Like all major business initiatives, SCM technology implementations can bring significant rewards—but also carry some degree of risk. Effective project teams mitigate this risk by looking at both short- and long-term consequences, as well as sharing risk responsibility and ownership across the supply chain.
Risk minimization has become a universal theme in today's business world. Every major product launch, market expansion or other corporate initiative is supported by weeks or even months of analysis that seeks to answer the most basic question: What do we do if something goes wrong?
With every significant business initiative comes the prospect of an enormous reward—as well as the potential for minor setbacks, if not outright disasters. Implementing new supply chain management (SCM) technology solutions is no exception.
While innovative SCM processes and technology tools have the strength and capability to revolutionize an organization, they can also disrupt business as usual, at least in the short term. Unless implementation projects are intelligently managed—with risk minimization in mind from the very beginning—new technology initiatives can have unexpected long-term consequences as well. For example, in 2001 a much-publicized supply chain breakdown involving Cisco and a third-party solutions provider cost Cisco $2.2 billion in inventory write-downs—the largest loss of its kind in business history.
In hundreds of technology implementations, i2 has gathered a wealth of risk-mitigation insights that can help businesses minimize exposure and maximize rewards, when embarking on a new technology implementation. These insights begin with the need to take an entirely new view of risk.
An expanded concept of risk
The conventional definition of risk—as it relates specifically to technology implementations—is an uncertain event or condition that could have a negative effect on meeting the project deliverables with regard to scheduling, cost, scope or quality. Typically, the process of risk management entails identifying these events, preparing a response plan, monitoring the risk level and implementing an appropriate response when unexpected events occur.
For most technology project teams, risk management efforts are focused solely on meeting their own project deliverables, as opposed to ensuring the future stability and scalability of the overall supply chain footprint. Most project teams fail to even consider risks that may arise during the post-implementation phase, when the solution will be subjected to multiple process and technology changes.
We believe this approach to risk management is dangerously narrow in scope. Instead of defining risk in terms of the short-term work of the project team, risk must be defined as it relates to the long-term viability of the global supply chain. While a technology project team might conclude its narrowly defined task with complete success, there can be enormous negative consequences when that team disassembles, because team members have failed to consider the far-reaching effects of their work. When the new SCM solution causes a broad disruption across the value chain—whether this occurs weeks, months or years later—there is seldom anyone in the business who understands what has happened, or knows how to address the issue.
While many teams assess short-term project risks in such areas as resource availability, and data integrity and integration, they need to consider broader issues such as long-term performance and scalability, operating environment and hardware, and reporting and connectivity. Their implementation work must look toward the future, assessing the subtle but important ways in which their technology project has the capability to impact the global supply chain.
Risk mitigation: a shared responsibility
Similarly, most project teams take a narrow view of risk ownership—relying on a limited number of team members to understand and assess the risks associated with their efforts. But project teams need to remember that the supply chain spans the business, and possible risks can also be found throughout the business.
Some of these risks are obvious, while others are subtle and easily overlooked. For that reason risk mitigation responsibility should be shared outside the project team, with a broad range of business process and supply chain stakeholders called upon to lend their insights and expertise.
By inviting the participation of employees up and down the supply chain—as well as key vendors and customers—technology project teams can ensure that their implementations will bring lasting benefits, not continuing disruptions.
Learn from the experts
Every implementation project is unique—fraught with its own set of complexities and risks. But risk minimization practices can be standardized across projects, in order to capture best practices and ensure consistency.
Some leading organizations, including Texas Instruments, have become extremely sophisticated in the way they mitigate risk during SCM technology implementations—and the typical business has much to learn from them (see below, "Three Steps to Managing Risk").
While not every business may be able to achieve this degree of sophistication and thoroughness, we believe that every organization can enhance the work of its project teams simply by taking a new perspective on risk. By broadening the definition of risk to include long-term impacts—as well as making risk mitigation a shared responsibility—virtually any business can improve its implementation practices and manage risk more effectively.
— by Dr. Ramesh Raghunathan and Jiten Sandu
Three Tips for Managing Risk
by Robin Bray, Director of Supply Chain Systems, Texas Instruments
At Texas Instruments, we have a "zero disruption" policy for our technology implementations. Therefore, we must place a great deal of focus on managing risk during these implementations. In our 12 years of working with i2, we have made numerous improvements to our risk management processes. Today, we apply three basic tenets that help us manage our exposure at every phase of implementation—and beyond.
- Identify every risk
Each technology implementation project at Texas Instruments begins with a "universal risk assessment" process that collects information on potential risks from multiple stakeholders and perspectives. Any stakeholder in the overall SCM solution is a potential risk expert and has an opportunity to contribute to the universal risk assessment. During this process, individuals outside the core project team are invited to identify potential risks from their perspective. Gathering input from management, operations, infrastructure and other stakeholders helps to identify key areas of focus and may reveal critical insights. All identified exposures are mitigated through a regular risk management process, but the most critical risks—those with high likelihood or severe impact—progress to the next phase of risk management.
- Track critical risks over time
At Texas Instruments, we use "risk dashboards" to track the status of key risks over time. These risk dashboards contain the most critical risks as identified by the universal risk assessment. Because the relative priority, severity, likelihood and status of any risk can change throughout a project, this is a useful way to show the progression of risks over time. The status of each risk—monitored using a color rating (red/yellow/green)—is tracked weekly via the dashboards to show the current state of the risk, as well as highlighting any actions needed to eliminate the risk, mitigate it or plan a contingency. This additional oversight has proven beneficial to our project execution.
- Ensure ownership of solutions and associated risks
Virtually every SCM solution includes a number of custom programs that are wrapped around out-of-the-box software products. These programs, written for various reasons, can be implemented under the radar, without proper documentation and knowledge transfer. If left unmanaged, these custom programs can represent future risks, as they could be inadvertently deleted, changed or overlooked during system upgrades. At Texas Instruments, we have adopted the term "work products" to legitimize all work done for any particular solution. These work products are subject to the same configuration management processes as the rest of the SCM solution. This helps to transfer the complete solution ownership from the project team to the operations team, and ensures that the entire solution is managed properly.
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