As supply chains become more global and complex in nature, they incur an added element of risk—risk that yesterday’s logistics managers didn’t have to contend with. The disruptions can crop up at any time, and range in scope from weather-related incidents, to supplier problems, to capacity constraints, to port congestion. Security issues and acts of terrorism can also come into play, making the risk associated with supply chains that much more serious.

In their GSCC presentation, James B. Rice, Jr., director of integrated SCM programs at the MIT Center for Transportation & Logistics, and Patrick Connaughton, senior analyst at Forrester Research gave attendees valuable insights into how to mitigate risk across the supply chain. This timely session provided hands-on recommendations for developing and executing a risk management plan that can minimize the impact of any supply chain disruptions that may occur.

Pointing out that risk management emerged as an area of interest some time ago, Rice says the issue has only recently gained traction among supply chain practitioners. Supply chains are as interconnected as they are complex, and this is one reason why managing risk has become top of mind for companies that “need to do something about it by reducing consequences via resilience and by reducing probability through security,” he says.

The complexities of the global supply chain go a long way in creating the need for better risk management, particularly with raw materials and product shipments (to customers) moving across multiple borders. The end results, says Rice, is a highly vulnerable, fragile supply chain. “The success of the supply chain is a function of the entire network,” says Rice. “There is always a disruption happening somewhere on earth, and that has a rippling effect.”

Rice breaks the risk down into four categories: financial, strategic, hazard, and operations. “For a firm to put its arms around each would be tough to do and hard to quantify,” says Rice, who sees flexibility and redundancy as the two keys to effective risk management. “Yet global firms buying and selling worldwide are exposed to all four on a regular basis.”

Connaughton says the best strategy for successful risk management is the development of day-to-day processes that can scale in times of crisis. Ultimately, however, he says that global supply chains are unprepared for high impact disruptions. “It’s not because they’re not on the companies’ radar screens, it’s just that there is an overwhelming number of possible scenarios,” he says. Connaughton sees one semiconductor manufacturer’s investment in a competitive intelligence system that allows it to predict how a port strike would allow a competitor to penetrate its accounts as one effective, focused risk management strategy. “Prioritizing is important,” says Connaughton, “because there are way too many possibilities and companies are unsure about where to put their money.”