One of the best parts of serving as executive director of The Risk Institute at The Ohio State University Fisher College of Business is helping to bridge the gap between academia and corporate practitioners.
Each year we fund more than $100,000 of leading-edge risk research and we also conduct one of the industry’s premier risk management surveys, polling more than 500 risk management practitioners across a broad cross-section of industries. The surveys and research can be found at The Risk Institute Research Hub; current areas of focus include fraud and ethics, protectionism, macroeconomic consequences of demographic change, weather and climate risk, longevity risk, and digital risk.
The purpose of this three-part article is to share our university research on the concept of resiliency from two perspectives. The first two parts of the article will share our research on risk and supply chain dynamics. The third part of the article focuses on resiliency and cyber risk.
In an interconnected, volatile, global economy, supply chains have become increasingly vulnerable. Disruptions — even minor shipment delays — can cause significant financial losses for companies and substantially impact shareholder value. Globalization has made anticipating disruptions and managing them when they do occur more challenging. The potential risks of disruptions are often hidden, and the potential impacts may not be understood, which often results in black swan events – events that can only be fully understood after the fact.
Although companies originally moved production offshore to countries such as India and China to take advantage of lower labor costs, events like Iceland’s 2010 volcanic eruption and the Japanese tsunami in 2011 have shown that the vulnerabilities of extended supply chains are real and serious. For example, according to the U.S. Federal Reserve, 41% of Minnesota manufacturers said that Japan’s tsunami had affected them negatively. As a result, many manufacturers have reevaluated their sourcing options, and some are shifting operations back to their home markets. While these companies perceive other advantages to reshoring, including improved responsiveness and domestic job creation, reducing their exposure to risk has been an important driver.
The reality is that supply chain practices designed to keep costs low in a stable business environment can increase risk levels during disruptions. Just-in-time and lean production methods, whereby managers work closely with a small number of suppliers to keep inventories low, can make companies more vulnerable due to the lack of buffer capacity.
Over the last seven years, researchers at The Ohio State University have been exploring the concept of enterprise resilience, i.e. how companies can prosper in the face of turbulent change by being able to recognize, understand, and compensate for vulnerabilities. The result is the SCRAM (supply chain resilience assessment and management) framework, which enables a business to identify and prioritize the supply chain vulnerabilities it faces, as well as the capabilities it should strengthen to offset those vulnerabilities. Part II of this article provides an overview of the SCRAM approach.