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The Marsh and Risk & Insurance® study found gaping disparities in approach between those risk managers who have been improving their effectiveness and those still struggling.

Chief success factors include the ability to design risk management processes that are driven into the organization by a cross-functional team, are embedded into current supply chain activities and are consistent across the corporation. Risk managers cannot create this type of change alone; they need to foster the support and leverage the knowledge of supply chain operations.

TIPS FROM THE INNOVATORS

Innovator participants stress that partnering and communication is vital to success.

"To succeed, you have to be able to partner with operations and purchasing to identify and address issues," says a risk manager at a midsize food and beverage company. "You need to educate them on the purpose of risk management and get them to partner with you from the start on their initiatives."

"Each function may have a different format and vernacular for risk areas," cautions a consumer-goods risk manager. "You need to be clear in what you're asking for and be able to 'speak their language'--don't make the functions reinvent the wheel they already have in place."

Another risk manager expresses frustration that only when supply chain operations or sales realize they have a big insurance-related risk do they get him involved. Innovators say they make a concerted effort to present themselves as an adviser to operations, and find out where operational activities and initiatives are at and where they are going before crises occur.

"Make sure you establish the right protocols and processes that can stand the changeover of people (in your supply chain operations)," says a risk manager at a large consumer-goods company. And make sure you continually review these processes--do these processes still work well given our business changes?"

IMPROVING SUPPLY CHAIN RISK MANAGEMENT

Based on the results, here are four actions that enterprises should take to improve their supply chain risk management capabilities and protect themselves against the industrywide rise in risk levels and supply chain disruption costs:

-- Create a cross-functional supply chain risk team that looks end-to-end.

-- Charge this team with looking at both insurable and uninsurable supply chain risks.

-- Increase the scope of risk assessments across the external supply chain, especially with suppliers and key logistics partners.

-- Maintain senior management support through risk reports and other means; institute regular operating segment and business unit conversations about risk.

-- Embed risk management activities and responsibilities into existing supply chain processes and functions; create consistency across the organization.

-- Establish a center of risk excellence to help provide the templates, methods, and tools (and limited staff support) to create process consistency across the company.

-- Review and revise standard processes and policies on an annual basis to ensure they keep pace with changing business conditions and evolving risk management best practices.

-- Include risk management in supply chain managers' job descriptions or personal metrics and goals.

-- Build up analytics and risk metrics.

-- Increase the visibility to risks and create the ability to roll up data by country, supplier, product and so on. This will help you better prioritize risk management efforts and spend.

-- Extend the risk manager role.

-- Make yourself a key adviser for strategic supply chain decisions, looking at both insurable and uninsurable risks.

-- Look for new ways to show value by helping design better ways to spot and mitigate operational supply chain volatility.

-- Create your own personal development plan for conquering the new skills required for success.

Risk managers that tackle the challenges being presented by global supply chain dynamics will play a more strategic role and will make much bigger contributions to the competitiveness of their company. For most risk managers, the question is not if they should take on this responsibility, but how to do it, given constraints on resources and time.

By embracing the emerging best practices identified in this study, risk managers have an opportunity to increase their organizational impact and help better secure their company's future. They can not only help protect the company against "low probability/high impact" disasters, but also help it become more resilient and better protected against everyday supply chain volatility.

Doing this effectively will require greater organizational orchestration; better transparency of supply chain partner activities and related risks; more advanced risk metrics and impact calculations; enhanced what-if simulation capabilities; and improved return-on-investment calculations for supply chain resiliency initiatives and risk transfer and alternate financing options.

BETH ENSLOW is a senior vice president in the Supply Chain Risk Practice at Marsh Inc. She has more than 20 years experience advising companies on physical and financial supply chain optimization and related risks. Her previous positions include running the supply chain and global trade research practices at Aberdeen Group and Gartner.

(Find the complete Marsh supply chain survey report here.)

April 15, 2008

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