Whitepaper Risk-aware supply chain decision-making

The new highly disruptive external environment requires re-thinking how we design and manage supply chains. Especially now it is critical to avoid the traps of traditional supply chain risk management approaches and take a new perspective. No longer chasing events, network risk modeling, systematic stress-testing, and clear quantification of risk impacts are prerequisites for moving to a new preventive risk management approach, which allows supply chain leaders to shape resilient supply networks instead of chasing one disruption after another.

In the last months, we have once again seen an accelerating increase of uncertainty and stress on global supply chains. Disruption is followed by disruption in an unprecedented way, causing shocks in supply as well as demand on many different levels. In this paper, we will not spend time on describing this well-known situation, but rather focus on the most consequential strategic questions that need to be addressed in order to move forward:

1. How can we structurally configure and parametrize our end-to-end supply networks to become more resilient, minimizing our vulnerability to disruptions?
2. How can we effectively integrate risk in day-to-day supply chain decision-making in the strategic, tactical, and operational horizon?
3. As an enabler for both previous points, how can we quantify risk impact in an accurate and practical way, and effectively integrate it as a new target function and decision criterion for supply chain management?

While supply chain decision-making in general has been well described and understood with regards to the key dimensions of service, cost and capital, the question remains how we now can practically add risk and resilience (and we could similarly ask for ESG) to the equation. This is what we are going to explore now.

A framework for risk-aware supply chain decision-making

We propose a new framework for risk-aware decision-making that helps to address the strategic questions described above. It can support the pro-active assessment of the supply chain and prepare the network for the unexpected – ranging from unknown unknowns and minor variabilities in demand and material costs to the consideration of undisrupted, thus normal operations. In order to provide this functionality, the framework is endowed with three major capabilities: network planning, supply chain stress-testing and mitigation optimization.

In times of accelerating disruptions and uncertainty, it is mission-critical for supply chain leaders to challenge old ways of working and build a strong foundation for risk prevention and structural preparedness. Effectively bringing the tough choices of how to make the network and business more resilient to management will be the most valuable business contribution of supply chain leaders now and in the years to come, according to Camelot Management Consultants.