Friday, August 7, 2009

Is Supply Chain Risk Analysis a Waste of Time?

I hear that the China needs to maintain economic growth of 8% to stem widespread social unrest. Unrest! Yes! Listen to this:

When the state-owned Tonghua Iron & Steel was sold to a private group recently, 30,000 staff rioted in protest believing that the sale would lead to significant job losses.

The protests and subsequent riots led to the death of the steel factory's manager, Chen Goujun, who was beaten and later died in hospital. This is bad enough, but it comes on top of much more serious riots betwen Uighurs and Han Chinese over the labour problems at a Guandong province factory which led to more than 200 deaths. (See:

So what has this to do with supply risk?

A pharmaceutical CPO said that he saw detailed risk assessment as a waste of scarce resources. He would much rather spend the time and effort on putting in place back up plans. His reasoning? That the only certainty is that a supplier somewhere will go to the wall - which particular one isn't the important issue.

The important issue is to ensure that the company has back up plans and strategies in place. On the one hand, a consumer goods company had compiled a detailed risk assessment on every single one of its suppliers, including potential risk and alternative suppliers.

It stoked a huge amount of debate, and has proved to be one of the most popular threads on the Procurement Leaders Blog.

Now if you are dealing with a Chinese (or any other for that matter) supplier and you did not worry about what was happening with and all of a sudden your order is late. What are you going to do? The choice is yours? Do you keep abreast of what is happening WHERE YOUR MAIN SUPPLIERS ARE? You should, this is part of your risk.