This is the second in a series of three posts responding to a challenge among our blogsphere community of supply chain bloggers to offer some thoughts on the seven grand challenges for supply chain management for the next ten to twenty years. The notion of seven challenges was motivated from a recent Gartner research theme that outlines The Seven Great Challenges for IT.

 In my part one post on this topic, I outlined what I believe to be the first three challenges:

- Ubiquity of Portable Computing Leading to Sensory Networks

- True Supply Chain Business Intelligence and Decision Making Tools

- Managing the Explosion of Data and Information Needs Involved in Global Based Value Chains

I also narrowed the timeline of these challenges to the next five years, since I believe that that this is the upper limit of the ability of our organizational communities to articulate a meaningful objective, as well as a set of multi-year initiatives to support the achievement  of this objective.  In this post, the I will outline my notion of next two challenges, which are more focused on supply chain business strategy, namely:

- Managing Supply Chain Risk Management on a Global Basis

- Who Assumes Ownership for the Extended Supply Chain?

Challenge Four – Managing Supply Chain Risk Management on a Global Basis

Many of us have been speaking, writing, and speaking with members of our community about the implications related to the fundamental shifts that are now underway relative to the sourcing of suppliers, material, or production among multiple regions of the globe.  Many of the original sourcing decisions were primarily driven by a cost consideration, more than likely perceived savings in direct labor costs in regions such as China or other Asian or Eastern European countries. Today, those decisions have become more challenged with the need to balance market access and customer service to higher growth markets in the developing regions of the globe, with the realities of an era of high energy and global transportation costs that are a reality over the next five years.

This past year alone, stories of product safety, product contamination, and higher levels of natural disasters, terrorism and other risks continue to permeate the headlines.  Just in these past few days, the sobering news of Hurricane Ike striking the heart of the U.S. energy and petrochemical related supply chain, financial markets in a potential disarray, product recalls continuing to involve the most fundamental of consumer health and safety related value-chains, have all provided more sobering reminders of the reality of supply chain risk management being a constant given for our functional world.  My belief is that over the next five or so years, many supply chain and other industry groups will have to come to realize that this extension of the overall value-chain all over the globe will continue to  motivate senior executives to be much  more concerned and involved in the understanding, managing or mitigating of risk throughout the value chain.

This challenge is not an easy one, and will require much more collaboration and alignment across multiple functional as well as inter-enterprise groups involving procurement, operations, finance, logistics, and other cross-company and even inter-governmental agencies. The C-suite cannot just delegate this initiative to the supply chain manager, but instead has to be an active champion, advisor, and sponsor.  Organizational wide awareness and rational assessment of risk profiles are lacking. While technology will play some role, this is primarily a challenge of organizational and process dimensions.  That leads to challenge five.

Challenge Five- Who Assumes Ownership for the Extended Supply Chain?

 Many of us have observed and commented on the reality that supply chain management today is more and more related to a broader scope of management and coordination, namely  suppliers, production,  IT and service partners stretched all along an extended value chain. And while many talk a good game, executive surveys constantly ground us to the reality that functional barriers still hinder many companies in their attempts to overcome challenges for being more agile or responsive to business change, or marshalling resources and systems to better manage these networks. The analogy that sometimes comes to me to describe this current interaction is perhaps an episode of “The Apprentice”, where team members often conspire to make other team members look bad in the eyes of “the Donald” and his board of advisors.

 At the same time, I’m sure many readers have noted that current phenomenon of these same functional managers adopting some form of the name of “supply chain manager” I have previously commented on the movement of CIO’s assuming overall leadership of the extended supply chain, and I often observe how current procurement and sourcing management positions are more and more being described with a supply chain management scope of responsibility.  This same overlap even extends to the professional organizations that span these functions, with APICS, CSCMP, ISM, and others all converging on similar tracts of education and certification.

Challenge five is in my lens involves manufacturers, retailers actually once and for all coming to the realization of the organizational scope, resources and budget control required for one manager to assume leadership for the entire value-chain.  This manager should be adept in the broad understanding business processes, risk management, appropriate deployment of technology, and the scope of information required to make timely and informed decisions.  The skill level will, in my perspective, be broad, and encompass product, business, technology and functional scope of strategy and day-today execution.  This person will clearly grasp the big-picture, be able to manage overall change among cross-company organizations, and understand that functional lines in supply chain have all blurred.  No doubt, he or she will reside very close to the C-suite, and have enormous responsibilities and respect, as well appropriate leadership style. With all due respect to my fellow blogger Michael Lamoureux  on Sourcing Innovation, I do not feel that we can target the CEO as the sole czar of the supply chain, since this executive has to be more focused on the total business, and serve as the ultimate check and balance for all that occurs in that business.. Challenge five is an organizational challenge, one that will have to transcend personal lobbying and positioning, with a focus on bold leadership, coaching, and change management.  Having a thick skin and a sense of humor would also help.

In the spirit of interchange of ideas, and the power of blogging, I ask readers of this and other postings to comment on the type of leadership style that will be most successful in leading the extended supply chain.  I offer two sample contrasts; Bill Belichick of my New England Patriots whose style emphasizes technical fundamentals, individual contribution and consistent execution, or perhaps Duke University basketball coach Mike Krzyzewski, whose style emphasizes the five fundamental qualities of team- communication, trust, collective responsibility and pride. Which style do you feel fits the leadership requirement of your supply chain organization over the next five years?

 Bob Ferrari

As if we all had our full dose of news regarding the safety of international food and drug related supply chains, a report yesterday from the HealthDay Reporter site of U.S. News and World Report indicates that U.S. Food and Drug Administration (FDA) has now denied entry of more than 30 generic type drugs manufactured by India based drug maker Ranbaxy Laboratories Ltd., one of the world’s largest producers of generics.. This ban was initiated because of manufacturing process deficiency concerns within two of Ranbaxy’s factories, which are located in Dewas and Paonta Sahib India, The director of FDA’s Office of Compliance is quoted as indicating that as far back as 2005 the agency received information about possible fraudulent practices by Ranbaxy, and also is quoted as indicating- “The firm is sufficiently out of control that we feel an import alert should be in place until the deficiencies are corrected.”

Meanwhile as I noted in a last weekend  post (Baby Formula Recall in China- Another Product Safety Concern), citizens across China continue to deal with concerns related to a product recall involving tainted powdered milk that was used in the production of baby formula which has sickened hundreds of infants.  China’s largest producer of powdered milk, Sanlu Group, recalled 700 tons of baby formula after it was determined that milk was diluted with water, and that the chemical melamine had apparently been added by certain dairy producers to boost the protein level of the milk.

 A report by CNN is now indicating that China’s agency for food safety is marshalling its resources in an effort to broaden its inspection of that country’s dairy producers, with producers in Hebei, Guaugdong and Heilongjiang provinces, as well as Inner Mongolia now being targeted for inspection.  More disturbing however are reports that the international joint partner of Sanlu Group, New Zealand based Fonterra Co-Operative Group, one of the world’s largest dairy co-operatives, was notified as early as August 2 of the potential contamination, and had been urging board members of Sanlu Group to initiate a product recall  Chinese health officials indicated that they did not act until September 8 to ban the formula in question, since that was the time that both New Zealand Prime Minister Helen Clark’s government urged action, and officials of Sanlu Group acknowledged the problem.

As an observer of these ongoing incidents involving food and drug related supply chains of developing nations such as India and China, there tends to be a consistent pattern related to the lack of necessary controls, as well as a reluctance or fear involved for any supply chain participants to want to “blow the whistle”.  My advice for supply chain professionals trying to manage with integrity in these environments is to continue to insist on transparency. This is obviously easier stated and difficult to consistently implement within societies driven by the promise of profits at all costs.

In the spirit of education and shared knowledge, I encourage supply chain professionals to add their views and perspectives on these issues in the comments area of this entry. What’s your view on how to manage within this environment?

 Bob Ferrari

I was invited by Oracle’s Supply Chain Analyst Relations team to participate in an SCM Analyst Summit briefing last week. Various Oracle executives shared product and strategy updates on the applications and industry support strategy that now make up the Oracle SCM applications suite.  The briefing also served as a preview to announcements expected to be made at the upcoming Oracle Open World 2008 conference that is being held from September 21-25 in San Francisco.

Since 2001, I for one have been impressed by Oracle’s vision for SCM, and each year that I participate in these update briefings, I am continually impressed with the overall progress that is being made by the Oracle teams.  A potent suite of applications continue to be assembled and matured, to bring application, database, and information integration together on a cohesive platform. Also, with the JD Edwards offering, both large as well as mid-sized supply chain organizations have budget and functionality choices for supply chain process support needs.

The Oracle strategy for supporting supply chain management of late involves a two-prong strategy of coupling market competitive functionality with a platform that can support a services-oriented integration of information across the various applications  Readers may be familiar with the fact that Oracle has not been shy about augmenting its supply chain functionality via acquisition, and the applications of Agile for supporting  PLM, Demantra for S&OP and demand management, and G-Log for transportation have each been augmented to Oracle’s existing supply chain suite of applications for planning, procurement, fulfillment, warehouse management, collaboration, network optimization and business intelligence.  Oracle SCM is more and more being wedded to the Applications Integration Architecture (AIA) which is Oracle’s framework for supporting cross-application business processes. This means that if you are interested in any of the newly acquired SCM applications, they can be implemented on a stand-alone basis, without the immediate need for the entire suite. And to take advantage of this strategy, Oracle has elected to maintain an augmented sales team of specialty representatives representing the applications of Agile, Demantra, OTM (Transportation), in addition to the ERP teams.

I am restricted by Oracle in sharing any of the five product announcements prior to Open World 2008.  I can however inform Supply Chain Matters readers that I was impressed by the progress being made by Oracle, and that this vendor continues to invest in additional customer functionality among its acquired applications.  My notes indicate over 300 enhancements to Agile PLM, 100 enhancements to Demantra, and 40 enhancements to G-Log, now termed Oracle Transportation Management (OTM).  Oracle’s SCM Suite is now at Release 12.1,  and readers who plan to be attending Open World 2008 can anticipate a number of presentations on strategy and direction, as well as a customer panel. I will provide additional commentary for readers during the week of Oracle Open World.

 Bob Ferrari

As I write this post on Saturday morning, September 13, 2008, Hurricane Ike continues with its direct hit to the Galveston and Houston Texas area, battering the entire Southeast Texas and Louisiana coastal regions with torrential rains and devastating winds.  Ike is the first major hurricane to hit a U.S. metropolitan area since Katrina devastated New Orleans three years ago.  At the time this massive storm came ashore, winds were measured at 110 miles-per-hour, with 35 foot sea waves and 20 plus feet of storm surge.  The storm also has a massive scale, stretching more than 600 miles in width. Our thoughts and prayers are that human loss and injury will be minimal, but the coming hours and days will tell the true story.

Hurricane Ike may also provide yet another entry in our logging of major supply chain disruption.  With the nation’s biggest complex of refineries and petrochemical plants located directly within the path of this storm, many chemical and petrochemical related supply chains will experience some form of disruption or supply/demand impact for many weeks to come.  Four of the top 10 oil refineries, representing major output capacity are located in this region.  The ports of Galveston and Houston are major ports of entries and exits of bulk tanker shipments, and let’s not forget all of those off-shore drilling platforms that also feed their crude to this port complex. These same refineries also supply some of the nation’s largest petrochemical plants that are located within this same region.

While it is far too early for me to pen speculation, I do believe that supply chain procurement, planning and logistics professionals should anticipate a period of difficult challenges over the coming weeks, starting this weekend. When Hurricane Katrina struck New Orleans, the port of New Orleans was not opened to general shipping traffic for six weeks, since the harbor and linking major shipping lanes had to be completely cleared of debris and hazards to shipping.  It will take days or perhaps weeks to assess the damage among the various refineries, bulk storage facilities and petrochemical plants and repair the damage.  Normal re-starts of these facilities generally take two to three days under normal conditions, let alone abnormal. 

Feedstock and bulk input materials in these industries generally average three to four weeks of bulk supply, and if disruption or unusable feedstock exceeds this time period, than supply chain professionals will be presented with more challenging supply and demand imbalances to overcome or compensate for.  Impacts to end-item pricing are yet to play out, but already gasoline prices in the U.S. have begun to spike.

For today, let’s all focus on the tens of hundreds of people and families that have to deal with the effects of this devastating storm.

If any readers who read this post want to contribute further information or commentary as to the immediate and longer-term impacts of this storm, I certainly encourage you to do so in the comments area below.

 Bob Ferrari

China’s largest producer of powdered milk, the Sanlu Group, has recalled 700 tons of baby formula after it was determined that this formula was linked to the death of one infant, with kidney problems now being linked to at least 50 more infants.  This company represents 18 percent of China’s milk powder market, producing 6800 tons of milk per day.  According to an article published in the International Herald Tribune, at least six Chinese government agencies descended on the milk powder factory that produced this formula.  The story quotes a company official quoted on the website of a leading Chinese business magazine indicating that Sanlu company officials were aware of the contamination more than a month ago but did not chose to go public.

Investigators have apparently determined that the formula in question contained melamine, an industrial chemical.  Various reports indicate that suspect suppliers added water to the milk in order to make additional profits, but compensated with the chemical melamine so that the diluted milk’s protein count would appear higher and could pass quality standards.

Readers should well recall the name of melamine as this was also the chemical linked to a massive recall of U.S. pet food.  In February 2008, a U.S. company, ChemNutra Inc. and two Chinese businesses were charged by a federal grand jury in connection with the import of 800 metric tons of wheat gluten tainted with melamine that may have killed thousands of cats and dogs in 2007.

I for one continue to be saddened by these constant incidents, most of which originating from supply chains residing within China, impacting our most precious food and drug products with contamination and causing death and injury.  I’ve penned numerous posts related to the contamination of the life saving drug heparin, food, and now we have yet another incident involving infant formula, and precious children.  While the U.S. FDA has assured U.S. consumers that no infant formula has been approved for import, even that agency has left the door open to limited quantities penetrating ethnic grocery stores in the U.S.  When or if these incidents ever end is really up to China’s industry and government leaders.  Perhaps this is our continual reminder of the ugly side of capitalism, regardless of product.

 Bob Ferrari