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Addressing supply chain risks can yield top-line growth

Every business that depends on goods and services in a global supply chain is at risk for various supply chain disruptions, or worse: contamination or product failure. Consider recent headlines about lead found in toys from China, a child’s product metabolizing into a dangerous drug when water is introduced, or contaminated pet food. It doesn’t matter whether they produce consumer products, durables, food and drink or pharmaceuticals; companies are becoming increasingly liable for their products long after they have left the supply chain.

Today, companies face not only the potential for increased regulation, but for consumer class action lawsuits, complete supply chain disruptions, product contaminations and even the risk of death and company shut down. Some may dismiss this as a “gloom and doom” scenario, but how much of a chance are we really willing to take?

What can a proactive approach accomplish?

Twenty years ago the big three auto makers dominated the landscape and Americans were proud of their cars. Then, the manufacturing ranks of a Japanese auto manufacturer applied the concepts of TQM, JIT and Cell-based manufacturing, all of which focused on building quality into the process while reducing the costs in the supply chain. This manufacturing philosophy, coupled with innovative product designs, yielded dependable cars with exciting designs that cost less than American models.  The rest of the story is history.

Companies that take a proactive approach to improving the security and quality of products in their supply chain can promote these efforts to improve product demand. Consider the growth of the organic food industry.  Ten years ago, organics were a mere blip on a radar screen. Today it is a multi-billion dollar industry with high margins and a loyal consumer base of demand.  Although consumers love a bargain, history has shown they consistently don’t mind paying more for value or something they trust to be safe.

Six steps to addressing risk in your supply chain

So where does a company start? Taking these steps can help you mitigate risks in your supply chain:

  1. Examine the risks inherent in your suppliers, handlers and shippers, and sources of raw materials.
  2. Identify the downstream users of your products, including those affected beyond product use and until the product’s physical life is non-existent. A good example is the impact of batteries on the environment long after they have been discarded by the consumer.
  3. Use the above information to perform a risk assessment to uncover vulnerabilities in your supply chain.
  4. Quantify the impacts of disruptions, product contamination and/or malfunction and harm.
  5. Identify and plan improvements to your company’s supply chain processes, technology and responsibilities.
  6. Establish measurable goals and utilize public relations and marketing campaigns to begin promoting goodwill and top line growth. For example, British Petroleum doesn’t need to promote the fact it invests in alternative fuel technology research and development, but it does because the company knows this is a concern to consumers. If a consumer, when confronted with two gas stations with similar prices, chooses the BP station because of its commitment to the environment, then BP has achieved its goal.

A conscious decision

We all make decisions about risk every day when we get into our cars and decide whether or not to use a seatbelt—but many of us do it without thinking about it.

Ultimately, companies confront risk either consciously or unconsciously, as in the seatbelt example. Prior to 2001, Southwest Airlines was the only major US carrier to hedge its contracts for fuel. This enabled Southwest to weather the subsequent storm better than any of its competitors. Some may say this is merely good business judgment and decision making; but, the company made this decision as the result of examining the largest costs of its operations and performing “what-if” scenarios for different types of events and risks.

What can we learn from this story? When considering supply chain risks—or, for that matter any potential risks—affecting operations, those companies that take a proactive, “conscious” approach to risk management often put themselves in the best position to succeed in the long run.

West Monroe Partners works with companies to develop effective risk-management strategies in all facets of their operations. For more information, please contact Rich Sypniewski, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

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