Category Archives: Risk Management

MAP-21 is in Effect. Are You Compliant? Part I

MAP-21, or the Moving Ahead for Progress in the 21st Century Act (1.3MB PDF), took effect on October 1. Is your Supply Chain compliant?

At 584 pages, this act is a monster. Probably the most relevant to your supply chain and logistics activities is Division C which contains the Transportation Safety and Surface Transportation Policy, which starts on page 328 and ends on page 440, which contains the Motor Vehicle and Highway Safety Improvement Act, the Commercial Motor Vehicle Safety Enhancement Act, the Hazardous Materials Transportation Safety Improvement Act, and the Sport Fish Restoration and Recreational Boating Safety Act of 2012, with the first three being the most relevant.

In these acts, the most obvious sections of interest are 31206 that define increased penalties for odometer fraud, 31207 that extends prohibitions on importing non-compliant vehicles and equipment to defective vehicles and equipment, 31208 on the conditions on importation of vehicles and equipment and 31209 on port inspections in subtitle B of the Motor Vehicle and Highway Safety Improvement Act; 31307 on whistleblower protections of subtitle C of the Motor Vehicle and Highway Safety Improvement Act; 32107 on increased penalties for operating without registration and 32109 and 32110 on revocation of registration for imminent hazards and failure to respond to subpoena of subtitle A of the Commercial Motor Vehicle Safety Enhancement Act; 32203 on state reporting of foreign commercial driver convictions, 32204 on the authority to disqualify foreign commercial drivers, and 32205 on the revocation of foreign motor carrier operating authority for failure to pay civil penalties of subtitle B of the Commercial Motor Vehicle Safety Enhancement Act; 32302 on driver medical qualifications and 32304 on commercial motor vehicle operator training of subtitle C of the Commercial Motor Vehicle Safety Enhancement Act; 32504 on impoundment and immobilization of commercial motor vehicles for imminent hazard and 32505 on increased penalties for evasion of regulations of subtitle E of the Commercial Motor Vehicle Safety Enhancement Act; 32915 on additional motor carrier registration requirements, 32918 on financial security of brokers and freight forwarders, and 32921 on additional registration requirements for household goods motor carriers of subtitle I of the Commercial Motor Vehicle Safety Enhancement Act; and 33010 on civil penalties of the Hazardous Materials Transportation Safety Improvement Act.

This, of course, isn’t an exhaustive list of items that you need to be aware of as a broker or carrier, but just a starting one. For example, in 31105 on National Priority Safety Programs, which amends section 405 of title 23 of the United States Code, there is a section on distracted driving grants that authorizes the secretary to award a grant to any state that prohibits texting while driving and youth cell phone use while driving. This is likely going to result in (additional) cash-strapped states banning texting and (youth) cell phone use while driving. (So you better have a policy in place preventing your drivers from texting behind the wheel if you don’t already!)

So what is relevant in the sections of interest? Stay Tuned for Part II.

Market Disruption Forces Supply Chain Change

 

Market Disruption Forces Supply Chain Change

Despite what the title of this recent article on “disruptive market drives supply chain change” over on Just Style might suggest, market disruption does not drive supply chain change, it forces it. However, the article is right when it notes that having an efficient and fast-reacting supply chain should be a must for any brand or retailer.

The difference is slight, but important. Driving implies there is some guidance to the movement. But the nature of disruption, especially in today’s supply chain, does little to guide an organization that needs to respond, and do so quickly. The organization is forced to change, because failure to do often results in a change in liquidity status from profitable to bankruptcy.

And it’s not just demographic shifts that a retailer or brand needs to react to, but disruptions further down the supply chain. Even if a brand can react quickly to a change in consumer preferences and adapt its main product line to have the look, feature, or ruggedness demanded by its target customer base, if a fire takes out its main manufacturing plant, or a labour dispute cuts off production of a needed rare earth metal, or an act of piracy results in its shipment being stolen, what is the brand going to do?

Organizations need supply chains that can react fast, but they also need supply chains that are informed even faster. In order to react, supply chains need multi-tier visibility into critical product lines, such as the visibility that Resilinc can provide. Otherwise, all the market intelligence in the world on changing consumer consumption patterns won’t do them any good if they don’t see that a critical even in their supply chain prevents them from being able to react accordingly.

 

Some Risks Can’t Be Squashed? Can Co-opetition Help?

Good visibility, planning, and mitigation can go a long way to eliminating, or at least circumventing, a large number of internal and external risks in an organization’s supply chain. It can improve quality, smooth transportation, and minimize production line downtime and stock-outs in situations where the risk – such as product contamination, risky transportation routes (due to piracy), and possible port closings (due to impending strikes) can be recognized in advance. However, even though we know some regions are high risks for natural disasters such as hurricanes, earthquakes, tsunamis, and volcanic eruptions, we are generally unable to predict such events with more than a few days warning at best. These risks will never go away – and in situations where only a few suppliers can supply a given raw material or component – and can’t be easily mitigated.

So what is an organization to do? Well, it should start by making sure it has a good Contingent Business Interruption (CBI) insurance policy in place that covers supply chain interruptions, but that doesn’t solve the problem. It can proceed by making sure it knows every backup source of supply, but if the disruption results in a worldwide market shortage, someone is going without and this doesn’t necessarily solve the problem either. It can do its best to identify alternative designs that can work with different, more easily obtained, raw materials – but if such alternate designs are considerably more expensive or less rugged, this doesn’t help either.

As per the title of this posts, some risks can’t be squashed. So how does an organization maximize its resiliency? Co-opetition, short for cooperative competition, might be the answer. Generally speaking, in most markets with constrained supply, there are only a few big companies that represent most of the demand. Think hard drives – how many hard drive manufacturers are there? Cell phones? Motion sensors for game consoles? And every company in the market knows who the other big companies are. And, at any given time, some of these companies will be overstocked and others will be understocked as the market demand sways from one product to another, in ways that are not always predictable.

What if these companies took a lesson from the BRIC, which just banded together to create a $100 Billion buffer to help protect their economies from shocks when G20 leaders warned that the global recovery is still at risk from volatile capital flows. China is contributing 41 Billion to the fund, Brazil, Russia, and India will provide 18 Billion each, and the new BRICS member, South Africa, is coughing up 5 Billion. The fund — called the Contingent Reserve Arrangement — is being designed to provide member countries with an emergency cushion of cash during times of crisis.

Instead of creating monetary funds, the companies in the co-opetition could create virtual emergency raw material / component pools where member companies affected by a disruption could obtain a limited supply from their competitor or their competitor’s supplier agains the reserve locked up by their competitor. Each of the companies would share in the pain caused by the disruption. And although this means that some companies would, as a result, feel the result worse than they would otherwise as they would be giving up some supply to their competitors, they could take comfort knowing that the next time a disruption hit them severely, they will feel the blow a lot less than they would otherwise as all of the co-opetition members will be sharing the pain. Done properly, each company in the collective could insure that, no matter what, it would be able to keep operating at a baseline and the risk of a severe or catastrophic disruption would be minimized for all members.

Thoughts?

How Do You Monitor Your Supply Chain for Disruptions?

Are you in the top tier of organizations who actively monitor the global news for potentially disruptive events and that identifies those events that will likely disrupt the organization’s supply chain before the shockwaves disrupt the chain and cause shipments to be late or missed entirely in first, second, and even third tier suppliers, or do you wait until a shipment is late, Sales is screaming, and then figure out what happened?

Be honest. Even though SI readers are the most intelligent, progressive, and sexy Supply Management professionals in the world, the reality is that many work for organizations who are still stuck in 1699 with respect to making the most of modern technological solutions.

And while automatic event monitoring software is, relatively speaking, quite new, as the underlying news monitoring and semantic processing technologies they are built on are quite new, the technology has been around for a few years and is maturing nicely. For example, Resilinc‘s* new’s release, called EventWatch Processional, monitors over 25 different types of disruption events ranging from catastrophic global crisis and natural disasters (such as earthquakes, hurricanes, and floods), to isolated incidents (such as factory fires, labour strikes [at the port], and plant meltdowns), and government regulatory actions (such as border closings and economic sanctions). And while the software can’t pick up on every type of possible disruption (because a single truck getting hijacked inside China carrying your microprocessors might not make the news), if you look at the most costly disruptions over the last two decades, most were due to natural disasters, labour strikes, and port/border closures — and these are all picked up by the EventWatch solution. From a coverage perspective, it’s an 80%+ solution and most of what it misses (such as the theft example above) will be picked up by appropriate collaborative supply chain solutions that track shipments, delivery dates, and milestones. (For example, if your second tier supplier was supposed to get a shipment of microprocessors on the 5th, and they still aren’t there on the 7th, communicates the potential delay to the first tier supplier, who incorporates those microprocessors into power regulator units for your engines, and who knows that every day of delay will delay their production and shipment to you, communicates the potential delay to you, and that’s a problem, and the communication of such problem flows back from you through the first tier supplier to the second tier supplier, the second tier supplier can begin looking into the problem immediately. If the second tier supplier then calls the logistics company who says that the truck can’t be located, a theft can be reported, the information can be communication back up the chain, and mitigations can immediately be investigated in a collaborative effort between all parties).

A good event monitoring solution, like EventWatch, will provide email notification of identified threats that can potentially disrupt the supply chain along with

  • event details,
  • industries and geographies potentially affected,
  • links to further information, and
  • potential impacts to the organization’s supply chain based upon
    information provided by the organization.

This will allow an organization to quickly identify potential supply chain impacts from significant disruptions and, if necessary, begin to work on mitigation plans immediately. Identifying disruptions early is critical given the potential ramifications of a prolonged disruption event. For example, consider the Chilean port strike in 2012. This strike, which first made the global news on March 20, prevented Codelco, Chile’s largest copper mine that was also suffering from an internal strike, from sending shipments — a reality that was identified by Resilinc’s monitoring software on March 28th. Four days later, on April 1, the mine declared a critical force majeure. Since force majeure events result in an unavailability of supply from one or more sources, knowing that they are likely to occur, even four days in advance, gives an organization a significant edge as it can lock in supply from the lowest cost competitor (with excess supply) before that supply, and other sources, becomes unavailable as everyone scrambles to find alternate sources of supply once the unavailability of the primary supply makes the global news.

This is just one example of the importance of disruptive event monitoring. Where supply chain disruptions are concerned, knowledge is power — and the first to know have the power to take actions while there are still actions to be taken. Once all remaining supply is locked up, it’s locked up — and unless the organization can find a substitute product, material, or service (which is not always possible due to regulatory and/or material requirements of the product being manufactured or service being delivered), the organization is, simply put, screwed.


*Just in case you haven’t been paying attention, in full disclosure, Resilinc is an SI sponsor.

Could the Fateful Four Bring Down Your High-Tech or Automotive Supply Chain?

Today, Resilinc announced that leading global supply chains have become dependent on the same small group of sub-tier suppliers – concentrating the risk and significantly increasing the potential for crippling supply chain disruptions. Based on global supply chain mapping data that it gathered over the past year, which analyzed a subset of data from over 600 large and medium suppliers across 2,500+ sites spread over 50+ countries, Resilinc performed a detailed analysis in order to identify specific industry trends that could be used to create stronger supply chain resiliency plans.

This study, which focussed on the analysis of sub-tiers that often hide risks that go undetected by the buying organization, not only found that global supply chain risk tends to be concentrated in certain sub-tier suppliers and localities, but also found that many leading global supply chains, in the High-Tech and Automotive sectors in particular, have become dependent on the same small group of sub-tier suppliers.

In particular, the study found that in the High-Tech and Automotive supply chains, the vast majority of suppliers are dependent on sites that are owned by just four suppliers and that more than 50% of all sites analyzed are located in just four countries: Taiwan, China, the USA, and Japan. Who are these four suppliers that can control the fate of your entire High-Tech or Automotive Supply Chain? Taiwan Semiconductor (TSMC), with an 83.8 B market cap; Amkor Technology (AMKR), with a 926 M market cap; ASE Inc, with a 191.5 B market cap ; and United Microelectronics (UMC) with a 5.2 B market cap. With a combined market capitalization of over 281 B, these fateful four suppliers have a commanding control of your High-Tech and Automotive Supply Chains.

For more information on how visibility can improve your supply chain resiliency, see the IDC Manufacturing Insights on Arguing the Case for Supply Chain Resiliency in 2013 (registration required).