Look Beyond Technology
Resilience, supply chain risk, and technology
The supply chain risk management market is forecast to grow at 6% year-on-year over the next five years. So, it should surprise no one that this market is teeming with technology products. Buyer beware.
It is understandable, but nonetheless regrettable, that too often the instinct in businesses today is to quickly turn to technology to solve strategic management issues.
It is also understandable that technology companies will gladly endeavour to provide technological answers to another management challenge.
So, as we explore how technology can play a role in supply chain risk management, we must keep in mind the core features of supply chain resilience and how it is achieved.
Fusing technology with good foundations
Before considering technology, businesses need to have a deep understanding of the criticality of their supply chain.
The highest spend supplier isn’t necessarily where the greatest risk lies, and historically, the biggest threats have been found lurking in the smallest of quarters.
So, start by viewing your supply chain through the lens of strategic objectives, as this provides a clearer insight into what constitutes criticality. A focus on your objectives also leads to clearer insights into exactly where risks will manifest under changing conditions. Conditions that should be identified in scenario planning.
Next, we need to understand the interrelationships. Mapping a value chain is typically a manual process for the most part, and to date, no technology can do that for you. It requires a combination of supplier engagement, to overcome concerns about IP protection, and custom-built surveys to capture data points and plot the interrelationships you need to understand. As a result, it’s recommended that organisations approach this as a journey, rather than as a discreet activity, and start with three or four of the most critical suppliers, and then expand from there over time.
Ultimately, companies must be able to gain supply chain visibility beyond the first tier of suppliers, and this is where technology solutions typically fall. Understanding ownership structures is one thing, but to genuinely address risks, businesses must understand manufacturing locations, supply nodes, even transport routes, and more importantly, the relationship between suppliers.
Another important requirement is to have a transparent and defensible risk assessment framework. Technology-enabled risk assessments are an effective way of understanding risk exposure, but many utilise an opaque methodology, which makes it difficult to understand why the results are as they are.
Technology as an enabler rather than a driver
There is a difference between technology-enabled and technology-driven. Utilising technology to simulate cost-risk optimisation is one of the strengths in taking a technology-enabled approach, as it allows millions of calculations to be done in a fraction of the time it would take using manual approaches. What is more important is that the methodology that sits beneath the presentation layer is one that your executive will have confidence in.
One area where risk technology is strong, is real-time threat monitoring and alerting. There are several good risk intelligence tools that can be overlayed onto a supply chain to create an alert when things aren’t as they should be. However, what these same technologies struggle to do is tell you the impact these threats could have on the business and what to do about them.
Knowing what to do is critical since we don’t want to spend resources jumping at shadows every time an alert comes up. So, buyers of resilience technology should understand exactly what’s happening under the hood before buying.
There is a real danger that oversimplified algorithms, using limited data, will deliver impressive looking, but ultimately incorrect outcomes. This can place businesses in the unfortunate position of having high confidence, but only limited genuine capability.
In conclusion, technology cannot currently create value in this space, but it can be an enabler. It allows greater transparency, speeds up processes, coordinates the resources of businesses, connects people with capabilities, and provides insights from data. The advent of Machine Learning and AI will do these things even faster and smarter, but still, these technologies only ever enable management.
We are at a point where, even though some might wish the increasing number of just-add-water technology solutions will get the job done, the reality is these solutions won’t get us to the resilience grail. Indeed, they may create a false sense of security. Human analysis, using technology where it makes sense, remains the most effective course to take.