Risk Management Strategy Must Change to Navigate New Norms

By Richard Seel, Managing Director, Delaware UK
Richard Seel, Managing Director at Delaware UK, tells us that risk management strategies must change to navigate the new realities of supply chain today...

Risk management has evolved so much over the years that the time has come to think about redefining what it actually means as we approach 2021. Whereas it used to be all about identifying and attempting to avoid risks, more organisations are coming to realise that some element of risk is inevitable after having believed it to be something in their control. As such, the focus is now about becoming better at managing its impact.

A prime example is the unprecedented impact of the COVID-19 pandemic, with the global economy expected to shrink by 3% in 2020.

It is becoming abundantly clear that many organisations did not really understand what the risks to their business were when the virus first hit. The initial lockdown came as a major shock for many. There was a broad expectation in the earlier days of the pandemic that the virus would be a passing phenomenon and its impact would dissipate in a matter of months. People struggled to get a sense of the level of risk they were facing as the stockpiling of certain supermarket goods showed and It was hard for businesses to know what was around the next corner.

Scoping the key challenges

Today, despite the advent of the second wave of the virus, and multiple countries having to go back into lockdown, businesses have a better understanding of the key challenges they face and how they can start to move forward. They have begun to adjust to the new normal – and as part of that adjustment, they have started to understand risks better.

That does not means the risks have gone away, however. Recently, forecasting supply and demand has proved difficult with the lack of relevant historical data. Forecasting for this year’s Christmas period is clearly a case in point. Using last year’s projections to work out how this year is likely to pan out is clearly a non-starter. With the threat of ongoing but unpredictable regional lockdowns set to continue and ongoing shifts in consumer behaviour that are difficult to precisely pin down, it is very difficult for retailers to put plans in place. 

Majestic’s chief commercial officer Robert Cooke recently commented that the retailer had forecast a series of scenarios for how the Christmas period was likely to play out.

“Trying to gauge with any degree of certainly how customers will act over the next few months is very difficult and certainly it’s the most difficult Christmas to predict since I’ve been in retail,” Cooke said. “There are lots of different scenarios and we’ve got lots of playbooks and scenarios for those activities, but the key for me is being agile and playing the cards you get dealt.“

Difficulties in demand planning have not only impacted risk management for many businesses, but they now also need to contend with a new way of managing people. Many employees are currently still on government-initiated furlough and understandably are in fear of redundancy in the future due to the uncertain situation.

Another key area of risk is around sustainability. This is a multifaceted issue, encompassing not just the environmental impact of the business, but also the need to create a sustainable, long-term business model and, last but not least, building a sustainable workforce. All of these were hot topics prior to COVID-19, of course, but the pandemic has accelerated the need to put suitable models in place.

For many organisations, the financial shocks of the last year have meant looking at how best to restructure and refocus to ensure business continuity over the longer term. They need more than ever to keep employees engaged and build collaborative environments to combat the risk of disconnected processes as staff continue to work from home. Once again, these are processes that require a strong and robust approach to risk management. 

In addition, environmental threats and geopolitical disruptions could lead to more crises in the near future, according to the 2020 European Risk Manager Survey. All this points to a growing interconnectedness between risk management and sustainability, within which risk managers are set to play an ever expanding role. and want to become better equipped to do so. A key element of that is not only finding ways to combat risk, but also evaluating, how, in doing so, they can create new opportunities for the business.

Learning to see challenges as opportunities

With a shift in focus, a good modern risk management strategy needs to take into account the mitigation of risk and consider how it can be turned into opportunity. Many of today’s businesses have strong capabilities to tolerate risk, although they will struggle to move forward if they become too averse to it. When a risk comes to fruition, the greatest challenge is for businesses to get back on track and move forward. This is where a modern strategy can help. This could be about bringing the supply chain closer to home, or working with suppliers who are nearer geographically. It could be about increasing the number of suppliers to help share risk.

Agile supply chain planning and visibility is needed to see where risk can be most easily and efficiently reduced. A key example of this is manufacturers changing pack sizes and producing shelf-ready packaging to reduce costs and increase filling efficiency, for example, as well as manufacturers rationalising product lines and reducing the number of components in products as part of a process of simplification. Through the pandemic there has a natural tendency for food operations companies to switch to direct delivery to customers and use smaller pack sizes. 

Other manufacturers have looked to bring their supply chains closer to home in a bid to avoid the further disruption caused by travel restrictions. other countries.

Don’t be afraid to switch focus

It is vital to understand where the risk sits across and within your processes so that you can triage it and move forward into the practical execution of risk mitigation processes. A high degree of flexibility and dynamism is now needed across business functions, especially in larger organisations, as those that can’t adapt to counter new entrants or market challenges will find themselves in future difficulty. During the COVID-19 crisis, many organisations have adapted to the risk and successfully switched focus towards operations like PPE manufacturing innovation or increasing pharmaceutical manufacturing capacity to meet market demand, such as in the case of A&M EDM, where the business was able to 3D print visors and chin pieces.

Get in position for the future

Looking forward to 2021, manufacturers are living in a world where disruption has become the new normal. In countering this and the enhanced risk the second wave of the virus has brought, these businesses need enhanced visibility to identify risk but also the agility and flexibility to plan for these threats and build approaches that mitigate risk. Those organisations that use the latest supply chain management and planning technology to do this well will be the ones best placed to cope with whatever challenges the future may bring.


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