Comments on: A Key Takeaway in Supply Chain Risk Management

By: John Westerveld

John Westerveld — Tue, 07 Oct 2008 12:00:16 +0000

Good comments. To me, the key takeaway was that Supply Chain Risk Management is something that no company can afford to ignore. Of course, I couldn’t agree more. However, while Bob’s focus was on quality, I want to make sure that we also focus on the flow of materials within the supply chain. Not having any product to ship due to a supply chain problem will also have a negative impact on your company. Let’s take a look at some of the events over the last little while;

• This year, the Olympics were held in Beijing. The Chinese government put extremely strict limits on factories and on transportation in and around Beijing running up to the 2008 Olympics in an attempt to reduce the air pollution in that region. If that region was part of your supply chain, you would have been impacted

• Earlier this year, there was a significant Earthquake in China. While less important than the loss of life and the pain and suffering brought about by that event, several factories were destroyed. Along with those factories sections of several supply chains were also destroyed

• In March of this year, the LG Chem factory in Ochang, South Korea burned, causing laptop battery shortages for Dell and HP

• In February of this year, year, the Lite-On LCD factory in Dongguan, China burned, impacting Dell, HP and Lenovo amongst others

• There are many other examples, some of which may have impacted you.

In addition to these catastrophic events, strikes, business closures, extreme weather and global shortages (and excesses) can all impact your supply chain.

So how do you identify and manage the risks in your supply chain?
It starts with visibility. You need to be able to see what suppliers contribute to your end product (and how much). You need to be able to identify which suppliers supply unique components – components you can’t get from any other supplier.

Then you need to have analytic tools. You need to be able to model your entire supply chain. You need to be able to report results in ways that are relevant to your business.

Next you need to be able to simulate supply chain events. What would be the impact if this supplier cut production by 50%? What if I couldn’t get any of these components? What impact would this have on my corporate metrics. What would be the impact of a 10% downside? What would that do to my inventory position What about a 15% upside? Could my supply chain cope?

Finally you need to be able to simulate potential solutions. How long would it take to bring on another supplier? What parts could be substituted if I couldn’t get this part? What alternate routes could be leveraged to transport these goods?

I’ll leave you with this thought. The difference between those companies that are significantly impacted by supply chain events and those that can ride them out is the extent to which they have anticipated and planned for the possibility of these things happening. Which will you be?

By: Gary Lynch

Gary Lynch — Mon, 06 Oct 2008 01:21:19 +0000

Absolutely agree that organizations, or economies, cannot afford to ignore any longer. However, it’s been my experience that they don’t necessarily “ignore” it but rather fragment and silo it (the risk) – based on a job function and the associated incentives and penalties. Who owns the problem?? No one is accountable for the entire risk issue throughout the extended supply chain in most instances, i.e. procurement is responsible for suppliers (and beating down increases/maintaining or improving margins), ops manager in manufacturing is responsible for his plant, logistics manager for movement across many product lines (not the specific one). Few take the horizontal few because of the lack of incentives (or penalties) to do so. The horizontal or process view offers the potential to achieve “lean” supply chain risk management capabilities by leveraging the tracing/mapping/discovery step across a variety of risk issues – climate footprint, labor practices, security, continuity, quality (recall), etc… The days of limiting the view to just what the organization does or the big tier 1 suppliers went out with the vertically integrated supply chain. The systemic risk that now exists as a result of dominant orgs pushing (and expecting) the management of this risk (environmental, quality, security, continuity, labor, etc..) to the upstream providers parallels the problem that led to the sub-prime portion of the financial crisis. The risk is believed to be managed by another entity, superficially it appears that the risk is being managed, under the covers the upstream organization finds it almost impossible to manage the risk because of cost constraints or lack of knowledge/experience/resources, and in the end the risk comes right back to those that tried to displace it in the first place. Is anyone else concerned about systemic failure when a major concentration goes bump in the night???
Gary Lynch, Global Leader, Supply Chain Risk Management, Marsh
(Author: “At Your Own Risk”, Wiley)

By: Jim Uchneat

Jim Uchneat — Sat, 04 Oct 2008 19:51:47 +0000

Your commentary is right on. One of the key challenges many companies face with their visibility systems is that they are focused only on order management data. While that will allow traceability of tainted products from a supplier it doesn’t enable real process control. Collecting data on quality tests, capturing data on sources of raw materials, and other relevant process data needs to be part of supply chain controls. Just because operations have been outsourced doesn’t mean quality control can be outsourced. Asked Mattel.

Visibility systems need to provide the collaborative integration to get to the data that really matters. Being on time and toxic is worse than being late.