In our Part One posting, we shared our first of five predictions for 2010.  In this posting, we comment on our second prediction.

Prediction Two: Understanding the vulnerabilities and impact of risk across the extended supply chain, along with effective means to mitigate supply chain risk, will reach the executive agenda in 2010.

This topic is yet another carryover from 2009, but I predict that it will take on more high-level executive visibility in 2010.  The most significant evidence came from a recent ACE Europe / Economist Intelligence quantitative survey involving senior business executives.  The survey clearly brought to light that supply chain risk has reached boardroom visibility and this will cascade across supply chain organizations throughout 2010. Many other CEO and senior executive surveys conducted in the latter-half of 2009 all point to growing concern that risk has become a more permanent outcome of globally extended supply chains.

The existence and incidents of supply chain risk were non-stop throughout 2009.  The obvious risks were certainly those related to the cumulative effects of severe recession. Various economic factors led to incidents of supplier insolvency, capability failures, volatility in inbound commodity pricing and the potential collapse of key industries.  But risk and disruption incidents were far more extensive involving natural disasters, extraordinary weather events, product contamination, product counterfeits, as well as the ongoing threat of the flu pandemic. Risk has impacted multiple industry supply chains, including the most-sensitive and the most regulated.

2010 will bring added risks in commodity price hedging, currency-driven inflation or deflation brought about by continued major shifts in world economies and an increased regulatory environment. The upcoming year of uncertainty extends to supply chain risk, and firms will again need to have cogent identification and risk mitigation addressed.

As we approach 2010, supply chain risk management and mitigation, whether recognized or not, extends well beyond the responsibility of the procurement community, involving many more supply chain and product management functions.   Supply chain disruptions have amounted to losses in the millions of dollars, and have cost some companies major damage to their brands. It should be no surprise that concern has therefore reached the highest levels of management, and that singular accountability or a joint cross-functional team emphasis on risk may well become more focused in the coming year.

Supply chain teams should therefore anticipate a renewed emphasis on awareness, quantification, and mitigation planning related to risk.  One of the continual challenges in prior years has been the lack of singular management leadership and accountability of supply chain risk.  Our prediction is that 2010 will bring clearer emphasis and accountability to this area.

Prediction Three: Analytics and the ability to perform rapid scenario planning become the key 2010 competency for planning, aligning and responding to resource needs across the supply chain.

The effects of the global recession over these past 18 months have challenged traditional supply chain planning and resource allocation processes. Product demand is in a constant state of flux, and traditional planning and forecasting techniques that rely on past trending to predict the future are not proving to be adequate.

As noted in prediction two, continuous supply chain change and disruption is an unfortunate given for 2010.  Severe cost cutbacks have made global supply chain even more lean and vulnerable than they were a mere six or eight months ago.  Consumers and customers will wait until the last moment to place orders, and insist on delivery to match their just-in-time processes. Traditional planning processes that take days or weeks to cycle a plan will not suffice when events require immediate information or commitment. Demand-driven planning will most likely run on very short response times. Planning and resource information will need to be continuously available to be accessed by multiple teams. Multitudes of spreadsheets or planning outputs will not likely be able to keep up.

As industry supply chains enter their post-recession phase, the need for more rapid, event-driven planning will become much more apparent.  Instead of a reliance on past data and trends, planners will have to be able to sense and respond to constant rapid changes or shifts in product demand or supply plans.  Continuous innovation and release cycles in products will challenge both reliance on historic demand factors and require much more time-sensitive sensing of market acceptance and demand patterns.

The winners in 2010 will be those organizations that can predict or anticipate change as it occurs, with scenario plans available to respond in a much swifter manner than ever before.

As noted, a more detailed copy of these predictions is available in a free report. Please send an email request to the following email address: bferrari at blog1 dot com.  ([email protected] )  In your request please include the following information:

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Stay tuned for Part Three and Four of our 2010 predictions.

Bob Ferrari