Last week I had the opportunity to upgrade my practioner skills regarding The Supply Chain Operations Reference Model (SCOR) methodology by participating in a SCOR 9.0 Framework Training workshop. The SCOR-model (corporate membership required) was developed to describe the business activities associated with all phases of supply chain process, and is organized around the five primary management processes of Plan, Source, Make, Deliver, and Return. Many companies utilize the SCOR-model to both map their existing processes, drive better linkages to overall business performance, or help drive transformation initiatives within specific supply chain business processes. Version 9.0 of the SCOR-model is the eleventh revision since its introduction in 1996. Among the exciting new changes for Version 9.0 is the introduction of new enabling processes associated with supply chain risk management. 

The SCOR definition of risk management which  is a bit narrow, reads as follows:

Supply chain risk management is the systemic identification, assessment, and mitigation of potential disruptions in logistics networks with the objective to reduce their negative impact on the logistics network’s performance.

The SCOR view of supply chain risks are that they are a component of all business risks, and, hence, should be integrated in an enterprise risk management framework.  Judging from all of the constant risk disruptions occurring in this area these past few months, I would argue that supply chain risk management is one of the most integral aspects of that enterprise risk management framework, with far reaching effects for the business, the brand, and for operations.

Three phases of risk management are now outlined in the SCOR 9.0 framework model:

Phase 1- Risk Identification which can create a list of potential events that could harm any aspect of the supply chain’s performance.

Phase 2- Risk Assessment to provide management with an understanding of where the greatest risks may exist.

Phase 3- Risk Mitigation to determine if risks can be controlled or monitored.

In my part two post, I will outline and comment on the various enablers to identifying, measuring, and mitigating risks in the supply chain.  But for now, let’s keep in mind that this is a relatively new area of focus for many companies, and the community-at-large will have need for further experience and maturity of frameworks.  But I do hope that you share my excitement that SCOR has now incorporated an initial risk management framework in its reference model.  This is surely good news.

Bob Ferrari

These past few days have taken me on the road to once again meet with many supply chain senior managers, peers, influencers, and academics.   Readers can note on my website that I continue as a volunteer serving on steering committees within APICS (Society of Operations Management) and SCOR (The Supply Chain Operations Council ). I’ve been attending back-to-back steering committee meetings with each these organizations these past five days.

Among various topics of conversation were naturally the ongoing global financial crisis, and what impacts that will have on the many aspects of supply chain management.  Specific conversations were focused toward what typically can happen when firms have to react to sudden economic downturns, which is to scrutinize any and all discretionary expenses both within and external to the supply chain.  Other targets for quick scrutiny or the chopping block invariably will include corporate-wide attendance at professional conferences, training and education.

While many of these decisions have to be made for the sake of the firm or the business, each of you as individuals also have to face decisions as to whether to curtail professional development until recovery occurs.  My advice is not to do this, for the following reasons.  First, as I outlined in my previous series of posts of the seven grand challenges for SCM over the next five years, firms in many industries will need to confront a growing management skills gap across the multiple disciplines of SCM.  These firms will continue to face challenges for more centralized planning, the ability to model or simulate multiple potential business scenarios, more  proactive supply chain intelligence and mitigating meaningful supply chain risk.  In short, the overall contribution of supply chain management will become more critical as the means to manage the effects of severe business downturn.  Second, we often cite the analogy of the way the Chinese language represents the term crisis, both as a graphic of danger, but also a second graphic of opportunity.  Crisis and recessions will invariably run their course, and the real advantage comes to firms who have prepared during the downturn to take full advantage of the pending recovery, and to jump over the competition in being best prepared to lead the recovery phase.

There are many inexpensive ways to continue with your individual development. Here’s just the start of a list of alternatives:

• Continually visit the websites of APICS, CSCMP, SCOR, and other professional associations to learn the latest supply chain trends or understand the newest proven business processes or technologies. 
• Take advantage of thought leadership available within management consulting, technology vendor or supply chain media web sites, or in no-cost webcasts that are often provided by these organizations.
• Enroll in affordable courses at local universities, community colleges, or training firms.  Look for courses or seminars in leading-edge vs., well-understood topics, those associated with the challenges in the next decade.
• Seek the advice, counsel and networking opportunities of active, retired or semi-retired management professionals who are more than eager to share their experiences or help you in mentoring your management and development skills.   
• If at all possible, keep-up your individual membership or credentials in a professional organization. Suggest or seek to influence a corporate-wide membership arrangement that can reduce overall costs.  If your firm decides to terminate this support, try to find a way to maintain at least one membership that can provide you needed professional development.
• Finally, continue to do exactly what you are doing right now by taking advantage of the knowledge and community that can be provided by Supply Chain Matters and other similar blogs that focus on the broad management topics of managing across global supply chains.

I encourage readers to also share in the comments section other suggestions or experiences in continuing their professional development. 

Rather than a victim of recession, take the role of opportunist and insure your readiness to be the future leaders of SCM. 

Bob Ferrari

The ongoing work stoppage at Boeing is now in its second month and there was a positive sign over the weekend that both sides have reportedly agreed to resume talks with the assistance of a federal mediator.  In a previous post, I noted that that the heart of this labor dispute revolves around both healthcare benefits as well as Boeing’s ability to outsource work to some of its outside contractors.  Production operations have ceased since the strike began, impacting all future deliveries of Boeing aircraft including the already delayed 787 Dreamliner program. Boeing senior management has acknowledged that the shipping schedule for the 787 is sure to slip even further.

Last week, Boeing CEO Jim McNerney sent an email to all of his employees offering a bleak vision of what could happen if Boeing management caved in to the demands of striking workers.  The backdrop of the current economic crisis in the U.S. and global financial markets further indicate that this strike could exact a far higher toll to Boeing, its suppliers, as well as to the U.S. economy. Investors put Boeing and other stock associated offerings into a tailspin amid all of these concerns.

My view is that the current economic environment demands that both parties to this dispute obtain a heightened sense of urgency.  If Boeing management had concerns for insuring its ability to outsource certain production, that concern should also now include the ability of certain key suppliers to maintain financial viability if this work stoppage continues to drag-on.  If Boeing’s union negotiators are truly concerned for the long-term viability of member jobs, than the current prospects of uncertain financial markets and increasing unemployment should surely provide a strong motivation to come back to table with a constructive set of give and take over needs of its membership

What was once a disruption to the 787 Dreamliner program could well severely impact aerospace focused supply chains, as well as the U.S. economy.

Bob Ferrari

It seems that every week brings more supply chain risk management stories related to either counterfeit or contaminated products.  I don’t seem to run out of material for bringing these issues to light for Supply Chain Matters readers. Here’s yet another one involving counterfeit parts in U.S. defense-related supply networks. 

Business Week has a featured investigative report cover story (Dangerous Fakes- How counterfeit , defective computer components from China are getting into U.S. warplanes and ships) in both its October 13^th print and online editions, and I urge you to read this article, especially if you are involved in military, defense, or aerospace-related supply chain management. You can even view a capsule video version on the web site.

The essence of the threat that the article’s authors point out is that counterfeit computer chips that often flow from tear-down bazaars in rural China through a network of dubious brokers in the U.S. and elsewhere are making their way into complex weapons with obvious results.  The article further quotes an official who heads research into counterfeit parts for the Naval Air Systems Command who states that as many as 15% of all spare and replacement microchips bought by the U.S. military are counterfeit.  Pentagon officials are reported as playing down the danger, but government documents and interviews with insiders suggest a stronger connection between phony parts and failures.

While readers can make their own assessment, the common thread that I concluded from the article is that the zeal for achieving lower material cost outweighs the risk of potential dubious sources of supply, or insuring quality of supply.  Sound familiar?  Interviews of the authors with so-called “front” traders and brokers provide outright admission that they (the brokers) “… only do trade.  None of us understand the technology.”  A Hong Kong based supplier of counterfeit chips argues that if the U.S. military wants guaranteed high-quality chips, it should purchase them directly from the original manufacturers or their official franchisees.

And as if by coincidence, an article this week in SupplyChainStandard.com basically reinforces the specific notion of the hidden links involved in Asian based supply chains.  In this article, Jim Ridgwick who leads Deloitte’s Sourcing practice for China points out that in many cases, buyers who deal with trading companies tied to Asia do not understand accepted business practices of interlinked networks of sister operations, business partners, sub-contractors, or even the sub-contractors to their sub-contractors. Mr. Ridgwick indicates that this is particularly commonplace when buyers seek a one-stop source of supply outside of the limits of their chosen supplier’s capacity or competence. The takeaway for this article is that when you rely on the trading entity to conduct due diligence, the risk increases exponentially.

Let’s collectively hope that the Pentagon procurement groups as well as defense contractors will come to understand that low cost or one-stop convenience as the singular driver of a procurement decision needs to be balanced with today’s ever present supply risks.

Bob Ferrari

I have noticed that the supply chain industry analyst community has begun to offer commentary and advice regarding the effects of the current financial crisis on the short and longer-term challenges that will impact our community. I have some of my own thoughts and advice and would like to touch upon them in this post.  Since I do not have to deal with the editorial police who insist on a template of reinforcing every previous piece of research, I can be a bit more open.

While it is way too early to speculate on how long this new era of severe recession with prolong itself, the time for preparation and contingency planning is well at hand.  AMR Research in its Chain Reaction blog (subscription sign-up required), indicates that the effects of this crisis will more than likely lead to higher inflation, which will provide additional challenges in overcoming higher material and input costs.  More importantly in my view, is your firm’s focus on the potential impact to certain suppliers who may not be able to overcome more stringent credit and working capital requirements in the post financial crisis recessionary era. This would include not only material, but also design and contract manufacturing suppliers as well. 

If there was ever a time for a supplier back-up plan, it is now.  Identification of strategic suppliers and maintaining collaborative as well as supportive supplier partnerships will prove to be a fundamental competency.  Having supply chain wide visibility to potential problem situations in coordinated design, supply, and demand goes without stating. In that light, it will be interesting to observe how the U.S. automotive industry with a history of financially shaky suppliers will fare at the conclusion of this era.

I further believe that dysfunctional or more stringent credit markets will make the financing of overall inventories much more challenging. This has been personally reinforced in an incident that my wife and I had yesterday. We are in the middle of a large scale renovation project in our home.  About a month ago, we had narrowed down our choices for what we wanted for bathroom tile based on in-stock inventory availability..  Yesterday when we attempted to actually purchase our choice, there was no inventory to cover our order, in not just one, but other distributors as well.  We ended up compromising on the purchase of tile that was only in-stock at one vendor. Your ability to plan for the right inventory at the right point in the supply chain will be crucially important.  I previously posted some thoughts on this subject. Believe me when I advise you that inventory risk modeling is one of the most important process tools you should evaluate for managing in this upcoming era.

I do however want to end this post on a more positive, glass half-full note.  A longstanding frustration for our community has been an observation that senior management, reacting to relentless Wall Street pressures for short-term results, has lacked the patience and discipline to provide longer-term support for the more difficult supply chain transformation initiatives, such as global expansion, overall agility in processes, and better, more informed decision-making. Previous hastily formed decisions to source supply and production in lower cost regions of the globe, without factoring the impact of localized wage inflation, or high energy and transportation costs, may have fallen prey to this mentality.   Perhaps this new era of post financial crisis that reinforces stability and consistency will bring a more balanced tolerance for allocating more realistic expectations to initiate structural change.

Rest assured that I and others will be penning more on this topic in the coming months.  What’s your view?

Bob Ferrari