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

August 2010 is quickly turning out to be quite a month for consumer safety concerns regarding the overall safety and quality of U.S. food-related supply chains. Governmental agencies are under the gun to step-up inspection and enforcement and are seeking more jurisdictional power as a litany of urgent alerts permeates news and social media sites.

A lot of attention and commentary have been directed at the massive recall of eggs that was announced on August 13, and now that incident involves over 380 million recalled eggs.  The U.S. FDA reports an ongoing four-fold increase in the occurrence of Salmonella Entertidus that led-up to this recall incident. In our commentary on Supply Chain Matters we questioned why an egg enterprise or agri-business with such a wide distribution of product and private brand volume could experience this type of occurrence without a rigorous quality and inspection program. Former U.S. secretary of labor and University of California Professor Robert Reich penned a scathing litany featured on both The Huffington Post and his own web site, concerning the history of violations involving Jack DeCoster, owner of various nationwide egg farms including the involved Iowa farms.

Adding more to consumer concerns, this week, consumers were alerted to an FDA Class 1 recall involving 380,000 pounds of deli meat products that may be contaminated with Listeria monocytogenes.  Zemco Industries of Buffalo New York is voluntarily recalling product which was distributed to nationwide Wal-Mart stores, as well as delicatessens, where they were processed into sandwiches. The products in question were produced on various dates from June 18 to July 2, 2010.  The problem was discovered in a retail sample collected by the State of Georgia that tested positive for a strain of listeria. To date, the USDA has received no reports of human illnesses.  According to a Wal-Mart press release, upon learning of the recall by Zemco, all Wal-Mart stores were instructed to remove select Marketside Grab and Go deli sandwiches from store shelves.

The FDA also issued an urgent nationwide recall of frozen mamey fruit pulp sold under the La Nuestra and Goya Foods brands because of an epidemiologic link between an ongoing outbreak of Salmonella Typhi infections and these products. The U.S. CDC reports that at least 9 people in California and Nevada are ill with typhoid fever caused by Salmonella Typhi.  Consumers who have these products in their homes are being urged to discard them immediately and further inquire as to what brand of mamey products are being used in drinks processed at juice stands and retail stores.

A select batch of pistachios and pistachio kernel products that were distributed by California Delights Inc. have been voluntarily recalled due to fears of salmonella contamination.  The products were shipped to two other distributors, Austinuts Wholesale Inc. and Glory Bee Foods, Inc. , and were re-packaged and sold to stores and bakeries within the states of Oregon, Texas and Washington.  Austinuts received two shipments of suspected product that were re-packaged as pistachio kernals, deluxe nut mix, and gourmet nut mix.  GloryBee Foods recalled its Patty brand 5 pound bags of whole raw pistachios, and 25 pound boxes of Special Commodities brand whole raw pistachio kernals.  Keep in mind that a previous nationwide recall of pistachios over a year ago impacted over 80 products and multiple brand names.

August may well turn out to be a watershed month in triggering concerns about the breakdown in quality processes involving global based food supply.  Many have noted and recognized, including the current head of the FDA, that the U.S. government has limited resources to monitor and inspect global-related flows of food products.  My belief is that the overall zeal of supply chain cost reduction efforts across many industries, including those dealing with most sensitive of products, is taking a visible toll in the breakdown of quality and conformance. I’ll be commenting more on this trend in upcoming writings.

In the meantime, the consumer goods and food industry has to self-police itself or risk more daunting regulation and control, as consumers reel from a litany of disturbing events.

Bob Ferrari

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

There has been no shortage of significant supply chain related news these past months, but I would dare state that the most troubling thus far this year broke this weekend.

A global supply manager at Apple was arrested and charged with offenses that include wire fraud, money laundering and unlawful monetary transactions involving more than one million dollars in alleged kickbacks.  According to the Wall Street Journal article, (paid subscription may be required)  “this incident underscores the pressures on companies that hope to serve as suppliers to the fast-growing Silicon Valley giant.” An indictment also names an employee of one of Apple’s suppliers as a co-conspirator.

The U.S. Internal Revenue Service and the FBI conducted the investigation uncovering an elaborate scheme involving at least three suppliers where confidential information that would allow these suppliers to negotiate on more favorable terms with Apple was shared.  The suppliers in question provided mechanical parts, tooling and fixtures related to the manufacture of Apple iPads and iPhones. Information allegedly shared by those indicted include Apple’s planned sales volumes, product specifications, competitors target prices and bids, which in essence provided overall intelligence on how to best bid for Apple’s business. Correspondence with suppliers was made through Hotmail and Gmail email accounts, payments were made in traveler’s checks and as many as 14 U.S. and overseas bank accounts were utilized in depositing the monies.

To Apple’s credit, the company reacted swiftly, filing a civil suit against the alleged conspirators charging them with fraud and violations of racketeering laws.  The company also issued a statement indicating that it has “zero tolerance for dishonest behavior inside or outside of the company.”

The fact that these incidents continue to be uncovered is troubling in itself.  As many in our community are astutely aware, Apple fosters intense secrecy about its supply chain activities both among its suppliers and its internal employees. Now that an Apple supply manager allegedly violated that policy for personal gain implies that certain individuals will take extraordinary risks for personal gain, not to mention that certain suppliers themselves felt the need to take part in such unethical and criminal behavior in order to maintain or advance their supplier business interests with the company.  Further, as has been noted in past incidents of this type of behavior, the incidents themselves occurred for many months before detection.  Apple indicated that activities related this alleged incident dated back to October of 2006.

There are real questions to ponder.  Does huge supplier contracts with potential for long-term business volume foster an environment that ‘winks’ at unsavory business practices?  The suppliers alleged to be involved in this incident stemmed from China, South Korea and Singapore.  Would North America or European-based suppliers be just as susceptible to practicing these activities?  Are certain corporate security and ethical standards not being consistently enforced?  There are so many questions ….

What’s your view?

Bob Ferrari

I often use visuals in my supply chain risk management workshops, since visuals can have more impact on thinking than sometimes words. Therefore, this visual of a container ship listing at 80 degrees,(shown below)  losing its container cargo and polluting nearby waters with harmful substances certainly caught my attention. Another common tenet of major incidents is that initial reports and assessments are often conflicting, and this incident again brought this situation to light.

On Saturday, August 7^th, two vessels collided about 10 kilometers outside the port of Mumbai in India.  The Panamanian-registered MSC Chitra, a container ship, and the break-bulk merchant vessel Khalija-III were involved in this accident. Thirty three crew members were reported rescued.  As is usual for these types of incidents, there were initial conflicting media and governmental reports as to the location and details of the accident and collateral damage.

The MSC Chitra was loaded with more than 2400 containers, 2600 tonnes of oil and 300 tonnes of diesel fuel, and as of yesterday, 300 loaded containers had already sunk into nearby waters.  Some of these containers were reported to include toxic materials such as sodium peroxide. A rather thick oil slick was surrounding the vessel. This ship had sailed to Mumbai from Dubai, and was outbound from JNPT port facility when the collision occurred. The Khalija-III was apparently towed into port after the incident.

The port of Mumbai remains closed as India’s Coast Guard and other governmental agencies work to salvage both the vessel and the spilled containers, some of which are floating in the main ship channel.  The port is expected to be closed for several more days.

India media reports indicate that as of Monday, there were over 80 ships waiting at sea for unloading at berths at the three JN Port terminals, and some are expected to be diverted to other ports.  Indian officials have also filed maritime charges against the two captains of the vessels.

Supply chain disruption and risk is occurring more frequently across the globe.  We recently commented on numerous occurrences in China and other areas of the globe, and it seems that accidents along with oil and chemical spills are becoming all too frequent. The need for a supply chain risk identification and mitigation strategy is ever more apparent.

Bob Ferrari

Once again, its time for another supply chain related announcement associated with Boeing, but this one should be viewed somewhat as positive in nature The Twitter #supplychain forum was actively re-tweeting articles summarizing the latest remarks from Boeing CEO Jim McNerney, who specifically cited concerns related to supply chain as potentially hampering Boeing’s ability to meet increased new aircraft orders, and potentially hampering future business needs.

I found a Financial Times article (free preview sign-up account may be required) as the most insightful commentary to this story.  The FT article cites McNerney as noting that a industry-wide growth across the entire aerospace industry, including Airbus,  has constrained many of the key suppliers to this industry. Boeing wants to up production of its 737, 777, and 747 models during the next two years, but suppliers are obviously raising cautionary notes.  Unmentioned, and in my view succinct to this situation, is that past delays, setbacks and communication issues on Boeing’s 787 Dreamliner program have made aerospace suppliers rather wary and cautious.  Key suppliers are now faced with important decisions on whether to invest in added capacity, or may demand more financial safeguards from Boeing and other aerospace OEM’s.

Boeing also continues to deal with specific supplier issues.  The FT article notes that it will no longer source aircraft seats from Japan based supplier Koito, after that supplier admitted it had falsified test results on as many as 150,000 seats provided to Boeing.  The company is also coming to grips with previous attempts to outsource major portions of production work to external suppliers without balancing all the various product design, engineering, and production risks, and without a seamless two-way flow of communications and expectations. Boeing also continues in its plans to ramp-up a second final assembly facility for its 787 Dreamliner production near Charleston, South Carolina, and adjacent to its major fuselage assembly supply.

From were we sit, the Boeing CEO acknowledgement of the critical importance that the supply chain will provide to Boeing’s future business is a rather noteworthy acknowledgement that Boeing senior management now gets it- supply chain matters!

Bob Ferrari