Category Archives: Risk Management

Ariba Vision 2020: Tomorrow’s Shoes (Part II)

This is the second of two posts that address the fourteen predictions that were dead on in Ariba’s “Vision 2020 – The Future of Procurement” report. Any Supply Management organization that recognizes the truth of these predictions is well on its way to formulating a plan to be a leading Supply Management organization in the decade ahead.

18. Offensive line takes the field

Supply Management professionals will increasingly use online communities and networks to discover, connect to, and collaborate with suppliers in a relentless pursuit of growth and expansion in line with the strategic goals of the company. Furthermore, the collaboration will be much more intensive and innovation focussed than it is today.

23. Buyer-seller lines blur

The focus will shift from the effective utilization of supplier functions to the effective integration of supplier functions to the point that integrated supplier functions will be almost indistinguishable from buyer functions. In leading organizations, the line will blur to the point where it is essentially nonexistent.

24. Innovation comes from without

As the paper says, the supply management role will be less about “person-who-brings-innovation-in” and more about “person-who-assembles-innovation-communities-and-gets-out-of-the-way”. Even at most companies that use innovation networks today, the innovation is still driven by the supply management professional that posts a problem in need of a solution. In the future, the networks will identify the problems and the solutions and then bring them to the supply management professional. Next generation web-based technology will bring the democratization of technology to new heights.

26. (Key) Suppliers gain power

Increasing reliance upon (key) suppliers is going to give them substantially more leverage in buyer-seller relationships, which is going to result in the supply management organization having to sell itself to the supplier as a customer of choice instead of the supplier having to sell itself to the supply management organization as the supplier of choice. And the more innovative the supplier, the harder the sell the Supply Management organization will have before it.

27. Firms share risks and rewards

The leading supply management organizations, that are incorporating incentives into their contracts today, will move to a shared risk and reward model where both parties share the rewards of a successful venture as well as the risks of the undertaking. No longer will contracts be lopsided in favor of the buyer that will be as reliant on the supplier as the supplier is on the buyer.

30. Risk info catches up

Risk management will take prominence in an average Supply Management organization which will have more access to readily available third party information (from networked communities where participants pool data for operational risk assessment) and be better poised to mesaure risk and formulate appropriate mitigations. Risk management will be embedded in every sourcing and contracting process and a key component in the calculation of expected value.

31. Profits replace cost savings

The shift in focus from cost to value will see most Supply Management organizations retire cost savings and instead institute profit generation as a primary measure of organizational success. Top line growth will be just as important as bottom line impact in an organization that wants to improve business outcomes overall.

The next post will address the predictions that came close to the mark, but did not hit it.

Can Your Supply Chain Be More Agile? Yes It Can!

A recent article on speeding up business agility over on ChiefExecutive.net had some great tips for making your supply chain more agile.

  1. The CIO is Your Business Partner
    Let’s face it, the best supply management organizations run on modern technology platforms that have to be implemented quickly and efficiently and operate 24/7/365. Supply Management needs to make a partner out of IT to insure that this happens.
  2. Foster a Culture of Innovation
    Yesterday’s best practice is today’s common practice is tomorrow’s laggard practice. The best organizations are constantly innovating, and this takes an innovative culture.
  3. Use Software to Fail Fast and Minimize Risk
    Model potential supply strategies and simulate both expected flow and disrupted flows to insure that the supply strategy chosen has the maximum chance of succeeding in today’s volatile and unpredictable global market place.
  4. Integrate IT at the Grass-Roots Level
    Not only is the CIO your business partner, but IT is part of every sourcing team. You need their support, and they need your help to minimize their costs. And they are your best ally when you need a new system.
  5. Establish Centers of Excellence
    Not only are the best supply management organizations generally center-led or hybrid (center-led / centralized models), but they have teams dedicated to nothing but strategy and innovation.

These are all great pieces of advice. They are so good that not only has SI recommended each individually before, but will do so again. Agile supply chains survive volatile times. Make yours agile before its too late.

Ariba Vision 2020: Today’s Blues

The following six predictions from “Vision 2020 – The Future of Procurement”, which would have been good if made before 2005 for 2010, are outdated and clearly come from Procurement professionals in organizations that are still in the laggard category as they define situtations that should either now be, or be in the process of becoming, standard modus operandi for a leading Supply Management organization.

04. Communities collaborate

Not only have we had virtual communities since 1996 when Geocities (which launched as BHI in 1995) hit the scene, but we have had collaborating communities in the enterprise for over 10 years now. Even Innocentive has been around since 2001! And while it’s true that communities haven’t been around nearly as long in Supply Chain, with the help of Ariba (and the Ariba Exchange), Kinaxis (and the Supply Chain Expert Community), RollStream (and its social supply chain solution that was recently acquired by GXS), communities are now normal operating procedure in leading Supply Managment organizations.

17. Talent competition heats up

The Talent Competition is already at the boiling point. Now that the economy is recovering, the last of the baby boomers are about to recover in droves at a time when there aren’t enough Supply Management professionals to begin with (as there are no programs out there that mint new Supply Management professionals for your organization to hire, as per SI’s post on the derth of Supply Chain Education). In fact, by 2014, the problem will be so bad that it will be #1 on every CPO list. And any organization that is struggling that does not address the problem now will not be around by 2020 to deal with it.

19. Enter the extended enterprise

For many global multi-nationals and leading Supply Management organizations that have outsourced, offshored, and rightshored over the last few years, the extended enterprise is already here and part of daily operational life. And this holds true for a number of product and service companies in the Global 3000.

22. Bye products, hello solutions

The crunch of the last few years resulted in many suppliers adopting a solution focus as they attempted to retain what little business their was. They went beyond simply providing a product to providing a solution around that product, including repair and warranty services, training services, and, in some cases, even consulting services. They embraced not only VMI (Vendor Managed Inventory) but VMS (Vendor Managed Services) in an effort to make themselves indispensible to their clients.

28. Contracts motivate

Well designed contracts that offer the right incentives and allocate the risks appropriately already motivate top tier suppliers to perform better to get a larger slice of the pie. If a contract offers a supplier a 10% reward for a 3% increase in service level, then, as long as it doesn’t increase the supplier’s costs by 10% to achieve a 3% increase in service level, it happens. It might take a while, but motivated suppliers get the job done when monetary rewards are involved.

29. Firms wake up to supply risk

The recent volcanic eruptions of Eyjafjallajökull and Puyehue that have grounded flights across the better part of a continent, the recent tsunami that devastated Japan and resulted in nuclear disasters in addition to long term supply disruptions, and the recent increase in droughts, fires, and hurricanes (thanks to global warming) that have resulted in decreased crop levels and huge spikes in basic food commodity costs have already woken up any supply management professional that is still breathing to supply risk and the need to address it. And even though most firms may not yet have the answers, they know they need them.

The next post will address Tomorrow’s Shoes.

Do You Know What Disaster Will Strike You Next?

Of course you don’t, but you can calculate the risks of one disaster vs. another and one site vs. another with some simple research into natural disasters.

Earthquakes
Earthquakes are more likely near the edges of tectonic plates than they are in the interior, especially if the plates are moving together and pushing on each other (and there is a history of earthquakes and activity). You can quickly identify areas at high risk by looking at a tectonic map, such as the one over on ThinkQuest. One quickly sees that high risk areas are the west coast of North and South America, South East Asia, Japan, and the island domains north of Australia, as per the Global Seismic Hazard Map over on Countdown.org.

Volcanos
You can get a list of volcano activity reports from the Smithsonian Institute which maintains a USGS Weekly Volcanic Activity Report. Most are usually in the Ring of Fire, which encompasses the high-risk earthquake zone around the Pacific. GeoCodeZip.com Google maps them for easy viewing.

Tsunamis
Coastal areas near sesimic hazard (earthquake) zones in the oceans are at the greatest risk of Tsunamis, which tend to build up in power and force as they approach shallow water and land. This says that some of the riskiest areas are on the Ring of Fire in western North and South America, Japan, and south-east Eurasia in the island domains North of Australia. More information on Tsunami Risk Zones can be found over on the International Tsunami Information Center.

Hurricanes
The greatest risk centers for hurricanes are coastal areas near the equator where hurricanes are normally a problem. The east coast of the US is particularly susceptible to hurricanes. The Global Weather Oscillations site specializes in in hurricane risk probability zone forecasts for the US and the risk zones for the coming year can be found on the Global Weather Cycles web site. The National Weather Service tracks the 10 global hot zones over on the National Hurricane Center site and a review of historical data will tell you how risky a certain area is.

Tornados
Tornados can occur anywhere in the world (including Antarctica, although this is the one continent where a tornado has not been documented) when the atmospheric conditions are exactly right. However, the most at risk zones are the middle latitudes between about 30 degrees and 50 degrees North or South where cold polar air meets warmer subtropical air and generates convective precipitation along the collision boundaries. As a result, taking weather patterns into account, the most at risk areas are the United States, western Europe, South Africa, the eastern and western coasts of Australia, New Zealand, the eastern and western borders of China, the eastern coast of Argentina, Japan, South Korea, and the Philippines. Good information on tornado climatology as well as a great map of global risk zones is found over on the National Climatic Data Center site.

Ice Storms
Blizzards can be bad, but generally don’t do much in the way of lasting damage. Ice storms, on the other hand, can do severe damage to infrastructure on a wide scale by downing power lines, and grids, damaging structures from the sheer weight of the ice, and even taking down trees. The most at risk areas tend to be Canada, the US, the UK, and most of Northern Europe and Russia.

Floods
Floods are not limited to the coastal variety, and can happen anytime the water level rises too quickly. Thus, in addition to worrying about flooding in coastal areas as a result of a tropical storm, hurricane, tsunami, or storm surge (tropical cyclone), flooding inland can occur from intense thunderstorms, sustained rainfall, or rapid snow melt. Thus, all of the coastal areas identified in your hurricane and tsunami risk lists are at risk at flooding plus any area with a history of flash floods, sustained rainfall (like they get in India during Monsoon season), or rapid snow melt (in Northern Canada) are at risk of floods.

Wild Fires
Wild Fires can occur on any continent at any time whenever the conditions are right and are likely to follow heat waves, droughts, and cyclical climate changes (such as El Nino) and high-pressure ridges. They are most common in climates that are sufficiently moist to allow regular vegetation growth but where extended dry, hot periods are also present. This keep parts of Africa, South America, South Eastern Eurasia, and Eastern Europe at high risk, but parts of the Southern US, Mexico, India, and Australia also enter the high risk zone on a regular basis.

In other words, there’s no excuse for not knowing which suppliers are at risk of which natural disasters and how great that risk is. (Some historical research will give you frequency of disasters in the area and a local climate institute likely has probabilities of occurrence for the event, such as once every twenty years.) So while it may be hard to say how risky your supply chain is from a holistic perspective (as some financial or political risks may not be identifiable until the last minute), it should not be hard to say how risky it is from a natural disaster perspective.