How to Get a Handle on Risk in Uncertain Times: 10 Important Considerations
Risk: It’s the operative word on everyone’s mind right now. Whether it’s COVID-19 or oil prices, supply chain impacts or financial market concerns, understanding the impact of macro and micro-events, assessing their impact and putting in place the right action plans to mitigate that risk as best as possible is the priority task at hand.
Here we’ll examine ten steps to consider to ensure you’re being as thoughtful and rigorous as possible in your response to risk.
1. Take Care of Your People – Hopefully, this has already been priority number one for your business after the past few weeks. How do we safeguard our people? How do we handle work from home – voluntary versus mandatory? What other flexible resourcing options do we provide – from sick leave to absenteeism considerations? What are the IT implications and subsequent human resource and capacity management concerns we need to consider and fully factor in? Err on the side of caution. Better to be safe than sorry.
2. Analyze Internal Risks – Before you can do that, you need to galvanize the right teams to be able to understand, assess and action against those risks. It’s critical to build the right cross-functional teams to be able to look at, and understand, the relevant issues to consider. This will involve finance, R&D (depending on your business) and marketing and sales. It will also involve teams like quality and sustainability leaders, as there will be implications and follow on ramifications despite your very best efforts.
3. Conduct Scenario Analyses – For critical categories, it’s important to get a handle on what alternative demand/supply options are. What are the pessimistic versus expected versus optimistic cases depending on what happens with the current situation, both in terms of the pandemic but also in terms of current and expected economic conditions? As part of any such assessment, you’ll need to score, assign probabilities and weights and adjust your thinking and actions accordingly.
4. Talk to Customers –This doesn’t tend to be the first thing people think about when it comes to procurement, but understanding the demand side implications for your business will be essential. How will demand be disrupted? Will there be specific products in your portfolio that will be more directly or severely impacted? Will this result in demand cutbacks or surges? Where will you source supply from? Can you cut back supply needs for others? How will buying patterns change – will there be channel shifts from offline to online? How does that play out in terms of critical suppliers and critical buys and requirements in the near to medium terms? Maintaining a dialogue with customers to understand their needs and issues and where all of this plays through for your team is essential.
5. Develop Plans for Strategic Categories –You’ll need to revisit your plans and the related risks around your most critical categories during a time of crisis. Make sure that these plans have been reviewed, the pressure points tested, the risk points analyzed and alternative plans considered. This could mean enhancing inventory levels (and rethinking inventory buffers based on the scenario planning we talked about earlier), assessing implications for delivery performance, gaining a view of multi-tiered supplier performance, increased inbound category visibility and more.
6. Examine Logistics Implications – By the same token, businesses must assess the logistics implications both inbound and outbound, either to make products or to ensure delivery. This has cost and timeline implications. All modes of transportation can be seen to be impacted, not least of which is shipping impacts – especially to and from China, but elsewhere, as well – whether these impacts are halts on movements, ramp downs, or the subsequently phased ramp back up. Or bypassing some of these options and going to airfreight which presents another level of cost to timeline tradeoffs.
7. Assess Liquidity – This will be critical and will call for a stronger partnership and alliance with finance. Looking at cash positions, assessing payables, and of course extending that into receivables, etc. will be essential. Add to this, talk of tightening credit markets and this makes it all the more important. Cash as always will be king if we need to endure near term instabilities, revenue disruptions, supply chain impacts, sourcing problems, and more
8. Assess Supplier Health – Part and parcel to all of this is assessing supplier health and evaluating who will be the most impacted. A clear view of your supplier segments – strategic versus mid-tier versus everyone else – is essential so you can focus your time and analysis accordingly.
For the most strategic suppliers, it’s critical to have a multi-tiered view of their supply base and related dependencies so you can adequately assess their performance and supply chain bottlenecks. This will involve structured risk analyses – looking across multiple variables beyond financials, to operational performance, to industry performance factors, to geographic and locational concerns and more. You’ll also need to identify alternate supply sources to shift production as and where needed, and as quickly as possible. Not all of this can be done at a moment’s notice. Some of it should have been done as part of a prior risk assessment exercise.
9. Think Ahead – Businesses can’t afford to simply think about today. Consider what the next three to six months look like. This is where scenario planning comes into play. It is critical to assess not only how you can react now but also how to prepare for eventualities later, when things are either fully back to normal or in some altered state based on longer-lasting ramifications from the events of today.
10. Work With Facts and Manage Emotion – Fundamentally, the most important thing you can do is to continuously monitor changes in a structured fashion. Have a programmed information collection and analysis mechanism. If we accept that the crisis is still unfolding and that the true impacts from a supply chain disruption perspective may not reveal themselves for months, we need to take tangible steps. This can be done by establishing a process to monitor other regions outside the infected areas that could be impacted. Are ports outside the infected areas being impacted through disruption or through new regulations to protect against transmission of the virus? Are suppliers struggling financially without access to the Chinese markets, jeopardizing their viability? Data will be important but data converted to relevant insight for your specific supply chain situation will be essential.
Omer Abdullah is Co-founder and Managing Director of The Smart Cube and is responsible for managing the company’s Americas business.Omer has more than 25 years of management consulting, global corporate and industry experience across North America, Europe and Asia.
Prior roles include A.T. Kearney (North America), Warner Lambert (USA) and The Perrier Group (Asia-Pacific). Omer has an MBA from the University of Michigan at Ann Arbor, USA and a BBA from the University of East Asia.