“Control towers” provide a return on risk management investments

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CSCMP's Supply Chain Quarterly

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PERSPECTIVE

“Control towers” provide a return on risk management investments

By JAMES A. COOKE, Editor

An Accenture study found that companies earning a high return on their risk management programs have something in common: The use of “control towers” to collect and analyze data across the supply chain.

When the consulting firm Accenture recently surveyed executives across a wide range of industries and asked them if they earned a high return on their investments in supply chain risk management programs, very few said yes. In fact, only 7 percent of the 1,014 executives who participated in the study said that their companies generate a return of more than 100 percent on their risk management investments. Most reported far less than that, if anything at all.

According to Accenture’s report, one common strategy among companies earning a high return on their risk management programs is that they invest in tools that provide greater visibility into their operations. Specifically, the report noted that a key visibility technology in that regard is the use of “control towers,” which enable companies to collect and analyze data across the supply chain to identify developments that might affect their operations. Based on these analyses, companies can then mobilize a response when necessary.

The ability to see what’s taking place in the supply chain and then respond to unforeseen events is critical. That’s why so many leading companies have set up control towers, also known as command centers, where they can centralize information from their suppliers and carriers to create a “big picture” view of the end-to-end supply chain. For example, as discussed in my article “The power of a control tower,” Agilent Technologies took advantage of its control tower to mitigate the impact of supplier shortages from the floods in Thailand two years ago. Agilent used the tower’s visibility to look into its other suppliers’ capabilities to find alternative parts to build its equipment.

Control towers use special analytical software to spot problems in the making and then adjust supply chain flows to avoid or compensate for those problems. For instance, as described in my 2012 article “Inside Dell’s global command centers,” Dell’s parts division has a control tower with predictive analytics to envisage how weather events might disrupt its supply chain. The computer maker can then use that information to build an effective response plan should disaster strike.

As supply chain partners increasingly rely on demand signals to drive production and replenishment, more companies will need to deploy control towers in order to have the capability to readjust supply chain flows in response to market changes. In fact, I consider control towers to be so necessary and effective that I devoted a chapter to them in my new book, Protean Supply Chains: Ten Dynamics of Supply and Demand Alignment.

In a digitally connected global economy, companies must be able to rapidly react to changing market developments and seize upon opportunities to make, distribute, and sell products in a way that responds to fluctuations in demand. Those that operate control towers have less inventory in their pipeline and more of the right parts and products on hand to meet the vagaries of demand. They’re also ready to make changes when a disaster occurs. And that’s exactly why leaders in supply chain risk management are deploying them.

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