Part 4 – Institutionalize to ensure longevity and value
You may be part of an organization whose leaders understand that supply chain risk management (SCRM) is a strategic imperative, and your SCRM may already be mature and delivering a return on investment. Alternatively, you may be in the early stages of seeking buy-in for an SCRM initiative from division leads and C-level executives.
Wherever you are on the journey to a resilient supply chain, you’ll eventually have to master the Institutionalize phase (Part 4 of our four-part series based on Resilinc’s Ultimate Guide to Supply Chain Resiliency; read Part 1; Part 2; Part 3). Institutionalizing is when the support of your stakeholders and C-level leaders deepens because they see the SCRM program is achieving its metrics. This is where supply chain resiliency considerations and best practices are embedded into corporate strategy, culture, operational processes, and even product design.
INSTITUTIONALIZE TO ENSURE LONGEVITY AND VALUE
The key to Institutionalizing your SCRM program is achieving ongoing successes as measured by the metrics agreed to in the Plan—and ensuring that leaders and stakeholders validate these successes.
This ideally will lead to expanding the program to achieve more advanced milestones such as:
- Visibility into tier two and three suppliers
- Assessing for more types of risks
- Launching new initiatives such as a drive for greater supplier compliance with business continuity planning (BCP) and corporate social responsibility (CSR) guidelines
Here are the top 10 characteristics of SCRM programs that have been successfully institutionalized:
1) Leaders meet quarterly with their category leads and review proactive risk mitigations.
2) Executive sponsors provide quarterly updates to the CEO and biannual updates to the board, including presenting examples of what went well and areas for improvement.
3) Visibility intelligence is shared with insurance underwriters, and data-driven risk transfer is achieved, with high-risk sites covered by contingent business interruption insurance.
4) The supply chain organization’s operational review includes evaluation by the corporate risk team.
5) The SCRM leader regularly updates leaders in finance, audit, manufacturing operations, logistics, planning and other departments—as well as major customers, auditors, underwriters, and other external stakeholders.
6) Supplier metrics, scorecards, and goals are presented at quarterly business reviews.
7) Preferred suppliers are designated based on their transparency, sub-tier visibility, achievement of risk mitigations, participation in table-top exercises, BCP robustness and other factors.
8) Suppliers’ agreements include commitments to quantify the impacts of disruptive events (hurricanes, factory fires, etc.) within set time frames and to meet time-to-recovery objectives when force majeure clauses are triggered.
9) Supply chain teams collaborate with product designers to minimize exposure to high-risk parts and suppliers, as well as to incorporate appropriate mitigations, such as designing products to allow for alternate-sourcing and incorporating IP escrow clauses with small suppliers.
10) Benchmarking is done quarterly with peers in the industry or other industries to learn how they solve similar problems.
ALIGN COMPENSATION AND INCENTIVES WITH STRATEGIC GOALS
Many supply chain risk programs flounder because incentives are not linked to performance. To effectively institutionalize an SCRM program over the long term, supply chain teams should be compensated for achieving resiliency targets for products, parts and suppliers.
Many companies make the mistake of rewarding employees who play the hero and “save the day” when disruptions occur—even when it means they paid premiums for materials, parts or freight. A better practice is to reward employees who successfully meet their proactive risk mitigation goals and manage supplier performance to established risk metrics.
EMBRACE AND DRIVE CHANGE
Wherever a company is on the journey to a robust SCRM program capable of generating significant ROI, SCRM champions must always be agents of change, working across the enterprise to train and update staff, pilot new processes and propose new initiatives that align with corporate strategy.
A mature supply chain resiliency program touches people, processes, technology, metrics, incentives and policies. When all these elements are working in harmony, fully aligned with corporate goals, the enterprise has built a truly mature, resilient-stage supply chain risk program. The company has also empowered a cohesive, motivated and effective high-performance SCRM team that can outperform competition, use the supply chain to generate competitive advantage and generate meaningful enterprise value over the long term.