Category Archives: Risk Management

Do You Know Just How Risky Your Supply Chain Is?

Or that even seemingly unrelated natural disasters can put it on hold? Or that it’s not just unpredictable disasters, like the eruption of Eyjafjallajokull that can bring things to a halt? Even completely predictable events like floods, which occur fairly regularly in most regions over the course of decades, can have devastating effects well beyond the coastal areas.

Consider the recent flooding in Australia’s Queensland slate. It did more than just make coastal areas unusable. It also resulted in significantly increased coal output. BHP, the world’s biggest producer, minded most of its coal products in Australia’s Queensland’s Bowen Basin from three of the world’s largest coking coal mines — Goonyella Riverside, Blackwater and Peak Downs. As a result of the flooding, all three mines were temporarily out of commission and mining is still constrained. This has caused BHPs production of coal to fall 30%. All because of a little extra water. This is not something that would come to mind if you asked an average organization about its supply chain risks.

So do you know just how risky your supply chain is? If not, maybe it’s time you did an assessment.

Is the Dreamliner Just a Dream?

I used to think vapourware was unique to IT. But after hearing that the Dreamliner, which was originally scheduled to ship back in May 2008, has been delayed yet again, I am beginning to think that Boeing has found a way to effectively translate the concept into aviation. Yes they have planes, and yes some of them fly, but they never seem to work. At this point I am starting to wonder if they are anything more than 767s with a new outer shell and a few cosmetic upgrades to the interior. If movie sets can recreate entire towns with nothing more than drywall and a few 2×4’s and pull the wool over our eyes everyday, why can’t aviation companies?

I guess we just wait for the next analysis of the continuing fiasco from Bob:

or Doug:

Aircraft Materials’ Battle Heats Up
Boeing Develops Technologies to Recycle Carbon Fibers
Boeing Races to Redesign Weight Out of Dreamliner 787

Always Remember That Only Your Supply Disruptions Will Be Remembered

As proof, consider the top 50 news stories of 2010. While most of the big stories were related to the economy, election, and terror (because the three major news networks that reach over 3/4s of the US population love to promote terror), the 3^rd biggest story of 2010 was the BP Oil Spill (that will still be talked about in decades to come just like the Exxon Valdez oil spill is still talked about today) and the 10^th biggest story of 2010 was the Toyota (Gas Pedal) Recall that affected most of the Toyota Vehicle Line-Up, including the Avalon, Camry, Corolla, ES 350, Highlander, IS 250, IS 350, Lexus, Matrix, Prius, RAV4, Sequoia, Tacoma, Tundra, and Venza. While the recall may have been limited to components manufactured by one supplier, it had devastating effects across the Toyota line.

In comparison, not one of the top 50 new stories revolved around a supply chain success. In fact, only the continued debate on the economy and the Toyota recall revolved around business. The majority of the top stories revolved around politics (28), and the rest were rather evenly split between bad news (7), natural disasters (6), and culture (7). The media doesn’t care about your success, only your failures. Make this the year your organization gets those risk management systems and processes in place so that it doesn’t end up being the top news story of 2011.

Another Reason to Be Wary of Outsourcing

As per this recent article in Industry Week on how the “New CPSC Complaint Database Is Trap for the Unwary”, as of March 2011, the US is going to have a searchable electronic database of consumer complaints, implemented by the Consumer Product Safety Commission (CPSC). In a mere four months, instead of having to file a request to the CPSC for the release of documents and wait for the results of a manual search, a consumer will be able to go online and do their own search at any time — and retrieve all complaints that are over 10 days old unless the manufacturer has proven (and the CPSC agrees) that the reports are inaccurate.

However, instead of having 15 days to review a complaint, a company will now have as little as 5 days (as the CPSC will have 5 days to forward a complaint to the manufacturer) to review a complaint and, whereas before the CPSC would not release the documents until the manufacturer’s response was reviewed (provided the response was provided by the deadline), the CPSC is now required to release all complaints after 10 days, whether the manufacturer’s response has been reviewed or not.

As per the article:

[I]ncorrect reports are likely to be included in the database and available to consumers, reporters or advocacy groups. … [T]he CPSC could perform compilations that may lead it to believe that a substantial hazard is presented by your product. Finally, plaintiff’s attorneys will use these complaints to prepare class action petitions, which will require significant resources to derail or defeat.

In other words, if a product that you manufacture fails, you could be in serious trouble … even if you outsourced the manufacturing to a contract manufacturer. It’s yet another reason to be wary of outsourcing, because if your contract manufacturer doesn’t enforce strict quality control, and the product fails, not only will everyone be able to find out each and every complaint 10 days after it is filed, but every class action lawyer in the country looking to make a quick buck will be automatically compiling evidence against you!

Maybe it’s time to bring (some of) your core supply chain back in house?

Share This on Linked In

Life Lessons from Clown College: II

First of all, let me apologize for taking so long to write Part II. I never expected such an overwhelmingly positive response to my previous posts, and it went to my head, and like a writer who wins a National Book Critics Circle Award for their first novel, I developed a severe case of writer’s block because the last thing I want to do is disappoint you. But thanks to some prodding, and the realization that I don’t have to tackle it all at once, I was able to capture three more life lessons that I learned in clown college that I’m sure will help you in your Procurement Career.

Learn to Barter (because it’s all funny money in the end)
Not all purchases should involve exchanges of currency for goods or services. When possible, and especially when the deal is with a strategic supplier or partner, an exchange of goods or services should be considered. For example, if you’re a temporary labor placement agency buying software from a foreign IT company that needs temporary labor in your home country, consider an exchange of services in lieu of paying for support or future upgrades. Not only will this reduce cash-flow requirements in a tight economy, but it protects you from currency exchange risks in countries with unstable currencies undergoing fairly rapid inflation or deflation.
Be Cognizant of the Risks
Those of you who don’t might end up without a job just like Fred ended up without a head. I didn’t know No-Head Fred, but, thanks to him, my entire class knew why you didn’t stick your head in the mouth of a hungry lion who didn’t like you. Fred didn’t understand that a lion could bite your head off and, as a result, didn’t insure that the lion was fed before performing the stick-your-head-in-the-lion’s-mouth trick. However, since the rest of us understood the risk, we always insured that the lion was fed and happy before performing the trick, and we all kept our head. Now that trade is truly global, this is one of the most important lessons for a Procurement Professional. If you’re not cognizant of the risks, you’ll never know when you might lose an entire shipment, or, if you’re not careful, your life. While a short-cut off the coast of Somalia in a shipment from Mumbai to Adan (for example) might seem like a good idea at the time, it won’t seem like such a good idea when Pirates are boarding you. North of Seoul might be the last place you want to build a new plant if North Korea declares war on South Korea. I know the risks aren’t always this big, but they can be, and if you’re not cognizant of them (and do not take the necessary precautions), you could lose your head over them.
Don’t Be Afraid to Laugh at Yourself
Just like the situation gets a little tense in the dressing room when you have a poorly-timed wardrobe malfunction, negotiations in challenging economic times can get so dire that you couldn’t even cut the tension with a knife. In these situations, the only way to break the tension-ice is with a good hearty laugh, but no one is going to laugh unless you laugh at yourself first. In the first situation, the only thing you can do is look down and let out the heartiest laugh you can. In the second, you’ll have to make a slip of the tongue that’s so funny that you can’t help but laugh heartily at yourself. For example, if you were buying ball bearings and you accidentally called them bears’ balls, I’m sure laughter would break out.

I hope you enjoyed these life lessons. Until next time, please join me and eleven of my friends as we take a ride in our clown car.