MIT Study: “Devil in the Details” of Supply Chain Risk Management

MIT Study: “Devil in the Details” of Supply Chain Risk Management: Industry analysts agree that it’s important to make risk assessment an ongoing process, allowing for frequent plan updates as political conditions, fuel prices, tariffs, currency exchange rates, labor costs, and other supply chain security threats arise. Up until now, the focus for most US manufacturers has been on protecting its most asset-intensive suppliers, to ensure that key high-value components are always available.

But a new body of research on supply-chain risk suggests there may be no correlation between the total amount a manufacturer spends with a supplier and the profit loss it would incur if that supply were suddenly interrupted.

This “counterintuitive” finding by MIT scholars and analysts defies a basic business tenet that equates the greatest supply-chain risk with suppliers of highest annual expenditure.

When applied to Ford Motor Company’s supply chain, the quantitative analysis by Professor David Simchi-Levi of MIT’s Department of Civil and Environmental Engineering and Engineering Systems Division shows that the supply firms whose disruption would inflict the greatest blow to Ford’s profits are those that provide the manufacturer with relatively low-cost components.