The following posting can also be viewed and commented upon in the Kinaxis Supply Chain Expert Community forum site.

As parents of small children, we often sing various rhymes to our children, and perhaps readers may recall the rhyme from the song “Three Blind Mice”

Three blind mice,
Three blind mice
See how they run
See how they run!

They all ran after
The farmer’s wife.
She cut off their tails
With a carving knife.
Did you ever see
Such a sight in your life
As three blind mice?

I was recently speaking with Bruce Spurgeon, supply chain manager at OSspray, Ltd., and sometimes guest blogger and industry observer for Supply Chain Matters. Bruce raised a rather interesting observation concerning the state of supply chain risk management in many industry supply chain environments today.  He cited the familiar rhyme above in the context of a question: Who actually owns overall responsibility for supply chain risk management?

If a product has dire quality problems, if a manufacturing process is not adhering to consistent quality standards, or if one or more suppliers is teetering on the edge of financial or operational failure, who delivers the news and who is designated with the cross-organizational responsibility to resolve overall supply chain risk?

As we discussed this further, we both noted that perhaps supply chain professionals are not really equipped with the motivation or management skills to ‘own’ overall supply chain risk, primarily because the stakes are so high.  Too often, risk takes the context of ‘beyond my pay grade’, let those in the ‘C’ suite deal with that.  This has perhaps been made worse by the continuing cutbacks of personnel and resources, not just supply chain but across the organization.

Because this tenet of management continues, organizations discover far too late that supply chain risk has cost the company millions of dollars in lost sales, remediation, or even damage to the brand itself.  The incidents are all around us and are permeating the business headlines every week.  Global supply chains are at risk, yet few managers seek to bring visibility for fear of actually having to be held responsible or accountable for a problem for which they are not equipped to deal.

Bruce also asked another interesting question- Where do managers really learn about managing supply chain risk?

On the one hand, the Supply Chain Operations Model (SCOR) from the Supply Chain Council or other risk identification methodologies can provide means to measure aspects of supply chain risk, but where exactly is the curriculum that addresses the overall management of supply chain risk identification, communication and mitigation?  Colleges today address supply chain management curriculum from a functional or vertical lens when perhaps a horizontal lens can provide a more meaningful roadmap for managing overall risk in the supply chain.

What I suggest our community needs is the supply chain equivalent of risk governance, which is a discipline coming from CFO related circles. When I conduct workshops on this topic or speak with procurement or supply chain operations executives, I advocate for a team-based approach toward managing risk.  After all, who wants to be the sole bearer and owner of bad news?  A team approach not only provides different perspectives of the potential risk, but also a quicker means towards mitigation.  Companies such as Cisco or Procter and Gamble, who do this successfully, do so from a risk management team perspective. Having the most up-to-date information and business intelligence also helps.

I do not pretend that there are standard answers or practices to address this situation, but we, as a community, had better find a way to raise awareness to a growing problem.  Risk surrounds the global supply chain, and who has a better lens to understanding and mitigating, as much as possible, the conditions of that risk than a cross-functional team led by supply chain management.

How about you- do you feel that your organization or your team owns identification and mitigation of supply chain risk? What do you need to make this work?

Bob Ferrari

There is some healthy debate on the blogosphere being generated on the subject of whether the strategic sourcing process has seen its best days.  All of this got started with a rather interesting guest posting by Dalip Raheja on the Sourcing Innovation blog.  Dalip’s argument is that a process that is driven by a principle motivation of cost reduction should not be characterized to be a strategic process that delivers exceptional business results over the longer term horizon. I enjoyed reading the various viewpoints and perspectives to Dalip’s posting. For an entire summary of various viewpoints, you can check out the full listing of commentaries on Sourcing Innovation.

I am admittedly late to this commentary and I ask for some indulgence from readers since this topic is one that I also have some passion about.  I happen to be in the camp that advocates that a pure cost reduction driven strategy is indeed not strategic, and there is quite a bit of evidence all around us to reflect this condition.  In fact I argue that there are many supply chains right now in a very fragile state, just one major incident away from a full crisis, because of the cumulative effects of a singular focus directed at cost reduction.

We perhaps need to place some context to this debate, since at face value, today’s strategic sourcing processes driven by spend analysis, eAuctions and other advanced supplier management tools have delivered significant savings in both direct, production-oriented procurement as well as indirect procurement.  Firms would not be adopting this technology if it was not delivering value, and the various case studies speak to these results.

It is important however to place proper context.  The last five years, and especially these last two years of severe global recession have not been kind to supply chain management teams.  With top-line revenue growth evaporating in multiple industry settings, CFO’s had no choice but to take control and layout significant cost reduction goals.  For a manufacturing firm, the supply chain, both inbound and outbound, holds the key for a good majority of the components that make-up the cost of goods sold, and thus came the mandates to significantly reduce costs, as soon as possible.  A CFO having the procurement organization as a direct report in the organization, or having close association with procurement provided organizational leverage for turning to modern strategic sourcing processes as a catalyst for significant cost reduction. Justifying such investments was a safe bet, and companies saved significant amounts of money. As an example, we have commented on Supply Chain Matters how certain consumer product goods companies were able to take millions in supply chain savings as a funding source for new product development, marketing and sales initiatives directed at driving more top-line growth.  CPO’s also gained considerable organizational stature by delivering results for the business, perhaps at the expense of other supply chain teams who had to live with the consequences of the ‘lowest-cost’ provider, but in the essence of team, the goal was delivered, and teams move on to the next challenge.

Now, some argue that strategic sourcing is not only thriving, but will take on even more responsibility such as supply risk and performance management.  I’m not that confident in that argument, because such an argument stems from a purely functional perspective  Many supply chains are being called on for more expectations. They are being called on to remain agile and responsive to unpredictable and  changing needs in markets, yet product design and manufacturing are outsourced with external providers.  They are expected to continue to deliver more cost savings when most initiatives have already uncovered the bulk of savings opportunities without introducing significantly more risk. Speaking of risk, a globally extended supply chain continues to add unprecedented levels of complexity and risk exposure, both internal and external in nature.  As noted, some supply chains are so lean at this point, one major disruptive incident will create havoc.

Firms  need to  move away from cost-cutting to value and capability driven approaches. The perspective I argue is that everyone is in the same leaking boat, and everybody had better be rowing in the same direction, with the same strategic goals.  The debate should be focused on leadership, strategy, and the skills and process capabilities needed to serve customer needs.  It is not about one process, but a collection of capabilities.  It is not about one function, but a cross-organizational objective on common goals and mutual rewards.

Bob Ferrari

We would like to once again update our readers on upcoming appearances.

I will be a featured speaker at an upcoming webinar: Reduce Operational Risks and Costs with Agile Supply Chain Solutions, to be held on October 7^{, 2010}, and being jointly co-sponsored by Pharmaceutical Manufacturing and Aspen Technology. In this webcast, I’ll be sharing and commenting upon key industry business challenges facing the Pharmaceutical and Life Sciences industry, an industry that is undergoing tremendous amounts of business change.  I’ll speak to the unique challenges facing pharmaceutical and life sciences supply chains in the coming years, along with the state of industry best practices and important considerations in deploying industry manufacturing and supply chain capabilities.  Additionally, I’ll be providing a case study example that summarizes last year’s high visibility day-to-day efforts by the industry to accommodate the needs for H1N1 vaccine, which we covered extensively in Supply Chain Matters. Joining me in this webinar will be James Hintlian, Vice President, Pharmaceutical Industry at Aspen, who will speak on how Lozna, a pharmaceutical contract manufacturer was able to make dramatic improvements in throughput and batch cycle time, while improving customer responsiveness. Both James and I will also be taking questions from webcast participants.

If you reside or provide products and services to this industry, you won’t want to miss this webcast.  Please take the time to sign-up and register at the following registration link.

I will also be in attendance during the Supply Chain Council (SCC) Executive Summit meeting being held in Houston on October 13-15, providing live blog coverage and updates during this event.

The event offers senior supply chain executives a well recognized forum for discussing key emerging challenges in business and supply chain strategy.  The theme of this upcoming summit is “Boom & Bust: The New Realities for Supply Chain Excellence”.  This event offers an opportunity for executives to network with other industry peers through panel discussions, roundtables and other networking events Topics on the agenda include supply chain management in the new global economy, the status of emerging markets, managing supply in volatile times and the growing need for sustainable supply chains. Executives from Cisco Systems, Coca Cola, Kraft Foods, Sonoco Products, Qualcomm, among others are scheduled speakers and discussion leaders. Summit attendance is limited to 100 executives, and I discovered that the host hotel has already sold-out the designated block of rooms.

You can view further information and registration details at the SCC Executive Summit web site.

Finally, I also participated in a video and article related to the UPS launch of its  new Power of Logistics campaign, and we will be sharing more details of that interview soon.

Bob Ferrari, Executive Editor

There are interesting developments occurring in the mobile handset industry with yet another reminder on the important implications to the relationships between product design and management and global supply chain strategy.  These implications reflect on how components and operating systems are determined, and how quickly devices can be brought to market.  The stakes are becoming extremely high, to the point where company fortunes and long-term presence are on the line in this particular segment

The latest news among media catering to financial markets has featured headlines reflecting that the CEO’s for both Nokia and LG Electronics are stepping down, principally motivated by each company’s perceived shortfall in its ability to aggressively compete in the smartphone market, especially concerning rival Apple.  The mobile handset market has been on a tear, moving beyond basic mobile device offering web surfing or music player capabilities into full fledged personal productivity devices that bring together email/web/media capabilities as demonstrated in Apple’s current iPhone4.  In essence, the clock-speed of this market segment has been ratcheted way-up. Apple’s superior integrated global chain capabilities that fuse product design, new product introduction, vertical supply chain sourcing, and rapid time-to-market has been the culprit, and it seems that competitors are running in place or playing catch-up.

It is also a battle of who’s operating system “will reign supreme” to coin a phrase from the TV show Iron Chefs.  Will it be Google’s Andoid, Apple or Microsoft or Nokia? In our view, it’s a classic battle of technology platform vs. market volume dominance, and sometimes the two goals are at odds with market clock speed.

Nokia, who has been designated the world’s largest mobile phone producer by volume, recently shook-up its top management team, hiring Stephen Elop, a Canadian, who previously managed Microsoft’s business division, to steer the company in a more aggressive direction.  The company is aiming to release its new N8 smartphone at the end of September but at the same time is hinting that initial deliveries of the phone may be delayed until October because of various production ramp-up issues. While the company has denied that there are any significant issues with the pending release, financial markets have been hammering Nokia stock because of uncertainty over management turmoil and rumors on the new N8. The N8, which is the first model to be based on Nokia’s new Symbian operating system was originally scheduled for a June release, but was postponed until September. According to an article published in the Financial Times print edition, Nokia is anxious to remove any perceived glitches in its new phone, as well as position the N8 to compete in the upcoming pre-Christmas selling season.  Nokia also plans to make another upgrade to the Symbian operating system next year, with the release of the MeeGo operating system to be co-developed with Intel comes to market.

In the case of LG Electronics, the company reported a 90 percent drop in operating profit in the second quarter largely due to declining performance in mobile phones. Global handset revenues had reached $14.7 billion in 2009, and LG has a reported 10 percent share of the market.  CEO Nam Yong will step aside in October, and a member of LG Group’s founding family, Koo Bon-join will take the helm.  According to a Financial Times print article, Mr. Koo has been credited with turning LG Display into the world’s second-largest flat panel manufacturer by investing heavily in LCD technology before it became widely adopted.  What makes LG even more interesting from a supply chain perspective is that LG is also an electronics component provider, doing business in the vertical layers of handset supply chains. LG’s chemical business currently makes components for the iPhone4 touch screen but according to the FT article, the handset side of the business failed to exploit this technology in LG’s handset offerings.  Knowing Apple’s sourcing practices, I suspect that there may have been a contractual clause or two prohibiting use of the specific technology in competing mobile devices.

Samsung, who with 20 percent market share in overall mobile phones but only 5 per cent in smartphones, also practices a business model that has a significant vertical supply chain presence in the mobile device as well as the broader consumer electronics market.

As we all continue to monitor ongoing developments in this fast-moving and strategically important market segment, it is important to dwell upon the interplays of global supply chain sourcing, product development, and supply chain ramp-up capabilities. This is a classic battle of market dominance where supply chain capabilities do matter, and may well be differentiator in the final outcome.

Bob Ferrari

We have previously commented on Supply Chain Matters about the very large recall of eggs in the U.S. that occurred in August. On August 13, Wright County Farms of Galt, Iowa, an entity associated with DeCoster Farms, voluntarily recalled over 228 million “shell eggs” because of the potential for Salmonella Enteritidis contamination. These eggs were distributed to food wholesalers, distribution centers, supermarkets and foodservice companies across eight U.S. states.  The U.S. Food and Drug Administration (FDA) and the U.S. Department of Agriculture(USDA)  have since conducted separate investigation to determine the source of the contamination and a strong suspicion points to the feed provided to the various hens, although no definitive conclusions have been released to date.

The latest twists to this ongoing incident came transpired this week in various print and televised media as Austin “Jack” DeCoster and his son Peter DeCoster were scheduled to testify before a U.S. Congressional subcommittee meeting.  This Congressional body asked both men to come prepared to explain what steps have been taken to address the contamination that occurred at their two farms in Iowa.

In a classic move, both men indicate that they believe an ingredient sold to them by an outside supplier was possibly to blame for the contamination outbreak.  That’s right, if there is a problem, it surely has to be the supplier who is suspect. Yet, various reports from governmental inspectors seem to indicate that feed shipped to these farms was subsequently contaminated by being either co-located or coming in contact with unsanitary conditions on the chicken farms themselves.  Government inspectors described conditions at the Wright County henhouses as including mice, maggots and piles of manure as high as eight feet.

Doesn’t that make you feel wholesome and good!

According to news reports, a U.S. House subcommittee also found that Wright County Egg had received hundreds of positive salmonella readings in the last two years, which should have also raised red flags.

But there is something even more profound to this ongoing story.  Jack DeCoster stated in his testimony to the following: “We were horrified to learn that our eggs may have made people sick and we apologize to every one who may have been sickened by eating our eggs.  I pray several times each day for all of them and for their improved health.”

Here is this blog’s response to Mr. DeCoster- too little and too late, my friend.  The damage and the effects have already been done.  What are you personally going to do about it, and what steps are your various farms going to take to assure consumers that these incidents will not continue?

If there is any learning that can be gained for all of these types of incidents is that the time for sincere apologies is when the problem is initially discovered, and not weeks later, when all the lawyers and public relations teams have been called-in to ascertain the damage recovery plan.  In this new era of social-media and instant news, the negative impressions and reactions have already been made, and the virtual world has already weighed-in on their opinions of Wright County Farms and parent DeCoster Farms.  The most scathing indictment within the blogosphere came from Robert Reich, Professor of Public Policy at the University of California at Berkeley, who penned his Corporate Rotten Eggs commentary which described his previous dealings with the DeCoster conglomerate while serving as U.S. Secretary of Labor under the Clinton Administration. The impressions are made and consumers want to know, what are you going to do about it?

Jack DeCoster indicates that his companies grew too fast, still acting like a small farms.  Yet others describe the DeCoster operation as ‘big agribusiness”, and as Professor Reich noted, the current national salmonella outbreak is just the latest in a long series of DeCoster corporate crimes. “He’s fostered a culture that disregards any law standing in the way of profits. Along the way, DeCoster has abused the environment, animals, his employees, and his customers.”, noted Reich.

In the end, which statements will consumers really believe?  Perhaps we should ask all those who were actually sickened by salmonella, or who had to work on these suspect farms.

Consumers expect that products are safe, meet superior quality standards, and are produced in an environmentally and worker safe manner.  Consumers should not expect to settle for apologies and a wish for a speedy recovery, but some real action by DeCoster to insure clean farms and a safe egg supply.

Bob Ferrari