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Unformatted text preview: Making Supply Chain Risk Management Part of Your Core Management Process by Blake Johnson Consulting Professor Making Supply Chain Risk Management Part of Your Core Management Process 1006 > PAGE 2 OF 14 Executive Summary Uncertainty and rapid change in the business environment create gaps between what companies plan for and the actual business requirements they later face. These gaps leave all aspects of a company’s performance exposed to the outcome of costly and inefficient efforts at fire-fighting and damage control. To close this critical gap in planning, performance, and accountability, effective managers are adopting proactive risk management . Proactive risk management directly addresses the risks and performance consequences of today’s “define and execute to a plan” approach to management by shifting the basis of management planning to performance across a range of possible forecast outcomes. Under proactive risk management, plans and strategies are structured, evaluated, and executed to optimize perform- ance across the range of possible supply and demand outcomes a company may face, rather than only the “best guess” or “most likely” forecast outcome. By proactively factoring in the key sources of uncertainty a business faces, management gains visibility to and control over future performance across the potential outcomes of those sources of uncertainty. The result is effective risk management, as well as coordination, alignment, and accountability, in highly uncertain and dynamic business environments. Four resources are required to implement proactive risk management. First, an enterprise data warehouse is used to store the data required to generate range forecasts, structure and assess business strategies, and record their performance across potential outcomes. Second and third are planning and execution capabilities used to support the design, evalu- ation, and optimal execution of plans and strategies that perform well across potential forecast outcomes. Fourth is a management process for setting and measuring objectives and accountability for performance and risk across forecast outcomes to ensure proactive risk management is fully leveraged to best meet management objectives. Proactive Risk Management Introduction In today’s business environment managers are accountable for meeting performance goals, building relationships, and executing efficiently, despite exposure to multiple sources of uncertainty outside of their control, including: > Forecasted vs. actual demand > Price and availability of key inputs and other resources > Timing and success of new products and market strategies > Performance of key partners > Changes in the competitive environment These, and other everyday sources of uncertainty, impact the management process at its foundation, disrupting planning, execution, performance, and accountability. The “plan vs. reality” gap described below explains why this happens. The remainder of this white paper explains howhappens....
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- Spring '08
- Management, proactive risk management