Hi, my name is Alexa and I am a chocoholic. It’s been less than a day since my last indulgence.
There’s no two ways about it. When it comes to the cocoa-laden confectionery, I’m hooked. It doesn’t matter if it’s milk, dark or white. Anything with even a hint of chocolatey goodness will suffice – and sadly for my waist line, one little taste is never enough.
What’s even more unfortunate than the effect on my figure is that it’s about to get a whole lot more difficult to feed my addiction thanks to a lack of insight into supply chain risk. The Wall Street Journal (WSJ) recently posted an article about the huge shortfall in the cocoa crop in Ghana. Dry weather coupled with the late application of vital pesticides to cocoa trees has caused the crop to shrink significantly, and sparked fears growers may not be able to deliver enough cocoa to fulfill their contracts. That means manufacturers will likely be scrambling to find enough cocoa to satisfy their chocolate producing needs.
Skyrocketing prices aside, this latest news is enough to send any chocolate lover to the store to stock up, and really puts the spotlight on a major supply chain risk in the $7 billion cocoa-futures market. As the WSJ points out, there is a drastic over reliance on the Ivory Coast and Ghana when it comes to the global cocoa supply chain. Together they account for more than half of the world’s cocoa supplies!
With that much of the world’s supply coming from one region, it’s no wonder the price and availability of chocolate fluctuates as wildly as it does. Natural disasters, poor growing conditions, pandemics, war, political and social unrest, terrorism and accidents can all have huge consequences on supply chains relying on either a single supplier, or suppliers who are all in the same geographic region.
SupplyChainBrain attended our annual Kinexions user conference, and while there, they completed a number of video interviews with customers, analysts, and Kinaxis executives. And, we’d like to share them!
In the age of the Internet of Things, how can companies extract meaningful insights from the mass of data that is available to them today? We get answers from Yogesh Amraotkar of the Innovation and Solutions Group of Cognizant.
The first day of spring is less than a week away but the Canadian winter is still wreaking havoc on local supply chains.
A friend of mine wrote off his beloved Mazda 3 last month after being rear-ended on a snowy country road outside of Ottawa. This unfortunate event kick-started an urgent need for a replacement vehicle that would fit his growing family and replace the car he’d loved for longer than he’d even known his three children. His wife, demonstrating both her love and a generous dose of pity for her grief-stricken husband, agreed to let him upgrade to a brand new Audi Q3. “Don’t worry my friend, the car of your dreams will be here soon. It’s already on a ship to Halifax!” assured the sales rep.
Now five weeks late, my friend’s wife is still driving him to work and her pity has all but evaporated. What went wrong you ask? It’s hard to believe, but the ‘car of his dreams’ is currently frozen to the ground at CN Rail’s Eastern Passage Autoport.
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.
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.
‘SCM World, Innovative Approaches to Supply Chain Risk, Geraint John, July 2014′.
SCM World has published a report ‘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 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:
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.
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.
We 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’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.
4. When something goes wrong they’ll let you know about it.
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.