Category Archives: Risk Management

Solving the Sustainability of the Supply Chain is Systematically Strenuous and Surprisingly Serpentine

There have been a lot of articles about the sustainability of supply (chains) lately, and some of them are quite good, but not a single one gives you the full picture. And if you were hoping this article was going to do that for you, then the doctor has bad news for you. That’s not an article, or even a book. It’s a trilogy. Of trilogies. And while the doctor has written that much on this blog by word count, it’s not going to happen today.

What is going to happen is that the doctor is going to give you a bit of an understanding of how broad, deep, and complex the problem really is and how it’s almost impossible for most people to solve, although not that hard to address with a reasonably high assurance of results. (And the answer, as regular readers will have surmised, does NOT involve any Artificial Idiocy, but it may involve complex processes and technologically advanced solutions.)

In order for the supply chain to be sustainable, every step of the supply chain has to be sustainable. Internally:

  • Procurement needs to be sustainable. The processes, technology, and talent required to keep the Procurement organization going need to be sustainable.

If you work down the chain:

  • Logistics needs to be sustainable. The methods used by the suppliers and distributors to pack, store, and ship the product to you need to be sustainable.
  • Manufacturing needs to be sustainable. The methods, energy sources, and water sources used to produce the goods have to be sustainable.
  • Materials need to be sustainable. This means that all of the materials used must be renewable, decomposable, or fully reclaimable in a sustainable manner.

And if you work up the chain:

  • Logistics needs to be sustainable. The methods used to pack, store, and ship the products to your customers need to be sustainable.
  • Sales needs to be sustainable. The processes, technology, and talent required to keep the Sales organization going need to be sustainable.
  • Support needs to sustainable. The processes, technology, talent, and materials used to support, repair, or reclaim the products (for recycling and material reclamation) at end of its lifecycle need to be sustainable.

That’s a lot of sustainability that is required up and down the chain. It’s much more than just identifying a “sustainable” supplier who hits ESG targets, favouring renewable materials, or using virtual work (from home) solutions to reduce the travel and office carbon footprint. And attacking it requires a lot more than just attacking the 5 Cap Gemini supply chain transformation levers of Evolution, Orchestration, Data, Technology, and Talent or the 6 McKinsey next-normal strategy focus areas of Agility, Quality, Sustainability, Resilience, Service, and Cost and Capital because buzz-words are not solutions and you can’t decipher all of these dilemmas at the 30,000 foot view.

In other words, while there are easy two-word answers for reconfiguring the global supply chain for greater supply chain assurance and more sustainability at the 30,000 foot level, when you dig into the details, it’s not so easy as you have dozens of facets to get right to truly optimize sustainability across the supply chain.

In future posts we will dig into a few of these areas as addressing them is a lot more complex than you might think!

Your Biggest Threat of Disruption For the Next Decade is NOT What You Think!

Disruptions are on the rise. It’s a fact, and if you want proof, just visit the World Economic Forum and check out their Global Value Chain Barometer. While some categories of disruptions are holding steady, disruptions are on the rise overall and not a single category is declining.

If asked what the biggest source of disruptions are, depending on where you are located in the world and what industry you are in, you’re likely to say that the biggest sources of disruption are either
a) war and conflict,
b) natural disasters, or
c) cyberattacks.
And while those have traditionally been (among) the highest sources of disruptions, you’d be wrong. The biggest source of disruptions this year have been strikes and walkouts globally. And as the brilliant Robert Reich will tell you, despite the large number of strikes we’ve seen over the last year, workforce revolts are just getting started.

When you consider

  • the rapid rise in inflation globally, especially around necessities (food, housing, healthcare),
  • the fact that, despite the almost two decades of low inflation, intermixed with short periods of stagflation, the majority of the population in many first world countries were financially struggling before inflation came back, especially given that many were out of work for part or all of COVID and didn’t get near enough financial aid to keep their heads above water, and
  • they’re all scared of AI taking their jobs

Many people are near their breaking point. Strikes are going to keep happening, and repeat every 2 to 4 years (depending on the union contract length) until the underlying issue is fixed. But it’s not going to be fixed!

Why? As the brilliant Robert Reich points out, it’s because of the vast inequality between the (super) wealthy and the average person. In the past 45 years, CEO pay has skyrocketed 1,460% while the typical worker saw a pay increase of just 18%. This has led to a vast inequality between a small group of very wealthy people in a mid-size or large company and the average employee. Until this gap is narrowed, the situation is only going to worsen as more and more laborers reach the point where they’re already broke and have nothing to lose by walking off the job, and strikes are going to become much more common than they were in the past 40 years.

The situation could be fixed easily if CEOs and Boards increased worker’s pay each year a few % above the average rate of inflation for the next few years, a move that would cost most companies only a small fraction of their profit (and still keep the differential pay increase between the average worker and the CEO above a 1000% differential using the same baseline), but it’s obvious this is not going to happen (even though that would still be a ridiculous divide). This fact is best illustrated by the current writers’ and actors’ strike that every single person in the world is aware of where the executives have simply decided to do nothing because the unions will come around when the majority of writers and actors (where 99% don’t make enough to pay their rent and eat without side-jobs) get to the point where they are at risk of losing, or have lost, their sh!tty apartments. (And trust me when I say that they are sh!tty apartments! There are two sides to Hollywood, the side you see, and the run down slums you don’t see where the majority of actors and writers live by doing side gigs while waiting for their big break, which won’t come for over 90% of them.)

It’s an utterly ridiculous situation, especially when it would be trivially simple for any government to fix with a one page bill. (For example, it could be solved if all first world governments were to simply pass a law that, in any company with more than ten employees,
1] No single person in the company can earn more than 100 times the lowest paid worker on an hourly basis during a year across all company payouts including, but not limited to, salary, bonuses, stock grants, share grants, and company paid benefits where the definition of worker would include all employees, contractors, and contractor employees doing any work for the company, which would prevent the company from shifting all low paid employees to a subsidiary to try and get around the law;
2] Any individuals found in violation of this rule would get fined $2 for every $1 in excess of their maximum allowed remuneration for the year;
3] Any officers responsible for compensation who knowingly violated this law could be criminally charged and serve jail time; and
4] These Companies would be required to submit a financial statement of compliance listing the full effective compensation of every worker (down to the janitor in the contracted cleaning firm) as part of their tax returns. Just these four simple rules would prevent most CEOs and their overpaid C-Suites from earning more than 1,500 an hour or 3 Million a year as these mega corps have plenty of minimum wage employees under current remuneration models.)

Furthermore, if a reasonable fix was made (in law) that limited executive pay to more than reasonable levels and thus limited the ability of these executives to grow their wealth to ridiculous levels unless they:

  1. paid their workers more,
  2. increased their net company value (to increase the values of the shares and stock options they earned in prior years), or
  3. started or invested in other companies

… the truth is that such a fix would all be fantastic for the economy as it would force a return to classic growth scenarios (and not the current focus of make money today to please Wall Street, even if it bankrupts the company tomorrow), which would create a much more sustainable economy in the long run. (Markets only crash when they are run up to unsustainable levels. This is a result of Wall Street pushing companies beyond sustainable growth levels.)

But it will never happen, because all the Billionaires would simply spend whatever amount of money they needed to buy enough senators and congress representatives to prevent it from happening (or enough judges to find it an unconstitutional law).

Thus, in the interim, across all industries (not just the entertainment industry the news is fixated on) you will have the greedy out-of-touch Billionaires, whose loss of income from a strike event is so negligible they won’t notice it, starving out union workers until they cave to a new union contract below inflation (while giving themselves a big year end bonus for their trouble). This will not only cause you additional disruptions you weren’t planning for (as strikes linger on for weeks and months), but will increase the inequality gap even further (while the workers get even poorer due to pay raises less than inflation), which, in turn, will set the stage for a whole new round of strikes (and disruptions to your supply chain) in two to four years when the contracts end (that the Billionaire executives will deal with in the same way).

Now, don’t get me wrong, I’m not saying Billionaires are bad (because I shouldn’t need to say it), I’m saying that the actions of the ridiculously overpaid super rich and their sole focus on the almighty dollar have set the stage for the first decade in our lifetime where strike-based disruption events will exceed natural disasters, even though natural disasters have almost tripled in the same time frame (and will continue to increase as long as global warming continues to increase).

the doctor would wish you luck, but even that can’t combat greed!

Supply Risk Solutions – Taking Transparency to Thwarting

Risk and Uncertainty should be front and centre in the mind of every buyer and supply chain manager these days. Natural disasters are at an all time high, we’re still feeling the impacts of supply chain slowdowns and shutdowns during the pandemic, and political instability globally is introducing new headaches into your already fragile supply chains.

You need to maintain a handle on what’s going on in your supply base, and extended supply chain. In the beginning, this was an SRM/SXM solution which maintained information on your tier 1 suppliers, the products they supplied you, their typical on-time performance, and basic financial information. Over time these added basic risk metrics / 3rd party risk data which was supposed to give you some insight into how risky your supply base was, but considering this was usually financial information, it wasn’t a very good solution.

Then we got transparency solutions — and you know many of the big names here, which include Everstream, Interos, Resilinc, etc. — which allowed you to track your supply chain down multiple tiers to the source. Over time, these added news monitoring and event monitoring so you could get indicators of potential issues from news articles (which could include labour issues, for example) and nearby natural disasters (hurricanes, cyclones, earthquakes, etc.). Properly configured and maintained, this gave an organization instant insight into a potentially disruptive event and allowed them to take immediate action if necessary.

This was great, at least before the pandemic, because if you had 2 to 3 months of notice that your supply was going dry for a while (due to a fire, flood, or major plant damage), or longer, you could instantly switch to your secondary supplier (if you were dual-sourcing for risk mitigation) or start looking for a new source of supply. But now that supply chains are still stretched thin, supply choices are limited, raw materials are in more limited supply than ever, and supply chain cycle times in many industries are still double to quadruple what they used to be, a warning is not enough.

You need to do more than monitor the supply base, you ned to mitigate risk of disruption IN the supply base. It doesn’t matter if your risk preparedness is A+ if your supplier’s risk preparedness is F. A disruption in your supplier is a disruption to you, regardless of what plans you do and don’t have. This is where Supply Risk Solutions comes in. Not only are they one of the oldest (and first SaaS) solutions in the supply risk monitoring space (dating back to 2007), and one of the first to offer full supply chain transparency, but the first to go from transparency to disruption prevention. By ensuring your suppliers do proper risk planning, mitigation, and preparedness, your disruptions can be reduced up to 60%. That’s right. Sixty Percent!

While you can’t guarantee a disruption free supply chain — since you can’t predict (or prevent) natural disasters, political embargoes from disturbed dictators (or global reactions against them), or significant economic events (such as bank failures) which send shocks through the system — you can eliminate preventable disruptions and minimize the impacts of those non-preventable disruption events with proper identification and mitigation planning.

This is where Supply Risk Solutions is unique — it’s deep focus on enabling suppliers to identify areas of risk that could cause disruptions and providing them education, training, and resources to address those risks. Supply Risk Solutions does this based upon 16 years of supplier data that they have collected and correlated to disruptions. Based on this long-term deep analysis, they have developed and optimized a list of key indicators, and standard supplier surveys for multiple industries that collect this indicator data.

In addition, as they directly serve over 23% of the global semiconductor industry and 36% of the US Healthcare market, they have very deep data on disruptions, mitigations, and improvements that can be generated in these supply bases and they do an exceptional job here. (Especially as they have been doing it for years and years, getting better every year as their database gets deeper and more extensive.)

The solution, which is always free for suppliers and their suppliers, allows a supplier to define their employees who need access to the system as well as the suppliers they use as tier 1 inputs. When a supplier is added by a customer, they get an invitation to complete or share a standardized risk assessment with the customer for every site they will be using. Since the solution was designed to be single sign on for the supplier and give them complete access to, and control over, all of their data, if they have already completed the survey (for the categories they are supplying), they can share their existing survey. If they have not for one of more sites they are using, they can complete it for those sites and just share just the data the new customer needs.

But the real power of the platform is that once a supplier fills out the survey, that captures the key risk and disruption indicators for that type of supplier, the platform computes a risk of disruption profile and identifies key actions and mitigations the supplier should take to considerably decrease the chances of disruption in the future. And the actions and mitigations work. With almost two decades of data, they know what works and what helps.

This is why we’re covering them and why you should know about them. The providers we referenced above all do transparency, news monitoring, and event monitoring — like Supply Risk Solutions — and some have deeper operational resilience, cyber-monitoring, or other unique capabilities — but none are as focussed on reducing the risk of disruption in the supply base by providing you, and your suppliers, the insights, guidance, and monitoring your suppliers need to reduce your disruptions.

The reality is that it doesn’t matter how operationally resilient you are, how much insight you have into your supply chain, or how prepared you are for a disruption — if you are entirely dependent on your supply base for the products you sell or the services you need for continued operations, your resilience is ultimately their resilience, and, even worse, the supplier with the lowest resilience you are dependent on.

So you need to focus on your suppliers’ resilience, not yours. We know you don’t have the time, and that’s where SRS is also somewhat unique in that they also offer supply chain disruption monitoring and prevention as a managed service where they work with the suppliers and help them to maintain their data, understand their risk assessments and mitigations, access the necessary training and best practices, and create plans to address them. By identifying, and addressing, potential root causes of disruption before a disruption happens, many disruptions can be prevented, and those that can’t (like natural disasters), can be mitigated to the extent possible. And that’s how, for their clients, they reduce supply base risk by up to 60% (depending on the maturity of your suppliers).

Also, they have one of the best handles on what external events are likely to affect a given supplier site of all of the providers. Their database contains every natural disaster that’s ever been recorded back to 1850, and they’ve been maintaining deep data on relevant events since their formation 16 years ago. For a given event, they can predict the likelihood of occurrence and the likely impact and, based on that, recommend the most appropriate mitigation.

It’s very affordable, and if you are a US healthcare provider, you can even check out Supply Risk Solutions, and use it, for free on your top 10 suppliers to get deep insight into what it can do for you. (Since they, indirectly through partners like Vizient and HIRC, serve over 50% of the US health care industry, they likely already have all of the data on not just the top 10 suppliers for a hospital, but most of the top 100.) It’s definitely worth checking out, and when you see the value, upgrading to at least the first tier solution.

2030 is too late for Center-Led Procurement!

Especially since 2020 was too late! And organizations should have been there by then since center-led procurement was being discussed as the next generation model in the mid-2000s and, more importantly, as the futurists were predicting that the future of work, and companies, was remote and distributed last decade, every company should be “center-led” by now.

(Note that we mean “center-led” and not “centralized” where one central office handles all major procurement projects globally. We mean center-led where a centralized function determines the best procurement path for each category — which could be centralized, distributed, multi-level, or mixed — and provides guidance to all of the global teams and makes sure they build the right procurement — and supply chain — models up front.)

In fact, by now, all organizations should be working off of a virtual center-led model where the “center” is the Procurement A-Team, where the members could literally be spread out over the 6 continents to “locally” absorb the situations in each geography before making decisions and to always have someone available to answer questions on not just a follow-the-sun but follow-the-local-business hours model.

And while virtual / remote / distributed work still seems to be an entirely new thing that most companies didn’t think of before the pandemic and that most companies are trying to eliminate entirely now that the pandemic has been declared over (even though the next pandemic is just around the corner and, yet again, no one is prepared for it), those of us in IT and Supply Chain have been doing it for two decades (and the doctor has been primarily been working remote for the past 19 years — the tech has been there, and has worked, for two decades … and now that high speed is in just about every urban area globally, there’s no reason a hybrid/virtual model cannot work and work well).

The reality is that the pandemic not only brought global supply chains crashing down but brought to light the high risk embedded in them a few of us saw a decade ago, which went beyond the obvious risks of “all your eggs in one basket” (even though Don Quixote was published in 1605) and “The Bermuda Triangle“*1, but also included the risks of relatively centralized procurement where one team in one part of the globe made the all-our-eggs-in-the-China-basket*2 and managed the relationship with one team at one factory in another part of the globe; so if either team got completely locked down with little remote/virtual support (and we saw some countries limit people to 1KM from their homes and China lock down entire cities and not even let people leave their apartments), the entire chain was shut down even beyond the worst case that some of us were envisioning a decade ago (and made our definitions of bad — which was factory goes out of business, shipping lane closes, or ship sinks — look good by comparison because, at least then, you could still go to work and travel to find a new factory, organize a new lane, or spin up the factory 24/7 until you remade the order).

However, with virtual center-led, you not only have a team that knows how to work distributed and remote, and who knows how to use that setup to better mitigate operational risks, but who also has a risk-mitigation mindset that any supply base should also be distributed and different locations remote from each other (two factories in the same town is not risk-mitigation; an earthquake destroys the roads, the entire town gets quarantined, or political borders shut and its effectively one cut-off source of supply) and will help the different parts of the organization design more risk-adverse, or at least risk-aware, supply chains — tapping into local expertise in each part of the world to make the best decision and allowing the organization to move management of the chain around as needed and local teams (because you’re not sourcing your Canadian snow-plow and igloo building services from India, for example) to always have remote access to guidance and best practices in snow-removal services RFP construction (and know how from Norway and Japan).

In other words, center-led procurement (of which you can find a lot of guidance on in the archives here and over on Spend Matters, especially since, now retired, Peter Smith of Spend Matters UK was a guru on this as well as sustainability) of the virtual kind is what you need to be doing now if you want to last until 2030.

 

*1 which, while statistically no more dangerous than any other part of the oceans, exemplifies the fact that even the biggest ships, with an entire year of your inventory on board, can sink, especially when oceanographers have finally realized [even though mathematicians working with wave models understood this concept decades ago] that rogue waves are not a once a in decade occurrence, but a DAILY occurrence on this planet, it’s just that the ocean is so big that the fraction ever covered by ships is so microscopic that the chances of any ship encountering a rogue wave are infinitesimal on a ship-by-ship basis)

*2 likely thanks to McKinsey, although many of the Big 5/6/8 followed suit quickly thereafter and proclaimed China the future

Visibility is Key to Managing Suppliers

For the first part of this week, we have been talking about the significant overlap between sourcing and supplier management and the necessary platform elements needed to support both. Key elements included performance, relationship, and risk management, because all are necessary for sourcing and supplier success.

Spend Matters recently ran a 3-part series on a sub-set of the issue, based on a recent interview with Ecovadis, that talked about how Visibility is Key to Managing CSR Risks in Indirect Spend (Part I, Part II, and Part III). But visibility is needed for more than just addressing risks in indirect spend. It’s also needed for addressing risks in direct spend.

Direct spend has all the same risks, they just aren’t one step removed through an intermediary. And you have to trace all of the products down to the raw materials to identify not only in your supply base, but your supplier’s supply base, their supplier’s supply base, and their supplier’s down to the mine, the farm, or the harvester.

But it’s not just the suppliers you need visibility into, it’s the environment that surrounds them. After all, a natural disaster can cut them off. An economic downturn can render them bankrupt if the currency they do business in (and keep the majority of their cash on hand in) crashes. A geo-political uprising can cut them off at the border. A port strike can cut off their primary shipping routes. And so on. You need a full 360-degree view around the supplier to ensure success.

But how do you get that? You can’t watch everything everywhere, and when you consider the extent of the global supply chain, you almost have to.

That’s why it’s key to have a platform that can integrate with 3rd party sources as you will need to integrate dozens, if not hundreds, of data sources to keep on top of all of the data you need to populate the models to evaluate and track the risks.

And that’s why two of the key elements we look for in a platform are integration and dynamic data model extensibility. You never have enough data. Without the right data, you don’t have the visibility, and that’s key to success. Or at least to preventing major unexpected disruptions.