simply the beginning. Metrics must be in place to quantify risk exposure in terms meaningful to the CEO and senior leaders. The CEO will want to know ”revenue at risk” because within a company, some supply chains and brands are critically important financially and need to be protected differently. Operations leaders need something more actionable. Developing a quantifiable risk “score” for suppliers, manufacturing and distribution at each level and aggregated allows data-based decisions to be made for risk mitigation plans and investment.

A corporate culture should support the needed results and strategies. The work needs to be everyone’s responsibility not just that of the Risk Managers. An organization that broadly has people seeking root cause of risk and owning risk mitigation plans is one that is well positioned to address the complexities of global supply chains and the “world at risk”. This culture should be built into both the upstream supply chain design effort and well as current operations. Design activities such as selection of capable suppliers, choice of manufacturing technology/capacity and siting of these can be more important than after-design contingency planning.

Identification of critical tasks of the organization is the logical starting point in the detail-level of the organization design. Risk assessment, impact analysis and contingency planning should be formalized and owned. Single-point accountability of these work processes then helps assure company-wide consistency, effectiveness and continual improvement. Decision-making and information systems need the capability to quantifiably assess risk so the organization knows where to focus its energy if there are competing objectives. We need to expect more of our ERP systems to facilitate this risk analysis.

Supply chain risk management as a body of knowledge is growing quickly. In the end, resiliency is built on a foundation of capable and energized people with knowledge, skills and tools that build on broader supply chain management competencies. Externally, supplier and customer relationship management and collaborative efforts on risk management tie the work together to make a true end-to-end approach.

Table 1: Organization Design Key Elements
Business Situation	· High complexity, high change. · Global supply chains. · Variability in commodity pricing and limited supply. · World at risk (terrorism, natural disaster, governmental regulation).
Results	· Outcome Measure: Revenue Exposure ($). · Process Measures: Risk Assessment (1-10).
Strategies	· Customer service is #1. · Improve the company’s ability to measure supply chain risk and „ resiliency. · Think “upstream”…low risk and resiliency are “designed-in”.
Culture	· Risk mitigation is everyone’s job. · Understand root causes of risk.
Tasks	· Supply chain risk management processes are consistent and company-wide, with risk management activities and responsibilities embedded into existing supply chain processes and functions. · Robust risk assessment, impact analysis and contingency plans.
Structure	· Single-point accountability within a supply chain accountable to CEO. · Formal cross-functional risk management team, which meets monthly or quarterly.
People	· End-to-end supply chain experience. · Risk managers are responsible for helping assess and manage both insurable and uninsurable supply chain risks.
Rewards	· Building market share. · Avoid unproductive “fire-fighting”.
Decision Making	· Risk analysis tools quantify risk. · Risk assessment built into new initiatives.
Information	· Analysis using existing ERP data.