The barriers to risk are several:
- Incentive and Human Nature
- Dependence on Supplier Collaboration
- Perceived cost of Visibility
- Conflicting Objectives
- Outmoded Thinking and Assumptions
- Difficulty in Valuing Risk Mgt.
Let’s describe each of these to better understand them and what to do about them.
INCENTIVES & HUMAN NATURE:
This one is self-evident. When have you seen/heard of an executive being REWARDED for addressing risks in performance evaluations?
Risk apathy is driven by our dealing with short term issues. We’re focused on the daily operational situations and/or objectives that maintains competitiveness. Our efforts are not focused on what’s acceptable rather than what’s the next step/direction needed to excel.
DEPENDENCE ON SUPPLIER COLLABORATION:If we take the course of building a collaborative relationship with suppliers, then the action needed to make it work is the sharing of information/projections of business. This where the RISK OCCURS! There is a reticence of the participants to execute such.
Additional hindrances are the data standards between the parties as well as IT maturity.
PERCEIVED COST OF VISIBLITY:
If the parties don’t have internal practices for maintaining data integrity , which includes details of “key critical aspects of performance operations (typical areas would be – Inventory balances, production reporting accuracy & resolution, quality data records [rejects/scrap]), then they lack the experience to estimate it – thus the doubt and incorrect perception.
There is an approach/methodology that can be applied to counter such – “BENCHMARKING”
CONFLICTING OBJECTIVES:Costs seem at odds with efforts:
- Efforts of supply chain personnel to obtain cost efficiency
- Lean inventory practices
- Stakeholders hesitate in cost increasing efforts
- Buffer inventory (safety stock)
- They will overlook “risk reducing objectives”
OUTMODED THINKING AND ASSUMPTIONS:
Several biases/attitudes and assumptions can devalue “resiliency measures”
- Operations will save the day (bias/attitude)
- Risks are isolated and not linked
- Rather than being symptoms of something systemic
- Rely on suppliers to address risks
DIFFICULTY IN VALUING RISK MANAGEMENT:
Companies have an inability to calculate and agree on:
- On how to value risk due to supply chain disruption
This obstructs progress in risk mgt. efforts – are you an optimist (see the opportunity in every difficulty) or a pessimist (see only the difficulty in every opportunity)
There are CRITICAL SUCCESS FACTORS that will aid us in addressing these barriers:
- Educate leadership on how supply chain risk priorities need to align with strategy
- Provide evidence of the probability
- Prepare an ROI (return on investment) analysis
- Consequences of “do nothing”
- Address conflicting objectives
- Educate the stakeholders
- How to be innovative & resilient
- Educate the stakeholders