Consumer package goods (CPG) companies, such as Unilever and Procter & Gamble, have earned a special kind of admiration in the supply chain world. They are targeting emerging middle class markets and it is their supply chain strategy that makes this a profitable—and enviable—business. Supply chain leaders across a variety of industries and marketplaces want insight into CPGs supply chain strategy.
A.G. Lafley, former CEO of Procter & Gamble (P&G), has recently co-written a book on strategy with colleague Roger L. Martin, dean of the Rotman School of Management at the University of Toronto. In Playing to Win: How Strategy Really Works, the authors define strategy as a series of choices: What is winning? Where are we going to play? How are we going to win? Do we have the core competencies and capabilities to win? How will we manage and measure strategic process? Although Lafley and Martin do not specifically call it out with these questions, risk is inherent.
Risk management is a core supply chain competency that goes hand-in-hand with supply chain strategy. Greg Schlegel, CPIM, CSCP, and risk and resiliency subject matter expert, recently shared with me an article published in Risk Management magazine. In the article, Lafley states that “fundamentally, your risk management choices, capabilities, programs, and processes come directly out of your strategy.” He goes on to say “you make your risk management bed when you make your strategy choices.”
But what about the risk of opportunity lost? Companies who boldly go where other companies do not are making a strategic choice to engage risk at a higher level than others. Taking hold of an opportunity that is high risk has the potential for high reward. Lafley makes the point that pushing into China to serve the emerging consumer class drove P&G’s supply chain decisions, such as manufacturing locally to keep distribution costs low. Although this introduced a good deal of risk at the time, it was an opportunity P&G leaders did not want to pass up.
What levels of risk do you address when creating supply chain strategy? Does your company evaluate loss of opportunity as a risk at the same level as other more tangible risks? What process do you employ to evaluate whether decisions made related to risk contribute to the success or failure of your strategy?