Monthly Archives: October 2006

Your Supply Chain is NOT Secure! Part II.

Yesterday we discussed how the article Nine Cautionary Tales in the September (2006) issue of IEEE Spectrum makes it abundantly clear that no matter what you think, your supply chain is NOT secure – regardless of how safe you think your supply chain is or what voluntary security initiatives you might subscribe to.

Today we are going to discuss some ways to mitigate the risks that are, more-or-less, out of your control. What is more important is that many of these risks are not just terrorist risks (where you literally have no control), but natural disaster risks as well (where you may not be able to take any reasonable precaution).

We’ll discuss each scenario in turn.

Bomb in a Box

Scenario: A bomb is detonated in a shipping container somewhere in a major port city. Hundreds, if not thousands, of shipping containers (which now contain 90% of international cargo) are destroyed or damaged and the port is shut-down for weeks during investigation and recovery.

Mitigation: There’s nothing you can do to stop this, but you can insure it does not devastate your business. In addition to mitigating supply risk by using two suppliers, you should also mitigate delivery risk of key shipments (critical direct materials or high-demand, low supply consumer goods such as those Sony PS3’s that are going to fly off the shelves) by using two logistics carriers or insuring that your logistics carrier splits shipments across ports, containers, and trucks. Make sure you use multiple ports as part of your regular operations, and can re-route shipments quickly if one port gets considerably backed up (or temporarily shut down due to a natural disaster, terrorist attack, or strike).

ElectroShock

Scenario: Terrorists take out part of the power grid and a whole city, state, or even region goes dark – taking out your operation with it.

Mitigation: Critical operations, which for most companies today revolve around data-centers, should have their own back-up generators. Your communications network should also have its own back-up generators. Even if you can’t work, you should still be able to keep in constant communication with your supply chain so that you can recover quickly when the power comes back on. (And cell phone batteries only last so long!)

Toxic Train Wreck

Scenario: A terrorist blows a hole in the side of a tank car transporting toxic chemicals, such as chlorine gas. This scenario is more dangerous than you think – most railway lines go through major cities near densely populated areas. And this could also be caused by a de-railing, which could be caused by a downed tree (due to a lightening strike), also putting this risk in the natural disaster category.

Mitigation: Make sure you have evacuation plans for all of your offices and plants and the ability to hot-swap your operations to a remote location.

Crude Attack

Scenario: A highly trained commando squad blows up a refinery. A very expensive processing plant is destroyed, toxic smoke fills the air, oil supply drops, and energy prices skyrocket.

Mitigation: Have evacuation plans in place if your offices or plants are close to refineries, power-generation stations, or chemical manufacturing or processing plants that could cause a significant hazard if something goes wrong. Make sure your critical back-up power centers can run basic operations on alternate sources of energy – wind power, solar power, biofuels, etc. Consider geo-thermal heating and cooling. You might not be able to meet all of your power needs this way, but the less gas you need to keep going, the less an oil-based energy crisis will affect your business.

Agro-Armageddon

Scenario: A small group of terrorists infect small groups of cows with mad-cow disease in geographically remote parts of the country and in order to contain what appears to be a burgeoning epidemic, hundreds of million of cattle are slaughtered across the country. (The virus that causes this disease is harmless to humans.)

Mitigation: The real danger here is if your business relies on beef – distributor or steak-house. The mitigation is to make sure you are set-up to import beef from multiple countries at any one time.

Black Christmas

Scenario: Terrorists blanket shopping malls with open containers of mercaptan (the highly volatile and noxious-smelling chemical ordinarily used to signal the presence of propane gas) and postal offices with anthrax stimulants, scaring consumers away from shopping malls and shutting down the largest delivery service. Sales plummet.

Mitigation: First of all, don’t bet your business on a single holiday season. If you are in the business of seasonal novelties, diversity and attack all the holidays. Secondly, make sure you are set up to work with multiple delivery carriers, local and national. Standard courier rates are quite high, but some companies will give you great deals on volume, which will allow you to use them instead of the post-office at only a slightly higher cost. (This is critical especially if the bulk of your sales are low dollar goods. Most people will not want to pay a 50%+ shipping premium. For example, I’ve never ordered a single 11.99 CD at 7.99 next-day courier shipping.)

Star Struck

Scenario: A group of highly trained activists takes over a prestigious televised event with a number of important people present.

Mitigation: This sort of endeavor would take months and months of up-front planning and infiltration into all of the appropriate service organizations. There are two potential approaches here. The first is to move the event around and not select your service organizations too far in advance. However, if you are holding your event at a high profile venue in a city where resources need to be booked months (and months) in advance, this is not feasible. Make sure that all of the organizations you use are establish, trusted, and cognizant of best-practice security procedures. Make sure they do background checks on all new employees and that the security firm you hire does a complete, up-to-date, risk assessment, even if it’s worked the venue before.

A Farmer’s Fury

Scenario: A group of angry activists make truck-bombs using their unrestricted access to ammonium nitrate fertilizer, drive them up to a building, walk away, and detonate them using a remote detonator.

Mitigation: Restrict parking near critical facilities. If you feel this is a real threat, manually inspect all large vehicles entering your premises.

Too Much – Or Too Little

Scenario: In the future, airline security has lapsed to pre-9/11 levels as the urgency to protect the homeland has subsided with reduced terrorist attacks and a new government to the point where someone could walk on the plane with a shoe-bomb. (This also has an accidental equivalent, the plane crashes.)

Mitigation: The time-tested “don’t put all your executives on the same plane (, bus, or boat)”.

Your Supply Chain is NOT Secure!

The September (2006) issue of IEEE Spectrum ran an article entitled Nine Cautionary Tales designed to illustrate that we are not really prepared if terrorists decide to strike again, despite all of the spending on security initiatives and press statements.

However, what it does make abundantly clear is that no matter what you think, your supply chain is NOT secure – regardless of how safe you think your supply chain is or what voluntary security initiatives you might subscribe to. What does this mean? First of all, if security is critical, you need to take extra steps to insure that security is there. More importantly, it tells us that you should be prepared for disruption and have plans in place to deal with that disruption and mitigate the effects quickly and without serious incident.

So just how are they insecure? Let’s examine each of their scenarios.

Bomb in a Box

Scenario: A crazy dictator threatens to detonate a 2-kiloton atomic bomb hidden inside a shipping container somewhere in a major port city (which could do more damage then the 22-kiloton airburst that devastated Nagasaki at the end of World War II).

Danger: With 90% of international cargo now traveling in standard containers, and your average port only able to manually investigate a very small percentage, it would not be too difficult for a terrorist to hide a large bomb in random port container, detonate it, and damage hundreds, if not thousands, of neighboring containers.

ElectroShock

Scenario: Terrorists take out part of the power grid and a whole city, state, or even region goes dark – just as the US Northeast, Midwest, and southeastern Canada simultaneously failed in 2003.

Danger: There are about 1000 high-voltage transformers in the US that step voltage down from transmission levels (typically above 100 kilovolts) to distribution voltages (in the tens of kilovolts) across the US. Most are secured by nothing more than a chain link fence. Each one of these takes down a portion of the grid. The simultaneous knock-out of a handful of these could overload the grid and take out a very large portion of it. This could shut down significant parts of your operation – cold.

Toxic Train Wreck

Scenario: A terrorist blows a hole in the side of a tank car transporting toxic chemicals, such as chlorine gas.

Danger: The gas escapes and blankets the nearby area, making it uninhabitable and killing anyone who can’t escape quickly. Operations run on people – no people, no operations.

Crude Attack

Scenario: A highly trained commando squad blows up a refinery.

Danger: A very expensive processing plant is destroyed, toxic smoke fills the air, oil supply drops, and energy prices skyrocket.

Agro-Armageddon

Scenario: A small group of terrorists infect small groups of cows with mad-cow disease in geographically remote parts of the country. (The virus that causes this disease is harmless to humans.)

Danger: In order to contain what appears to be a burgeoning epidemic, hundreds of million of cattle are slaughtered across the country, significantly decreasing food supplies, driving up food costs, and making the terrorists, who invested in the futures market, rich in the process.

Black Christmas

Scenario: Terrorists blanket shopping malls with open containers of mercaptan, the highly volatile and noxious-smelling chemical ordinarily used to signal the presence of propane gas, and postal offices with anthrax stimulants.

Danger: Christmas sales plummet as consumers fear malls and deliveries can not be made. Furthermore, if the terrorists make threats to use real propane and anthrax next year if their messages go unheeded, Christmas sales, your primary revenue generators, are destined to be low for years to come.

Star Struck

Scenario: A group of highly trained activists take over the Academy Awards Ceremony.

Danger: This scenario applies to any function you hold with a number of important people.

A Farmer’s Fury

Scenario: A group of angry farmers make truck-bombs using their unrestricted access to ammonium nitrate fertilizer, drive them up to a building, walk away, and detonate them using a remote detonator.

Danger: This could be accomplished by any group with access to the right raw materials – farmers, distributor employees, manufacturer employees, etc.

Too Much – Or Too Little

Scenario: In the future, airline security has lapsed to pre-9/11 levels as the urgency to protect the homeland has subsided with reduced terrorist attacks and a new government.

Danger: Someone could walk on the plane with a shoe-bomb. More importantly, if security lapses across the board, it will be easier not only for terrorist attacks, but theft.

So what can you do? Tune in tomorrow!

Supplier Relationship Management

Another presentation at the Fourth Annual International Symposium on Supply Chain Management that tackled an important topic was a presentation on Vendor Relationship Management by Tom Hawkett of Connect4Growth.

Supplier Relationship Management is very important in a successful supply chain. When you consider the recent entrenchment of global / low cost country sourcing, the unreasonably high focus on spend management (a topic for another post), that many ERP investments are not delivering on promises (as most companies can only afford limited roll outs and most systems do not come with e-Procurement or e-Sourcing capabilities of any significance), and that the viewpoint prevalent in many organizations still seems to be “Procurement, What Have You Done For Me Lately?“, the need for excellence is paramount. This can only happen if you are able to consistently get the right products, of the right quality, at the right time, and at the right price. This is not likely to happen consistently and without incidence if you do not have good relationships with your suppliers.

So how does supplier relationship management help you?

  • Increased Productivity / Improved Performance
  • Improved Service Levels, Internally & Externally
  • Better collaboration with, and management of, providers
  • Reduced supplier selection risk
  • Utilization of best practices and governance structures
  • Reduced Decision Time
  • Cost Savings

No surprises here. So why do so many companies often have problems? Likely because they are faced with one or more of the following challenges:

  • Never enough time
  • Inundated by supplier contacts
  • Everyone is a supplier manager
  • Technology allows more stakeholders
  • Evaluation processes are longer today
  • Difficulty communicating vendor experience across the organization

So what’s the solution? A well designed, accessible, and easy to use Supplier Relationship Management (SRM) or Vendor Relationship Management (VRM) solution that supports and implements best practices appropriate to your organization. A good solution will provide the following capabilities to various degrees:

  • establish benchmarks and goals
  • ensure deliveries match payments
  • flag potential problems
  • expose maverick buying
  • encourage communication
  • track accountability
  • speed up information collection
  • enable apples-to-apples comparisons and reporting
  • provide a framework for partnerships
  • document experience in a knowledge store accessible by the organization
  • reduce decision times and ensure mistakes are captured and not repeated

Where can you find one? A number of vendors, including Connect4Growth, provide such solutions. Some examples are Vinimaya, Apexon, and SAP. In addition, some e-Sourcing suite vendors, such as Procuri, VerticalNet, and Ariba provide these capabilities in their e-Sourcing suites. Now, it’s true that each of these solutions are different, and attack different aspects of SRM/VRM, but the best of breed solutions are still infinitely better than not having a solution. And since these systems are far from rocket science, even though they can rocket you to success, if you don’t have one, you should consider getting one. After all, you probably already have a CRM (Customer Relationship Management) system – are not your suppliers just as important as your customers?

The Talent Series VII: The Spend Management Talent Game

In his series of posts on The Spend Management Talent Game (Part I , Part II, and Part III) over on Spend Matters, Jason Busch discussed some of the issues that affect an organizations suffering from a talent shortage and offered some advice for identifying talent.

Organizations that lack the necessary talent to compete at the top level in today’s environment often are able to identify results, but have a hard time translating paper-based savings from screen-shot trophies to those that drop to the bottom line. And as we know, opportunities and well negotiated contracts alone do not generate savings, a good follow-through led by a skilled individual is required. And, more significantly, Organizations suffering from talent deficiencies place too much emphasis on checking boxes for boxes sake. As Jason points out, your tools should not drive your processes, your holistic strategic sourcing model compliant with your overall supply chain model should.

So what kind of talent do you need to transform your ogranization from a reactionary technology-driven tactically-focussed organization to a proactive strategic sourcing organization? According to Jason, you should focus on talent with generalist skill sets, raw intellect and EQ (emotional intelligence) over industry and domain knowledge in new hires. It’s essential that they have general problem solving skills that go beyond functional — or even technology — knowledge. According to Jason, a database whiz that can fly through twenty thousand data cells is certainly valuable, but those sets of skills can be taught.

Jason also points out that this talent will need new approaches — and new skills — to thrive in the current market. Gone are the days where you can save money simply by hammering your suppliers, using reverse auctions when market conditions change, and/or passing your increased costs onto your customers. It’s an open market – the best suppliers will go elsewhere, reverse auctions only work, at most, a few times, and customers expect commodity prices to drop, not increase. Today’s procurement professionals need to be able to hedge commodity prices in the supply chain through exchange traded instruments and aggregate and understand commodity risk exposure across operating units to forward buy commodity contracts for strategic suppliers to ensure rupply and reduce maximum risk exposure.

So where do you find this talent?

One option is to look externally – consultants, contractors, and outsourcers. However, in this case, one of the keys to great results becomes management. In Part III, Jason offers some advice. If you are using an outsourcer, look for one that will balance fixed fee and contingency pricing. If they are willing to take a bit of risk, you know they are confident that they can achieve the expected results.

Be sure to understand market pricing and when it makes sense to pay top dollor. For example, Jason indicates that sometimes it really does make sense to pay thousands of dollars per day – in some cases, above the market – for true experts in targetted processes or specific categories as they amount you pay will pale in comparison to the value and savings they can generate for you. After all, a couple of extra points on a nine figure category is very, very significant.

Furthermore, bigger is not always better. Many boutique consultancies (such as Aptium Global) can bring true expertise and analytical skills – and even top tier academic qualifications – for less than the cost of a “first tier” strategy and operational firms, and with significantly less chance of generalist MBAs with little spend or supply management experience being assigned to your project.