Yesterday we told you that Sourcing, like the many facets of Supply Management, is not as easy as it seems as the skills required to go from RFI to award are numerous and compose up a laundry list that is rare to find even in most sourcing teams, yet alone individuals, including:
- (Cost) Analysis / Market Analysis
- Needs Identification
- Project Management
- Resource Management
- Supplier Identification
- Trend Identification
- … and …
- Risk Management
The last of which we left off of yesterday’s list because this is a list in itself. You see, in today’s Sourcing landscape, turbulence is not just what you experience in an airplane on your way to a site visit – it’s what you experience trying to manage your supply chains on a daily basis. Just like fluid flows can become highly irregular with the slightest perturbation, so can the flow of goods in today’s ultra-outsourced ulta-global supply chains.
Turbulence is a hidden risk in every supply chain, and one most organizations are never prepared for because, when a risk assessment is done, it is always focussed on easy-to-identify technological, economic, market, financial, organization, environmental and social risks — not random events that can temporarily interrupt your supply chain and cause temporary disruptions with serious financial or brand consequences. Temporary disruptions which, if regular in nature, can put your organization in real jeopardy and temporary disruptions, which, by their very nature cannot be planned for or even identified in an up-front risk assessment.
For example, when buying product components from China, an experienced risk team is going to identify:
- Supplier Risk
Are they financially stable? Will they adequately protect your IP? etc.
- Factory Risk
Is the quality acceptable? Are there workplace or safety hazards that could shut it down?
- Port Risk
Will the product be safe? Is there any danger of strike or overcapacity? On both sides …
- Export and Import Risk
Are all regulations adhered to? RoHS? WEEE? Has all the paperwork been completed and submitted on time?
- Technology Risk
Is the real-time product tracking and distribution system reliable? Backed Up? Integrated properly with all parties?
Is the product being made or stored in areas subject to regular natural disasters such as hurricanes, typhoons, earthquakes, etc.?
- Social Responsibility
Is the product conflict / slave labour free? Are all employees of all partners treated equitably? Is the product, and its production, environmentally friendly or at least environmentally safe? Can the product be safely disposed of?
Will the market still want your product when it is available? Is a competitor going to beat you to the market?
Will the economy maintain or improve? Or will it worsen, leading to reduced demand across the board? What is the job forecast looking like in target markets – job loss in those areas can weaken consumer demand.
and a few dozen other common risks from the risk identification and management playbook.
But it’s not going to identify one-time random events such as:
- Unlikely Terrorist Attack by a random civilian who goes postal and, when trying to go postal, thanks to a gas leak, accidentally blows up a building due near the docks and causes the port to become unaccessible for 3 days
- Delayed Delivery due to Paperwork Mix-Up
One truck is scheduled for delivery of your product to your distribution warehouse, another for mid-term storage at a competitors warehouse on the other side of the continent. And because the small carrier you’re using doesn’t have real-time inventory tracking, and your product is scheduled for JIT delivery, the mix-up isn’t detected until the expected delivery date when your product is half-way across the country.
- False Stock-Out due to Inventory Mis-Key
The clerk enters 8,000 units instead of 80,000 into the system, stores exactly 8,000 in the proper location in the ware-house, and puts the other 72,000 units of your hottest selling product at the back of the warehouse reserved for discontinued inventory.
Each of these events can happen, and each can cause a real, unexpected, and unpredictable turbulent impact to your supply chain. Are you ready for it? Can you sourcing team react and adapt when it does?