Thursday, April 19, 2012


"Usual suspects" replaced

Make way for economic turmoil, commodity pricing fluctuations and business/supply chain interruption

Companies in the global industrial and materials industry face three specific global risks: economic turmoil, commodity pricing fluctuations and business interruption, which includes supply chain disruption, according to a new study from Aon.

The new "primary risks" for global industrial and materials industry operations replace the usual suspects: environment, human, and technology.

The new threats also highlight the need for true enterprise risk management, vs. "just" business continuity or "just" disaster recovery.

For the typical business continuity practitioner, economic turmoil, commodity pricing fluctuations typically are "out of scope." These are areas requiring a financial guru's crystal ball. Traditionally, business interruptions, including supply chain disruptions, are within the business continuity practitioner's scope.

The Aon report focuses on "the global industrial and materials industry," but when practitioner's look at what any organization does to justify its existence, all are in one way or another directly or indirectly in a "global industrial and materials industry."

Pick a product or service,. Somewhere along the way to product or service delivery there is an international link. It is a global economy; what happens in Greece impacts Japan, half-a-globe away.

Commodity pricing fluctuations may seem to be a problem for the Fortune organizations, but they impact even a Mom-n-Pop operation, particularly if it makes deliveries. (Have you checked the price at the pump lately? Oil is a commodity, as is the corn that goes into ethanol instead of on the dining room table.)

This all connects back to the threat of supply chain disruption. If the vendor (supplier) cannot

    (a) Make the product because it lacks raw materials (for any reason)

    (b) Deliver the product because it can't afford the transportation

Mom-n-Pop will fail to meet their service level agreements with their customers.

The "usual suspects," while supplanted by the new trio, remain in the wings and must - not should, but "must" - get practitioner and management attention.

OK, so the practitioner is hardly a commodity pricing authority. But the practitioner also is not an authority on HR employment laws nor competitive analysis, but we expect the practitioner to know where to find Subject Matter Experts (SMEs) in these fields.

Likewise, the commodity pricing authority - an SME for the practitioner - also turns to other SMEs for input before predicting the future. Experts in a variety of disciplines, not the least of which is the weather forecaster, are queried by the commodity expert.

The "bottom lines are that

    (a) The only way to protect the organization is with a true, enterprise risk management program

    (b) The risk management practitioner needs to be a Subject Matter Expert in risk management with the ability to ask the right questions of the right people, both inside and outside the organization

    (c) Nothing should be "out-of-scope" for the enterprise risk management program

It should go without saying, but the enterprise risk management sponsor must be a Very Senior Executive or Board member with fiduciary responsibility.

If I wrote it, you may quote it.

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