Supply Chain

Information Technology & Risk Management in Supply Chain

There are several risks associated with the use of Information Technology in the Supply Chain, and the process of adding new supply chain capabilities with IT can be fraught with danger.

IT system changes have the potential to negatively affect operations to a greater degree the larger the change. If IT suffers a major failure in a company, the risk is greater that the firm will not be able to function. Here we discuss some of the risks associated with the use of IT in the supply chain, along with some ways to mitigate them.

Generally, there are two broad categories of IT risk. Adding new IT systems involves a number of risks, the first and potentially greatest of which is risk. When a company is implementing new IT systems, it must transition from the old processes it used in its operations to the new processes in its IT system.

Technical issues and business processes can both cause problems in this area. Businesses often have to adjust their processes in order to use new IT systems. These may be difficult to learn, require training to execute, or even be outright resisted by employees who still prefer the old way of doing business.

Getting the entire organization on board with the changes brought about by a new IT system is particularly difficult because top management is often not actively involved in making this transition. In addition to business process adjustments, there are tremendous technical hurdles to overcome in getting new IT systems operational.

The amount of integration that needs to take place between disparate systems is often overwhelming. When a firm switch over to a new system without proper integration, the new system is unable to perform all that was promised and sometimes even performs worse than the system it was replacing. Even when the employees are bought into the new process and all the technical hurdles are overcome, it is often a delicate balance to actually make the transition over to the new system.

A firm still faces risks once its IT systems are operating. This is the second of the two broad categories we mentioned above. IT problems, ranging from software errors to power outages to viruses, can completely shut down a firm’s operations if it relies on IT to make decisions and execute processes. These are serious risks that a firm must plan to face. IT also poses a risk in that it tends to set processes in stone. Perhaps a system only allows a process to be executed one way.

Then the firm settles into a pattern of always doing this process that way. Obviously, there are great efficiency benefits to this, but the firm also runs the risk that the process is not of the performance level of its competitors and that its systems make it difficult to change to newer, more effective processes.

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