Category Archives: Risk Management

Turbulence, Not Just for Airplanes Anymore!

Turbulence, a flow regime characterized by chaotic property changes, that occurs regularly in the earth’s atmosphere and makes for bumpy air travel when encountered, is not just restricted to air. It’s commonly found in water as well, when the oceanic currents mix, causing rough times for many a seafaring ship.

And when you consider that one of the most common causes is the rapid variation of pressure and velocity in space and time you see that it’s not even restricted to fluid dynamics. The general concept extends to the flow of physical goods and of virtual information when that flow, seemingly regular under normal circumstances, becomes highly irregular with the slightest perturbation.

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?
  • Environmental
    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?
  • Market
    Will the market still want your product when it is available? Is a competitor going to beat you to the market?
  • Economic
    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 schedule 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 react and adapt when it does?

What are the Retail Keys to Success?

Retail is hard. Really hard. Razor thin margins. Demanding customers. Unpredictable trends. Unreliable carriers. Financially unstable suppliers. The list goes on. But there are steps a retailer can take to make sure their odds are better than their competitors. Specifically, they can take steps to strengthen their supply chain — and a recent article over on Supply Chain Digital on untangling the retail supply chain with real-time analytics outlines four steps a retailer can take to strengthen their supply chain.

1. Obtain an end-to-end transparent view of the supply chain across both traditional and online business units.

You can’t run brick-and-mortar and online stores as separate business units. They are one brand and your customer expects one experience. If it’s in the warehouse, it needs to be available to customers who frequent your store as well as to customers who visit your online storefront. Moreover, pricing needs to be comparable. If you charge significantly less online than in the store for the same product, then why should your customer come to your store? Especially if you’re offering free shipping to build your online presence?

2. Implement the capability to identify bottlenecks and problems in real-time and the agility to take corrective action before the customer experience is impacted.

Your end-to-end view needs to go beyond simply identifying inventory levels across the organization, but expected delivery dates, ship dates, and late shipments / deliveries that will increase stock-outs and impact your ability to serve your customers.

3. Integrate once diverse and siloed sources of data across the business units to offer coordinated and quality service levels for the omni-channel shopper.

You need to not only offer superior service, but service your online customers in your stores and your store customers online, because, online or offline, you’re one organization, one brand, and you need to offer one consistent quality of service to maintain that brand.

4. Leverage historical data to set baselines and then analyze data against those baselines on a regular basis to make more reliable and timely predictions and better manage the business.

Past purchase patterns are just that — past purchase patterns. As tastes and trends change, so do purchase patterns — and the sooner new patterns are detected, the sooner inventory levels can be modified to prevent stock-outs of popular items and expensive over-stocks of items in disfavour.

It’s not a complete list of actions retailers can take, but it is a good starting list.

Ocean Freight Capacity is On the Rise … But the Consequences Are Unclear

South Korean shipyards are busy churning out Maersk’s “Triple-E” class, which at 400 meters in length are the world’s biggest Super Post-Panamax ULCV (ultra-large container vessel) container ships; new Super Post-Panamax ship-to-share cranes that can lift up to 65 tons (or more) are being installed at ports around the world; the Panama Canal Capacity is doubling its capacity in 2015 (and the average vessel calling on the US East Coast is expected to double in capacity from 4,500 TEUs to 9,000 TEUs); and North American Eastern ports are expanding up and down the coast.

This means that the capacity to do more global trade, both across the Atlantic and the Pacific, will soon be here. If trade doesn’t increase as fast as the big ocean carriers are predicting, even though fuel costs are rising, it’s likely that costs will remain stable, or even decrease slightly, despite inflation, as carriers compete to keep their holds full. If trade increases at the predicted rate, it is likely that costs will continue to rise at a steady rate. And if trade increases faster than expected, it will only be a few years until the major ports are again congested and growth potential flat (unless you take advantage of ports like Halifax).

What will come to pass, it’s hard to say, but not being aware of the potential for anything to happen where ocean freight is concerned is a risk. But it’s not the only risk to the viability, and cost, of your supply chain in 2014. It’s just one in dozens. There are a number of other significant risks that your supply chain could be facing in 2014, each with its own cost impact. If you would like some insight into what 13 other risks are, and what you can do about them, download SI’s latest white paper on the Top Ten Transitions To Tackle in 2014 to Tame the Tolls, sponsored by BravoSolution. (Registration Required) The follow up to last year’s Top Ten Things to Do in 2013 to Control Costs, this white paper looks at the state of the market one year later and provides you the foundations you need to attack the forthcoming challenges of 2014 head-on.

The Storm Clouds Are Coming!

Fifteen years ago, enterprise software was installed on-premise and managed locally. This required organizations with no knowledge of IT or IT management to create IT departments to manage servers and the software services that ran on them. For an organization that didn’t use software in it’s daily operations — such as a manufacturing organization that used manual production lines, an advertising agency that deals in existential image and not physical product, or a real-estate agency that only has to take listings and take cheques — it was an expensive proposition.

Then came the Application Service Providers, better known as ASPs. Using the power of the internet, these software solution providers built their own data centres and hosted the solution for their customers on dedicated machines in their own data centres. However, this solution was not optimal either, as the organization was not only paying for machines, energy, and administrators to run the software, but also paying for these through a thirdparty that added overhead and markup.

This provided an opportunity for more enterprising software delivery organizations that were able to build their applications to be multi-tenant and host multiple clients on the same platform. This reduced the number of machines, kilowatts, and system administrators that were required and thus reduced the overall operating cost. This allowed this new breed of Software-as-a-Service (SaaS) vendor to take business away from the ASPs and advance the state of the art.

But this wasn’t the end. New enterprising software delivery organizations, who realized that their expertise was software and not data centre management, decided that they could do even better if they designed multi-tenant Software-as-a-Service solutions that could be run on someone else’s platform. This would bring more economies of scale into play as not only could multiple solutions could be run on the same platform, but the platform provider could be replaced by another platform provider with a lower-cost at any time. Enter the Cloud, which, like a real cloud is ephemeral, suspended in space, and, in some cases, full of security holes.

Cloud services are ephemeral as any specific instantiation of cloud services last as long as the company behind it has the means and the desire to continue supporting the cloud services. Cloud services are suspended in space since the instantiations may move over time as the service owners switch to lower-cost and/or more secure data centres. And, with the recent revelations on the PRISM program, the cloud is full of security holes to the point where the EU Parliament has called for suspension of the multi-billion ‘Safe-Harbour’ deal over NSA spying because some cloud providers don’t, either because they don’t have the expertise or won’t spend the money, secure their part of the cloud properly.

As a result, supply chains are exposed to additional risks of disruption (if a cloud provider unplugs overnight), security breaches (as some platforms are significantly less secure than others), and privacy risks (as some governments claim the right to all data on servers on their shore that is not associated with citizens or entities of that country or that might pose a security risk under acts like the US Patriot Act).

And this is only one of 14 significant threats to the supply chain in 2014. Would you like to know what the other 13 are? If so, download SI’s latest white paper on the Top Ten Transitions To Tackle in 2014 to Tame the Tolls, sponsored by BravoSolution. (Registration Required) Or, you could just wait and be surprised as the other 13, riding on black swans, one by one, strike at each full moon. Your call.

You CAN NOT Protect Your Supply Chain Against Disruption Without Visibility!

A recent article on protecting your supply chain against disruption had some very good ideas for protecting your supply chain against disruption, but all were useless without visibility as most of them could not be carried out effectively without visibility. How critical is good visibility? Let’s review the suggestions.

Perform a supply chain vulnerability audit.

How can you assess vulnerability without a good supply chain map? Without visibility, how can you see beyond the first tier to find sole-source arrangements in the sub-tiers that are putting your entire supply chain at risk.

Do a rigorous “what-if” analysis.

If you don’t have a good map, you can’t analyze what would happen if you changed a supplier, changed a distribution lane, shifted production, etc.

Implement a strategic supply chain plan.

How can you judge the value of the plan if you can’t fully analyze the effects of its implementation and the chances of the mitigations it contains succeeding in the effect of a disruption? And, as per above, you need visibility for a full and proper analysis.

Create a balance between supply chain network efficiency and operations resilience.

The only way to determine if a plan is balanced is to do extensive what-if analyses that consider various perturbations of, and disruptions to, the normal scenario and see if the chain remains operational. These models can only be built with extensive visibility.

Design long-term strategies.

This also requires significant what-if analysis and detailed supply chain data, which in turn requires extensive supply chain visibility.

However, if you have good supply chain visibility, you can do all of this, and more, and truly secure your supply chain against significant disruption. And then you will have resiliency too. To find out more about the ROI of Supply Chain Resiliency, download the SI Illumination, sponsored by Resilinc.