As October draws to a close, I am again pleased to report that Supply Chain Matters has surpassed new milestones in recognition and loyal readership among supply chain management and other professionals.

Blogs have become a new alternative for knowledge and insight, where readers return for timely and insightful analysis and opinion above the drone of daily news. In the area of supply chain management, there are but a select handful of quality sites where practioners can turn to for a balanced viewpoint, and that was the primary reason that I launched this site. This has all been borne out from this blog’s continued attraction.  Thus far, this site has experienced:

• Over 4300 visits in October, over1900 of which are from new visitors
• Over 54,000 monthly hits
• An October average of over 150 visits per day and 1900 hits from other sites
• Close to 12,000 bookmarks established

I again extend my personal thanks to all my loyal readers for your continued support.

We have incorporated a select number of site sponsorship opportunities that affords innovative supply chain technology, services, and other providers the ability to acknowledge their sponsorship of leading-edge thought leadership. Sponsorship of Supply Chain Matters can serve as an effective means to identify your company or organization as a sponsor of leading-edge thought leadership, as well as leverage brand awareness, lead generation and viral marketing strategies. This is especially important in prioritizing limited marketing budgets for 2009. There are several flexible plans of gold, silver, bronze, or interim sponsorship, and the most premium gold sponsor slot is also currently still available.

To initiate an inquiry process you will note that on the top right hand side of this site, under the Pages column, there is a Sponsorship Request link.  Simply fill out the interest form with a bit of important contact information indicating your interest in potential sponsorship, and I will personally follow-up with you. You can also email your interest to supplychaininfo@theferrarigroup.com.

Bob Ferrari

Last week, Wal-Mart, one of the world’s most influential global retailers indicated that it will set new quality standards for it suppliers amid the recent food safety contamination incidents occurring in China.  I for one applaud this effort from Wal-Mart.

A news report picked-up by many media outlets quotes Mike Duke, the vice-chairmen of Wal-Mart Stores Inc. international division, as indicating that the retailer has been working on this heightened quality initiative for over three years, but the increasing number of incidents concerning the quality or safety of Chinese made products have made transparency in the supply chain “even more important”. The story further outlines that Wal-Mart has had to deal with the effects of previous incidents in 2007 relative to pet food and pet food treats, the scandal involving the recall of toys manufactured for Mattel Inc., and a recent incident involving faulty safety pegs within infant cribs, that were also manufactured in China.  The thrust of these revised standards is to insure that suppliers to Wal-Mart take complete responsibility for quality up and down the supply chain.

Taking full-responsibility for the transparency of quality throughout the supply chain is no easy task, especially for firms that are new to the global sourcing experience.  The need for clearly identifying potential supply risks, insuring early-warning mechanisms and mitigation strategies will occupy executives of all types.  But as many a large and smaller supplier has learned in the past, ignoring a Wal-Mart directive can prove to be very costly. Further, Wal-Mart bound products have a tremendous presence within and across China’s existing supply chains, and this directive, when enforced, will surely also have far-reaching implications.

I have been in the process of designing a workshop that dives into this rather timely topic of supply chain risk management, and specifically how companies can overcome challenges impeding the development of an effective supply chain risk management strategy, as well developing a framework to address management and mitigation of these risks.  The specifics to workshop scheduling and availability will be made available over the coming weeks. If you or your company has specific interest, you can send an email to scminfo@theferrarigroup.com . Please indicate your name, company, and email address and we will contact you directly with the specifics when they become available.

Bob Ferrari

There was optimistic news on Monday indicating that with the help of a federal mediator a tentative agreement has been reached between the Boeing Company and its 27,000 member striking Machinist’s union. A union endorsement vote is scheduled for this upcoming Saturday.  This agreement comes in the eighth  week of work stoppage, and the overall disruption could cost Boeing and its supplier network untold hundreds of millions of dollars.  Union leadership is recommending that striking workers vote to ratify this new four year agreement. 

As we have noted in previous posts, the heart of this labor dispute revolves around wage increase demands, healthcare benefits, as well as Boeing’s ability to outsource work to some of its outside contractors, a key issue for some of Boeing’s supply chain outsourcing strategies. 

In wages and healthcare benefits, the agreement calls for a 15 percent wage increase over four years and a freeze on worker medical costs at 2005 levels.  In job security and outsourcing, a compromise was reached among union negotiators and Boeing which will have to be played out in the coming months. In 2006, Boeing hired 3PL provider New Breed Logistics to manage the delivery of parts to its 787 Dreamliner assembly lines from a distribution facility adjacent to Boeing’s Everett WA plant. The union took objection to this practice.

According to a blog posting by James Wallace on Aerospace, a journalist for the Seattle Post-Intelligencer, as well as a summarized document posted on the web site of the striking Machinists union, Boeing retains the ability to have outside vendors deliver parts to the factory, but once these parts are in the factory, unionized workers will reportedly deliver the parts to specific assembly lines.  Union workers can also bid against sub-contractors for work. The summarized agreement synopsis document issued by union president Tom Wroblewski includes the following statement:

“Except for 787 final assembly, vendors are limited to delivering products to designated areas only.  From there, bargaining union employees will track use, disbursement, acquisition, and/or inventory of parts, materials, tools, kits and other goods and products.”

There is a positive note here since the summarized document also indicates:

{the union will}”Jointly work with the Company to improve material delivery process and ensure our members grow with the new technology and innovations. .. Parties will explore options for retraining or reassigning bargaining unit employees to equal level jobs when employees are impacted by process and technology changes.”

With a backlog of over $275 billion, a supplier network facing its own impacts of disruption, and with a U.S. economy in desperate need of a continued export engine, this tentative agreement is great news.  Production operations have ceased since the strike began, impacting all future deliveries of Boeing aircraft including the already critically delayed 787 Dreamliner program.  Boeing still has an additional hurdle of labor negotiations with its 21,000 union-based engineer and white-collar worker union, but both sides remain optimistic of a timely settlement in order to ramp-up to normal production levels.

I offer congratulations to both sides on their spirit of final compromise, albeit over a rather lengthy time period.  Much work and many challenges remain in order to return Boeing’s supply chain to normal levels of output and delivery. Once again, our byline of supply chain does matter is again reflected at the level of a company’s ability to effect both supply chain outsourcing innovation and work practices.  While its easy for industry observers to play arm-chair quarterback, I really have to wonder why these matters of supply chain outsourcing strategy could not have been ironed-out much earlier. 

We trust that Boeing, its sub-contractors, and its union membership can all mutually benefit from future innovations in supply chain business and technology business practices. Our world economy, our safety and peace of mind are all at stake as we look forward to future flight.

Bob Ferrari

In my part one posting, I outlined the fact that the current Version 9.0 of the SCOR-model has begun to incorporate supply chain risk management assessment, tracking, and mitigation methodologies in the overall framework. In this second posting, I’ll provide observations and comments around the definitions of the various supply chain risk enabling tools.

Readers who are familiar with the SCOR methodology may recall that for each of the major processes of Plan, Source, Make, Deliver, and Return, there are associated enablers to monitor compliance, deliver information from other process areas, or highlight dependencies on other process areas.  The Version 9.0 framework now includes the following supply chain risk management enablers, along with some recommended metrics for measurement:

Plan

Manage Supply Chain Plan Risk (EP.9)- defined as the process for identifying, coordinating and managing supply chain risks by aligning with the overall business risk management program. This enabler includes identifying the potential risks, assessing the probability and potential impact of risks, and planning risk mitigation strategies.

Select Performance Attributes:

Supply Chain Agility 

     Industry Benchmark Comparison (%)

     Options or Hedge Rating (%)

Supply Chain Costs

     Mitigation Cost overall or event ($)

I would have expected some further depth in the defining the attributes of risk in supply chain reliability as well as responsiveness, but it would appear that there was a lack of overall consensus among the steering teams to declare definitive metrics for these attributes.  I’m hopeful that later versions will include these metrics.

Source

Manage Supply Chain Source Risk (ES.9)- includes the identifying and assessing of Source risks that could impact the organization’s or the supplier’s ability to deliver materials in a timely manner, at reasonable cost, and with acceptable quality.

Select Performance Attributes:

Supply Chain Reliability

     Supplier Mitigation Plans Implemented (percent)

      VAR of product/customer performance

       Age of Supplier Risk Data (months)

Supply Chain Responsiveness

     External Event Response (average days)

Supply Chain Agility

     Internal event Response Time (average days)

Supply Chain Costs

     Mitigation Cost overall or event ($)

In my view, the area of sourcing should currently have the most mature amount of quantified data related to the managing of supplier risks, and many organizations should be able to make initial inroads with these enabling measurement categories.

Make

Manage Supply Chain Make Risk (EM.9)- the process of managing risks related to producing products on-time at a reasonable cost with good quality, as well as planning and implementing responses to Make risks.

Select Performance Attributes:

Supply Chain Reliability

     Supplier Mitigation Plans Implemented (percent)

     Value at Risk (Make)

     Age of Supplier or Customer Risk Data (months)

Supply Chain Responsiveness              

     External Event Response (average days)

Supply Chain Agility                            

     Industry Benchmark Comparison (5)

     Internal event Response Time (average days)

Supply Chain Costs

     Mitigation Cost overall or event ($)

Since the SCOR model has to accommodate both manufacturing and service-related business models, the area of Make can include a wide swath.  My first reaction to these enablers was that they are far too similar to the Source processes.  Readers should keep in mind that with the SCOR-model of a service-related business, Source may be an activity of less emphasis.  In either case, I would anticipate that more depth and implementation team innovation will be required in this area.

Deliver

Manage Supply Chain Deliver Risk (ED.9)- the process of managing risks that could impact the company’s ability to deliver product on-time at a reasonable cost and quality.

Select Performance Attributes:

Supply Chain Reliability

     Value at Risk (Deliver)

     Age of Product/Customer Risk Data (months)

Supply Chain Responsiveness

     External Event Response (average days)

Supply Chain Agility

     Industry Benchmark Comparison (percentage)

     Internal Event Response (average days)

Supply Chain Costs                             

     Mitigation Cost overall or by event ($)

These are all reasonable initial metrics and it will take some time to build critical mass of available benchmark data to reasonably map your organization to other similar organizations.

Supply chain risk management has become an increasingly more critical aspect of global supply chain strategy.  As the economy provides a period of business downturn, now made be the time for organizations to take the time to invest in a global supply chain risk assessment.

It would be helpful for our broader community to read additional commentary and feedback from readers who have either made a SCOR assessment in this area, or have attempted to implement enabling metrics of measurement in supply chain risk management. I encourage commentary in the comments section below this post.

Bob Ferrari

The cumulative effects of two major hurricanes striking the U.S. Gulf coast in September continued to be quantified. In a Supply Chain Matters post in late September, I highlighted some preliminary estimates of the effects to energy and petrochemical supply chains.  The latest quantification is provided by a posting in Bulk Transporter, which cites a monthly statistical report from the American Petroleum Institute.  The bottom-line indicator is that crude oil production suffered its largest disruption since occurrences of Hurricanes Katrina and Rita in the New Orleans and Gulf regions in 2005.

Highlights of overall disruption include:

• A production disruption of an estimated 32 million barrels of crude oil refining, and 164 billion cubic feet of natural gas for the month of September.  This curtailment of production, coupled with cut-backs of demand from consumers, placed U.S. product deliveries at their lowest third-quarter levels in ten years.
• As penned in our initial postings, the cumulative effects of the two hurricanes also hindered the inbound delivery of foreign crude oil to Gulf Coast ports.  Crude oil imports fell nearly 13 percent to less than nine million barrels per day.  September’s input to crude distillation units fell to its lowest level in 16 years. Since inbound stocks also make their way into petrochemical-related supply chains, the effects of this disruption in that area are still playing out.
• The storm aftereffects to disruptions in the supply of electricity, clean water, and other infrastructure hindered a quick recovery for many of the large production complexes.
• Fulfilling overall product demand was buffered from existing supplies, with four millions barrels of crude oil, more than six million barrels of gasoline, and five million barrels of distillates drawn from existing inventory throughout the region.

The increased occurrence of worldwide natural disasters provides us continuous reminders that supply chain disruption is a given reality for managing global supply chains.  It’s no longer about the context of “if”, but rather “when” such incidents occur, will our company be prepared.

 Bob Ferrari