Posts Tagged ‘Supply chain risk management’

Your supply chain is costing you money – Reason #5 Not having a supply chain risk management process

Published October 1st, 2014 by John Westerveld 3 Comments

supply chain risk management

Over the years, working for and with numerous manufacturing companies, I’ve seen many supply chain practices that cost companies money.  Over the next several weeks, I’ll outline these issues and discuss some ideas around how to avoid these practices. You can find the previous posts here:

Reason #5: Not having a supply chain risk management process

In today’s society, unless you are rich enough that you can afford to replace your possessions, pay for your health care, and cover your liabilities, you have insurance (unless you are poor enough that you can’t afford the premiums).  Insurance is a form of risk mitigation. Insurance protects us against theft, fire, accidents, and health emergencies and if this were to happen, it can provide for our family when we pass.   Yet, a surprising number of companies (while they have traditional insurance) do not have a supply chain risk management “insurance” aka a supply chain risk management process. To put it another way, they have insurance to protect them if someone trips on their property and sues, but don’t have a risk management process to mitigate against their top supplier going out of business.  The insurance covers what could be a million dollar risk, supply chain risk management protects against what could be a MULTI-BILLION dollar risk.

Supply chain risk can be broken out into multiple different types;

  • Geographic:  This includes natural disasters and political unrest. These are the types of issues that impact supply for an entire region.  We saw this type of issue over the past several years with the Japan earthquake / Tsunami in and with the Thailand floods.  Political issues can also have a significant impact on supply. Conflicts, government policy changes, regulatory changes and coups can mean that supply is suddenly turned off or that a market is no longer available.
  • Supplier issues: This includes quality issues, delivery reliability, financial stability, reputation, strikes, and pricing changes.  We talked about many of these issues in the first post of this series – “Offshoring without getting the full picture”. The key point here is that in today’s connected supply chain, your suppliers are an extension of your own business.  If your supplier fails financially, it will impact your business.  If your supplier goes on strike or can’t deliver for some other reason, it will impact your business. If your supplier has had a shaky human rights record, your business’s reputation can get tarnished.  If your supplier decides that you need to pay more or global currency exchange rates drive up the cost of a component (and you have no alternatives ready to go) your margins can be significantly impacted.
  • Customer Demand: Interestingly, this is often ignored when people think about supply chain risk however, it can be one of the biggest factors.  If your demand decreases, you have excess inventory or idle capacity.  If your demand disappears completely you are out of business.  If your demand increases significantly, your supply chain can be overwhelmed and delivery becomes an issue.

IT  security: This is also often ignored when thinking about Supply Chain risk.  If you’ve been watching the news lately, you know that hackers seemingly are able to access corporate records at will.  Imagine now, if hackers accessed your design systems…. Your customer records, your accounts payables / accounts receivables.  Imagine if your proprietary designs and customer records were sold to your competitors.  Not a pleasant idea to think about but something that is happening every day despite the billions of dollars spent on IT security.

In the post “Innovate approaches to Supply Chain Risk”  I describe 4 key action areas that companies developing a more systematic, focused and proactive supply chain risk management approach need to address as outlined in a report by SCM World;

  • Identifying and assessing risk – This includes visibility across the supply chain including a good understanding of the companies involved.  Leaders like Cisco and IBM utilize dialog with suppliers and customers as well as visual risk mapping and scenario planning techniques
  • Quantifying and prioritizing risk – Given that all companies operate on limited resources, focus on those areas that will deliver the biggest benefits. One way is to plot likelihood of occurrence against business impact. While this approach can work well for recurring operational risks like supplier performance, it doesn’t work as well for hard to predict incidents like natural disasters.  One approach suggested in the article is that supply chain managers assign financial impact and time to recover factors at a site and component level.  This tends to identify critical but low-spend suppliers that may otherwise be overlooked.
  • Mitigating Risk – inventory tracking and dual sourcing are considered to be the most effective risk mitigation strategies.  Also increasing use of standard components, segmented and regionalized supply chain strategies and business continuity plans
  • Speeding Recovery – Business continuity plans that have been developed and tested with suppliers are key to rapid recovery

Supply chain risk management is like insurance.  You hope you never need it, but if you do, you will consider it the best investment you ever made.

Do you have a supply chain risk management process in place? What risks worry you and how do you mitigate against them? Comment back and let us know!

 

Posted in Inventory management, Sales and operations planning (S&OP), Supply chain management, Supply chain risk management


Innovative Approaches to Supply Chain Risk

Published August 5th, 2014 by John Westerveld 1 Comment

Imagine yourself in this scenario; You wake up at the usual time, and over coffee, you review the news.  As you flip through the articles on your iPad, you see it.  A major earthquake in Taiwan.  Then you get the e-mail. One of your key suppliers uses a supplier that is in the area affected by the quake and is effectively shut down for the foreseeable future… Uh oh.  It’s going to be a crazy, busy day.

When you get to work, you get your team working on this issue.  You don’t panic because you are ready for this.  You have a supply chain risk management strategy in place.  This key supplier had been identified and sure enough, you have a second source primed and ready to go.  As you put things in place to switch over to the other supplier you mentally pat yourself on the back.  It looks like you should be able to ride this crisis out without missing a beat.  A few hours later, your procurement head walks in the office.  “We have a problem.”   The alternate source uses the same supplier in Taiwan.  We won’t be getting any of this key component for the next several weeks…maybe months.   Your heart sinks as you pick up the phone to call your boss…

Think this is a pretty unlikely scenario?  Think again.  This scenario played out for thousands of companies after the Japan earthquake, the Thailand floods and numerous other smaller scale disasters.

Many companies have accepted the need for Supply Chain Risk Management because they understand that just such a scenario could occur and if they are ready for it but their competitors are not, they have an opportunity to gain market share.  The problem is most companies are relatively immature when it comes to Supply Chain Risk Management.

Innovative approaches to Supply Chain Risk‘SCM World, Innovative Approaches to Supply Chain Risk, Geraint John, July 2014′.

SCM World has published a report (login required) ‘Innovative approaches to Supply Chain Risk’ authored by Geraint John, Senior Vice President, Research that outlines an approach to bring your supply chain risk management to the next level of maturity.

Supply chain risk management is not simple otherwise, given the potential impact to corporate revenues, I’m sure that more companies would have robust supply chain risk management processes in place.  The report outlines some of the key challenges as follows;

  1. A variety of physical and non-physical risks need to be considered including geographic factors (natural disasters, political unrest), supplier quality and labor issues, volatility in pricing, customer demand, shipping, IT security, regulatory changes, etc.
  2. Supply chains are complex; You must understand risks not only to your suppliers but their suppliers as well (tier 2, tier 3, tier n). Adding to this challenge is the reluctance of suppliers to share their sources with their customers for competitive reasons.
  3. There has been a huge increase in the amount of data available, both numeric and unstructured.  How do you cut through the noise and find data that is relevant?  No off the shelf tools exist.  Analytics and mapping is available but many companies are not at the level of maturity to leverage these. The temptation is to act on gut instinct in the face of too much data but this can lead you down the wrong path
  4. There is a natural conflict between risk mitigation and supply chain efficiency.  Efficiency programs like lean drove us to reduce suppliers and cut inventory.  Supply chain risk management practice advises us to source additional suppliers and plan additional strategic inventories as mitigation strategies. It can be a real challenge to get executive approval for these measures in today’s environment.

The report outlines 4 key action areas that companies developing a more systematic, focused and proactive supply chain risk management approach need to address;

  • Identifying and assessing risk – This includes visibility across the supply chain including a good understanding of the companies involved.  Leaders like Cisco and IBM utilize dialog with suppliers and customers as well as visual risk mapping and scenario planning techniques
  • Quantifying and prioritizing risk – Given that all companies operate on limited resources, focus on those areas that will deliver the biggest benefits. One way is to plot likelihood of occurrence against business impact. While this approach can work well for recurring operational risks like supplier performance, it doesn’t work as well for hard to predict incidents like natural disasters.  One approach suggested in the article is that supply chain managers assign financial impact and time to recover factors at a site and component level.  This tends to identify critical but low-spend suppliers that may otherwise be overlooked.
  • Mitigating Risk – inventory tracking and dual sourcing are considered to be the most effective risk mitigation strategies.  Also increasing use of standard components, segmented and regionalized supply chain strategies and business continuity plans
  • Speeding Recovery – Business continuity plans that have been developed and tested with suppliers are key to rapid recovery
Innovative Approaches to Supply Chain Management Risk‘SCM World, Innovative Approaches to Supply Chain Risk, Geraint John, July 2014′.

For me, the key takeaways from this report are that effective supply chain risk management needs to be all inclusive – it must include layers beyond just your suppliers. You need to evaluate your supply chain based on the impact each supplier, site, and component might have on your business.  (I wrote about a similar approach here.)  Your supply chain risk management process must be integrated into the broader enterprise processes. It shouldn’t be considered an isolated process but instead should be a consideration in each decision made by the company.  Those were my takeaways, but I encourage you to download the report and form your own conclusions.  You may look at your supply chain in a completely different way.

What supply chain risk mitigation processes are you using?   Comment back and let us know!

Posted in Inventory management, Supply chain risk management


4 Parallels between Planning a Wedding and Supply Chain Planning

Published July 9th, 2014 by Melissa Clow 3 Comments

wedding-planning-supply chain planningI got married on June 28th. After 7 years together, we decided to make it official. To be honest, I never had much interest in planning a wedding so I had lots to learn. As exciting as it was, at times the task was daunting: venue, guest list, colors, theme, bridal party, transportation, music, photography and of course the dress.

Throughout the nine months we took to plan, I realized there are a lot of similarities between wedding planning and supply chain management. Here’s my top 4 list on the parallels between the two:

4. Disruptions

To no one’s surprise, I learned that wedding planning does not always go smoothly.

Just like supply chain management, there will always be disruptions –it could be a small disruption like your parents invite people that weren’t on your original invite list or a larger one, like what a Saskatchewan couple experienced last week on their wedding day… a tornado! Despite this, their photographer was able to think quickly and capture some breathtaking photos.

Lesson learned: There will be bumps in the road but you can’t dwell on them; they need to be dealt with rapidly and maybe even a little creatively.

supply chain disruptions wedding

For business, competition continues to grow. Responding rapidly to changes is critical, whether it is ordinary daily order changes to large and unexpected supply chain disruptions such as strikes, blockades and regional tragedies. We can no longer predict the future with acceptable levels of accuracy, and so the success or failure of supply chains is dependent on how quickly and effectively stakeholders can understand and respond to evolving situations. Once you know the impact, you need to act quickly to simulate the various scenario alternatives and find the best solution. The timeliness of resolution is a key factor in mitigating any potential damage to your operations.

Risk management

wedding supply chain risk managementWe contemplated who we would ask to give a speech. For example, do you ask your husband’s friend to make a toast even though you know there’s a very good chance he will say something offensive? We decided to decrease the risk of any bad behavior by our friends and kept speeches to a minimum by only asking the best man and maid of honour to speak.

In supply chain, it is not just about avoiding risky situations, supply chain risk management has a component that many companies fail to consider; the ability to respond:

  • Even the best thought out mitigation strategy may fail when the time comes to implement;
  • events that you couldn’t have imagined (or considered too low a probability to worry about) during your risk assessment may in fact come to pass; and very importantly,
  • small events, which may be considered insignificant on their own, but that taken in sum become a large risk consideration if not managed effectively.

It is important to be proactively alerted to urgent issues before they turn into major problems.

Collaboration

Because there are so many aspects that go into successfully pulling off a wedding, it’s really important to have a good working relationship with all your vendors. One challenge that we ran into with our venue, is that every time we spoke about our wedding plans we were passed along to a different wedding coordinator to help us… and more often than not, it wasn’t the person that would be there to help us the day of. This was a little unnerving because without telling our coordinator firsthand, it felt like we were playing telephone. Getting on the same page is key since these are the people that are going to help you execute your big day.

Just like collaborating with all your vendors, guests, bridal party, those in supply chain now need to coordinate with a number of tiers in the value chain network. Because of that, supply chain visibility and supply chain coordination has been reduced and often made the brand owners dependent on suppliers for their business and operations performance results.  To be truly effective, supplier collaboration needs to go far beyond the tactical exchange of data. Key suppliers must actively review information and directly contribute to the decision-making process so that companies can exchange early warnings and collaboratively resolve supply chain risk issues. Better supplier collaboration improves the flexibility of a supply chain and the profitability of the enterprise. 

Talent

We hear a lot about supply chain talent and how important it is to build up less experienced supply chain professionals to operate an effective and efficient supply chain. The same could be said for those getting married. We certainly needed and appreciated our friends and family that supported us throughout the wedding planning process. Without their support and advice, we wouldn’t have been able to pull it off, or at least not as well.

Just like we received a lot of sage wedding and marriage advice from married friends, colleagues and acquaintances, many organizations are creating formal supply chain talent-management programs to help transfer knowledge to cultivate growth. Often, these programs aim to engage both the mentors and the mentees by providing opportunities for a connection and growth. And now, more and more colleges and universities are offering undergraduate- and graduate-degree programs in supply chain management to better prepare younger supply chain professionals to enter into the field.

 

All that said, I can officially say we did it! And I can’t wait to give advice to future engaged couple thinking about planning a wedding.

Happy Wednesday!

Posted in Demand management, General News, Response Management, Sales and operations planning (S&OP), Supply chain management


Top 5 Reasons Why Soccer Players Make Good Supply Chain Managers

Published June 20th, 2014 by Bill DuBois 3 Comments

fifa world cupHave you been watching the World Cup? I have.

It’s made me think about some of the similarities between this game and supply chain. And because of that, I came up with the Top 5 reasons why soccer (football) players make good supply chain managers.

Comment below to let me know if you agree, disagree or have your own ideas about why soccer players make good supply chain managers!

 

5. They usually need extra time to get the job done.

Supply Chain Managers need extra time

 

4. When something goes wrong they’ll let you know about it.

Supply Chain Managers joke when something goes wrong

 

3. They constantly deal with disruptions.

Supply Chain Managers joke distractions

 

2. They’re always willing to take one for the team.

Supply Chain Managers joke team players

 

1.They can deal with issues on a Global scale.

Supply Chain Managers joke global

 

 

Posted in Jokes, Supply chain management


Companies passionate about Integrated Business Planning. Supply chain risk management…not so much?

Published July 18th, 2013 by John Westerveld 3 Comments

Supply Chain Digest’s graphic of the week last week is from the 2013 Gartner Supply Chain Study.  It shows various initiatives that supply chain leaders feel passionate about like integrated business planning, government mandates, talent management, globalization initiatives, supply chain risk management and supply chain redesign.

Passion Index for the 2013 Supply Chain Top Priorities

Passion Index for the 2013 Gartner Supply Chain Top Priorities supply chain risk management

Two things really stood out to me: Integrated business planning is a very high priority and supply chain risk management is a relatively low priority.

Why does supply chain risk management score so low?

I can certainly understand why integrated business planning would score highly; it is the function within business that identifies strategic corporate objectives and aligns the company in achieving those goals.  What I (and the report author) found confusing is why supply chain risk management scored so low overall.

Perhaps, we have advanced far enough in supply chain risk management that it is no longer a concern (In my opinion, I don’t think so though…). Potentially, we think that there won’t be another Japanese tsunami or floods in Thailand or garment factory disasters in Bangladesh.  It seems to me that these types of disasters are getting more frequent, not less. Every time I turn on the news, it seems there is a story that has a global impact.
The only consolation I take from this is that any good integrated business planning process would include supply chain risk management as one of the factors considered in any decision made.    One can only hope so anyway.

What are your supply chain passions for 2013?

Why do you think supply chain risk management scored so low in this study?

Comment back and let us know!

 

Enhanced by Zemanta

Posted in Supply chain management, Supply chain risk management


Changes to Apple’s Supply Chain: Reading The Tea Leaves

Published February 11th, 2013 by John Westerveld 0 Comments

Apple's Supply Chain

I saw an interesting article on Fox Business that talked about how Apple has come to the realization that it needs to regain control of its supply chain. “What?” you say. “Apple is known for its fantastic supply chain”. And you’d be right… if the focus is on delivery metrics or even costs.  Instead, in this instance, the focus is on ensuring that the company’s ethical and environmental policies, as described in Apple’s supplier code of ethics, is being followed.

Apple has recently come under fire due to allegations that its suppliers engage in discriminatory working practices, such as underage labor, poor working conditions, long hours etc. While Apple is often singled out in these cases, this isn’t just a problem that is unique to Apple’s supply chain. These contractors’ supply products to many other companies, but Apple fairly or unfairly, gets targeted in news reports because it is one of the largest and most recognized brands.

Despite the fact that the companies perpetrating these infractions are completely independent from Apple, it is Apple’s products they are manufacturing and consumers ultimately see Apple as responsible. The point is that your suppliers are an extension of your company, and as such, can have a major impact on your image.

Just before Christmas, Apple made an interesting move; it announced that it will be bringing a portion of its manufacturing back to the US.  Rumour has it that it will be the Mac Mini production that will be on-shored and that Foxconn will be handling production in the US for Apple. While many have interpreted this as a “marketing” move, I have to wonder if it isn’t intended to address some of the ethical issues that Apple has been struggling with in its supply base.  Even though they will still be outsourcing the production of this product line, making this product in the US will undoubtedly make it easier to monitor production processes.

While the Mac Mini sold 1.4 million units in 2012, its sales are dwarfed by sales of iPhones, iPads and iPods.  Even the MacBook Air sold 4 times what the Mac Mini sold.  So why is Apple reportedly planning on moving the Mac Mini?  Why not something with more sales?  It actually makes sense if you think about it from a supply chain perspective.  Apple makes the point that one of the key reasons they still manufacture in China is because North America has lost the engineering and manufacturing skills required to manufacture complex electronics. If you take this at face value, what product would you choose to manufacture in that environment?  The Mac Mini has no display, no touch technology, simpler assembly (I assume putting a Mac Mini together must be simpler than an iPad or MacBook).  Also the lower volumes will make the complex and risky job of moving production easier.

I’m glad to see that Apple is taking steps to meet their supplier code of ethics. Despite some of Apple’s recent (and probably undeserved) problems in the stock market, they are one of the world’s largest manufacturers, and as such, have a significant influence on what is deemed acceptable. By making this move, it seems that Apple is taking a step to set the example that the unethical treatment of workers is unacceptable.

So, what is next for the Apple supply chain?  I can’t help but think that moving manufacturing of one of the product lines to North America is going to be seen by Apple as a trial. If it is successful, we will likely see the manufacture of more products moving to North America.  If not, we may see production quietly move back overseas.  What will Apple base this decision on?  My guess is that it will be the following factors:

  • How difficult is it to ensure that Apple’s supplier code of ethics is being followed?
  • How much easier is it to manage supply planning given the closer location and shorter lead times?
  • How difficult is it to locate and / or train people to work in these facilities – including manufacturing, engineering, planning and support staff?
  • What additional goodwill does Apple experience by being able to claim “Manufactured in America”…and what impact will this have on sales?
  • And finally, what is the impact on margin?

My hope is that Apple decides to move even more of their product to North America…but I admit, as a (not too) old manufacturing guy, I might be biased.

What do you think?  Is made in America (or Canada…or where ever you live) a factor in your buying decisions?

 

Enhanced by Zemanta

Posted in Control tower, Demand management, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management, Supply chain risk management


On Demand Webcast, Supply Chain Control Tower: Concept and Impact

Published December 3rd, 2012 by Melissa Clow 0 Comments

Last week, Kinaxis participated in a webcast with Aberdeen Group on the topic of “Supply Chain Control TowerOn Demand Webcast, Supply Chain Control Tower: Concept and Impact: Concept and Impact”.

Bryan Ball, Vice President, Supply Chain Management, Aberdeen Group and Kirk Munroe, Vice President of Product, Kinaxis, spoke on the topic of “Supply Chain Control Tower: Concept and Impact” and we were lucky enough to record his presentation.

The recorded presentation is now available; in addition, the slide deck is available for download.

In the presentation you will hear:

This on-demand webcast will address the concept and impact of Control Towers in the context of supply chains. A definition will be offered in terms of obtaining the research data and the findings will be presented utilizing the Aberdeen PACE methodology. In addition to basic findings the metric of “time to problem resolution” is presented as means of measuring the effectiveness of control towers.

A comparison of those with control tower capabilities to those without those capabilities will be made with t he intent of defining a summary list of possible technology elements required to enable a complete control tower solution. The fewer the elements involved in the complete solution the more effective the control will likely be due to the latency removed between separate pieces of the overall solution. Takeaways and recommendations will be made by organizational maturity class along with summary comments and direction.

 

Posted in Control tower, Demand management, Response Management, Sales and operations planning (S&OP), Supply chain collaboration, Supply chain management


Supply chain heroes: Observations from the LogiPharma event

Published October 12th, 2012 by John Westerveld 1 Comment

I spent the last several days in Philadelphia at the LogiPharma 2012 event.

The event was held at the Loews hotel on Market street, a refurbished historic building, which was the former home of the Philadelphia Savings Fund Society (PSFS), the first savings bank in the United States. Many elements of the hotel harken back to the banking heritage including a huge vault door in the lobby.   But this isn’t John’s historic building blog.  What about supply chain you ask?Supply chain heroes:  Observations from the LogiPharma event

We’ve been to several of these over the past years.  One thing that we’ve noticed is that we are seeing more supply chain interest at these events.   As we talked to the various people who came by the booth, it isn’t surprising why.   Pharma has several unique supply chain challenges.  Combine this with more and more government regulation, rules that change with geopolitical borders, and you can understand why we were so busy at our booth.

Cold chain – Many pharmaceutical require that the product be maintained at a specified temperature throughout the manufacturing life of the product.  From API (the active ingredient in the drug) through to delivery into the customer’s hands, the product must maintain a specific temperature –or it is ruined

Expiry – Every drug I’ve seen has an expiry date associated with it. Also each country has different regulations that restrict how close to the expiry date you can sell the product.  One country may allow you to sell a product within 6 months of its expiry date, other countries may be stricter and only allow sales up to  18 months before expiry

Long lead times – Many pharmaceuticals especially biologically derived drugs have extremely long lead times.  The active ingredient must be grown and as such will take months for a batch to be ready.   One company we talked to was telling us of a product that took 6 months to produce, had a 2 year shelf life and had to be sold at least 12 months before expiry. (Yikes!)

Yield –Traditional supply chains consider yield to be a percentage of production.  If I make 100, 3 may be defective.  However, many pharmaceuticals are produced in batches.  If the batch isn’t good, 100% of the batch fails and you have to start from scratch – combine this with a 6 month lead time and you have a scheduling nightmare.

Patent expiry – Imagine that you have a very lucrative product.  Sales are good, you are operating at capacity and are making very good money.  Now imagine that a competitor comes along, uses your design and makes a competing product at ½ the price. This happens all the time to pharmaceutical companies when the patents run out and generic drug companies are allowed to start production.   If not planned for, this event can have a significant impact on capacity utilization and revenues.

FDA approval – Introduction of a new drug is serious business. Every aspect of the design and manufacture of a drug must be approved before a drug can be used.  Even if a company decides to manufacture the drug in a new location, the new location must be approved.    If demand for a drug is higher than anticipated, you can’t simply offload manufacturing to a new supplier – they must be approved for that drug in that country.  Finally, if that approval is delayed, you cannot manufacture that drug until approval is received.

There are more aspects, but I think you can see why pharmaceutical supply chain is complex.   But one thing to remember is that in many cases, these are lifesaving drugs.  If the customer doesn’t get their product, they can become very, very sick and perhaps even die.  Adds a whole new dimension, doesn’t it?

Posted in Sales and operations planning (S&OP), Supply chain collaboration