Category Archives: Risk Management

Is This The Year Austin Tetra Breaks Out?

Austin Tetra has been relatively silent since their acquisition by Equifax a little over a year ago. And it’s not because Equifax is in a hurry to dissolve the name (unlike D&B who appear to be trying to dissolve the Open Ratings brand as soon as possible), but because they want their new division to be well prepared with a solid offering for the B2B and B2C communities before they re-launch the service offering.

the doctor had a chance to catch up with the business leaders of Austin Tetra, Equifax’s commercial business unit, last month and it sounds like they have been making a lot of progress over the last year. They’ve been busy helping Equifax build a unique global identification system that will compete against the as-to-now relatively unchallenged DUNS # of D&B and Austin Tetra has been making good progress integrating the US, Latin America, European, and other global databases in Equifax’s arsenal into one universal database with one universal classification scheme – a task they expect to complete in the first part of this year.

They’ve also been making great strides in their service offering that pulls business and consumer data together for businesses that need to deal with small businesses on a regular basis and need to determine the risk, especially where the financial stability of the business often comes down to the financial stability of the owner. They can now, for a given small business, pull together the credit history of not only the business, but the owners as well and give you a combined risk or credit score where they have the data integrated.

They’ve also been making strides in compiling their supplier master and customer master databases where, for any given business, they can give you its performance history both as a supplier and as a buyer, as well as their employee master, where they can tell you how much the individual earned at his or her last job if his or her previous employer submitted information to the TALX database (another recent Equifax acquisition) – which has income, salary, and compensation information on approximately 150 M employees in the US.

They’ve also made great strides in their balanced scores, which aren’t just about diversity anymore. Their blended financial / risk scores now take all of the following information into account:

  • public filings (which they monitor and append regularly)
  • denied / debarred party tracking
  • blended score on individual & business credit history for small, private, businesses
  • customer credit risk based on past payment trends
  • diversity information
  • predictive supplier business failure score
    the chance of failure over the next 12 months using all available information

In addition, they’ve been extending their web services platform to make the data instantly available through customers’ current platforms and their current customers are now able to access all this data through multiple platforms that include Oracle, Siebel, and SAP.

In other words, now that they have the support of a 20B business behind them, they’ve been making great strides. However, given that they still believe in the “crawl-walk-run” philosophy when it comes to development and release cycles, they believe that it will likely be the middle of the year before everything is complete and tested (by current customers) to their liking, and hence likely the summer or fall before they attempt to make a big media splash. But that doesn’t mean that, if these are the types of solutions that you need, that you can’t start talking to, and evaluating, them now – or that, if these are the types of solutions that you might need down the road, you can’t keep a watchful eye out to see what they announce this year. Regardless of what happens, now that D&B is about to have a major competitor, I bet you’ll see a lot more innovation in this space over the next few years as the new contender in the space begins its fight for dominance – and that’s a good thing.

Supply Management in the Decade Ahead V: Missions, Goals, & Performance Expectations

In Part I of our review of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead”, we overviewed the various external forces that will impact a company’s supply chain. In Parts II and III we took deep dives into the eight major forces that were identified specifically by supply managers who took part in the survey. In Part IV we focussed on some of the major impacts to business models and strategies in the decade ahead. In this post, we will address the new and expanded missions, goals, and performance expectations for supply management as identified by the report.

The report notes that chief executives will ask far more of supply management – requiring it to take on a broader, more strategic mission, evaluating it on a more comprehensive set of goals and expecting a higher level of performance. To accomplish this, supply management will need to expand its influence across functions, business units and geographies, go beyond the comfort zone of traditional success measures, and find creative ways to deliver even more value to the corporation.

The report than indicates that tomorrow’s missions, goals, and performance expectations for supply management will fall into four main areas:

  • Delivering More Innovation From Suppliers
    The need for innovation will accelerate as companies continue to pursue new geographic and demographic markets. With the demand and supply for innovation destined to be in a constant state of flux through the coming decade, and with the limited resources that will be available within any single company (thanks to the talent crunch), business will need to overcome the usual “not invented here” barriers and tap into all available sources of innovation on a global scale.
    Companies will have to develop advanced approaches to how they identify external sources of supply, how they structure the commercial and working relationships with those sources, and how they make those resources an integral part of the product and services development process. Reinvention of the innovation model will be required to fully leverage external sources – and companies will need to formalize an ongoing process for sourcing innovation.
  • Contributing More Broadly To Revenue Generation
    Close attention to costs for goods and services leads to more competitively priced end products while a focus on quality and service reduces failure rates, improves availability, and leads to higher customer satisfaction and loyalty. However, some companies will expect even more. Some will seek to boost revenue by rapidly introducing products with a limited life-cycle to smaller, niche, markets. Other companies will seek to leverage the existing asset base and distribution channels to bring to market higher value or radically different products. Others still will ask supply management to take a lead role in finding new revenue streams using their unique knowledge of the business. And some will ask supply management to assist sales in co-selling products and services in one channel to suppliers of another channel.
    In the first case, supply management will need to find suppliers and create processes that support entering and exiting these unique offerings quickly with speed, agility, and minimal waste. In the second case, supply management will need to develop or restructure the supply case to meet the needs and costs of the markets into which the company wants to sell. In the third case, supply management will need to assess, screen, and take a lead role in negotiating with the relevant external parties. In the last case, supply management will need to provide deep insights into the dynamics of upstream supply markets.
  • Anticipating And Managing Supply Risk
    Extended global supply chains that include geographically distant, unproven, and even unknown suppliers pose supply continuity, liability, reputational, and intellectual property risks. Changes in buyer-supplier market dynamics reduces predictability. Actions related to environmental protection, sustainability, and labor practices pose uncertainty. The volatility of commodity prices, currencies, interest rates, and even tax structures adds additional complexity. Risk is everywhere!
    Supply management executives will be epxected to play a more strategic role in identifying and interpreting risks, and making tough decisions about risk exposure and mitigation. The level of sophistication required to manage the complex, wide-ranging portfolio of supply risks and integrate risk management into overall supply activities will need to increase.
  • Expanding the Breadth And Impact of Cost Management Efforts
    Performance expectations will be raised considerably as global competition forces companies to squeeze unnecessary cost out of every part of their business. For supply management, this will mean widening the breadth of spend areas covered, managing costs more holistically, and delivering cost savings faster. A range of tools and techniques will be used, including complexity reduction, greater standardization, tighter management of specifications and demand, compliance management, target costing, value analysis, value engineering, price benchmarking, statistical price modeling, should-cost analysis, expressive bidding, lean design, and Six Sigma.

Cost Management, Revenue Management, Risk Management, and Innovation management covers a lot of the bases, but I’d add at least the following:

  • Supplier Management
    Suppliers are going to become more critical to your operations as a whole – and this is going to require better management of not only their performance, but your overall relationships – as well as all of the data you collect about them, their products, and their operations. This will involve implementing and utilizing the next generation of SRM (Supplier Relationship Management), SPM (Supplier Performance Management), and SIM (Supplier Information Management) technology, which will eventually be unified in a common platform.
  • Sustainability Management
    Sustainability is the word on everyone’s lips these days and sustainability from social, environmental, and business perspectives will be critical. It will cease to be a secondary concern to cost, revenue, and risk management and many of tomorrow’s strategies will be designed with sustainability as the key priority.
  • Talent Management
    In a knowledge economy, talent is key. As talent becomes scarce, HR will be looking to supply management to help them identify available sources of talent within the supply chain to meet the organization’s needs via outsourcing, insourcing, and new types of talent sharing agreements between organizations, third parties, independent consultants, and semi-retired individuals.

After a break, this series will return with Parts VI through XII that will cover each of the seven critical supply strategies for succeeding in a dynamic world that were identified by the report.

Strengthen Your Supply Chain

In yesterday’s blogologue I told you that your brand was a terrible thing to waste – and that the strength of your company’s brand ultimately lay in its supply chain, and not the latest fad dreamt up by your company’s marketing mogul. This means that, unfortunately, it’s up to you to protect the brand, and not the apathetic advertisers who lounge around all day being “creative“.

So how do you do that? The Industry article “Strengthen Your Supply Chain” that I referenced yesterday has some good starting points. It tells you to focus on five key elements that cover most of the basis. It’s key elements were:

  • traceability
    you should be able to track all products, components, and raw materials backwards and forwards through the manufacturing process
  • measurement
    basically, testing; identify the components and risk points (start with the hand-off points) and then have internal quality assurance personnel or an independent auditor test each component and at each risk point
  • certification
    certification programs set guidelines and involve an additional process of checks and balances: these usually fall into regulatory, industry self-regulation, and third-party certification
  • efficiency
    be sure to adopt a traceability and testing program that works with day-to-day supply chain operations
  • organizational buy-in
    successful supply chain management depends on the cooperation of employees at each and every level

To this I’d also add, at a minimum:

  • Visibility
    It’s important to not only know what goes into your products, but where each raw material, component, and product is at all times. Could they have been tampered with? And, if you are dealing with consumables, how long did they sit on the truck? Could they have gone bad?
  • Modeling
    In order to be sure you have the right process, including the right checks and balances, you need to be able to model the supply chain as it is, as it should be, identify the differences, identify what could go wrong, and insure an appropriate test is included for each hand-off point, risk, and exception.
  • Supplier Management
    You ned to insure that your suppliers understand the importance of the process, are following the process, and are reporting any and all problems that arise, including those that they are able to detect internally. (If too many problems arise internally, even if they are corrected before defective or contaminated goods are shipped, then they need help with their process as the risk of something slipping through the cracks is too great.)

Finally, I’d like to point out that as important as certification is, checking out the certifications is even more important. In some parts of the world, it’s quite easy to buy a faked certification document. Just because a new supplier sends you a certification document, that doesn’t mean they are actually certified. Be sure to check with the organization that issues the certification that the supplier in question was actually certified AND that the certification is still in effect. But don’t stop there – if the certification is one that is actually done by third parties, check out the reputation of the third party conducting the audits. Are there any complaints against them? If so, how many and how recent. In some places, it’s even easier to buy a successful audit then it is to buy a fake certification.

(Supply Chain) Risk is Everywhere! Part II

Another presentation I hoped to make, but wasn’t able to (due to a prior commitment – and to be honest, if I didn’t have the prior commitment, I probably would have attended the parallel track on green supply chain) at the 5th Annual International Symposium on Supply Chain Management was the presentation on Risk Management in the Electronic Supply Chain by Anne Banks Pidduck from the University of Waterloo.

Just like the presentation and paper on A Supply Chain Risk Management Process covered in Part I, this paper also did a great job of classifying risks – but these risks are particularly suited to the electronic supply chain while the last paper was worried more about the physical supply chain for manufacturers and logistics services providers. It also provided some great recommendations. But first, the risks:

  1. Complexity of the Electronic Supply Chain System
    • Users do not know how to use the system.
    • Single point of failure.
    • Information is lost or incorrect.
    • Incorrect data is transmitted.
    • Complexity & Uncertainty leads to the bullwhip effect, mistrust, and chaos.
    • Project failure due to overwhelming complexity.
  2. Integration / Independence
    • Poor Quality Upstream.
    • Failure to integrate internal & external expertise.
    • Organizational conflicts.
    • External connectivity & network problems.
    • Lack of system integration.
  3. Technical Risks
    • Software errors.
    • System down.
    • System slow.
    • Virii
    • Denial of Service
    • Security Issues
    • Privacy and Confidentiality
  4. Data Management and Quality
    • Inventory Problems due to incorrect data.
    • Missed Orders (and customer loss).
    • Integrity loss.
    • Sensitive data compromise.
    • Critical data corruption.
  5. Schedule / Time
    • Single late supplier leads to downstream delivery failure.
    • Straight-through processing and the bullwhip effect ends up affecting all partner schedules.
    • Shipping errors lead to slow delivery.
    • Escalated system and process implementation leads to costly errors.
  6. Costs
    • Supplier change costs lead to higher upstream costs.
    • Insufficient people or financial resources.
    • Inventory costs from obsolescence, mark-downs, or stock shortages.
    • Slow or inaccurate systems reduce cash flow.
    • Incorrect data causes reminder notices to be sent to customers who have paid and while customers who haven’t do not get any.
  7. Business Processes / Operations / Production
    • Lack of appropriate methodology or production processes
    • Existing processes are not supported by the new system
    • Bullwhip effect creates phantom demand, overproduction, and overstock.
    • Inventory level becomes critical success factor.
    • Product and technology life-cycles get shortened.
    • Lean practice adoption leaves little margin for error.
    • The tendency toward supply base consolidation is not always correct.
  8. Business Environment Uncertainty
    • Unpredictable life-cycle demand due to competitive product introductions.
    • Increasing demand volatility across industrial sectors.
    • Constant changes in business strategy, internally & externally.
    • Outsourcing trends impact the entire chain.
    • Globalization increases market uncertainty.
  9. Personnel
    • Lack of management commitment and support.
    • Employees refuse to use the system.
    • Employees don’t follow procedures.
    • Insufficient user training.
    • Shortage of experienced staff.

But fear not! It’s not all bleakness and desolation. There are some generic risk resolution strategies that work across your risk categories. These include:

  • Avoidance
    Avoiding products, markets, suppliers, and / or customers that are riskier than the norm.
  • Behavior Change
    Encourage motivation and responsibility through corporate policy, contracts, and rewards for desirable actions.
  • Flexibility
    Introduce flexibility wherever possible – in the supply base, in the schedule, and in the production system, for example.
  • Mathematical Models
    A greater understanding leads to better prevention strategies.
  • Portfolios
    Spread the risk if you can.
  • Visibility
    Improving visibility across the chain decreases risk.

Moreover, there are some specific resolutions that you can use to address each of the system, technical, data, process, flexibility, and personnel risks outlined above.

  1. SCM System
    • Start with a small-scale implementation.
    • Use a flexible implementation schedule.
    • Continue with existing solutions until a full implementation is in place.
    • Implement internally first.
    • Document strong legal and enforceable contracts.
    • Encourage co-operative joint efforts.
  2. Technical
    • Firewalls.
    • Multiple Levels of Password Protection.
    • Structured Data Entry to reduce errors.
  3. Data
    • Formalize and maintain reliable backups.
    • Use paper-based backup procedures as needed.
    • Formalize data management.
    • Offer data and process visibility to supply chain partners.
    • Automate exception reports.
  4. Business Process
    • Redesign work processes as needed.
    • Integrate business processes.
    • Divide larger processes into smaller ones.
    • Separate business functions where appropriate.
    • Coordinate work between production planning and inventory management.
    • Control production with appropriate levels of buffer inventory.
    • Use just-in-time production.
  5. Business Flexibility
    • Adaptable, flexible business practices.
    • Materials flexibility in production.
    • Multiple backup suppliers.
    • Flexibility in production schedules.
    • Discontinue high-risk products, markets, suppliers, and/or customers.
  6. Personnel
    • Adequate training on systems.
    • Training on privacy, security, and system independence.
    • Appropriate behavior changes.
    • Top management support.

Risk is Everywhere!

One of the presentations I hoped to make, but wasn’t able to (due to a prior commitment), at the 5th Annual International Symposium on Supply Chain Management was the presentation by Philipp Hohrath from the Hamburg University of Technology on A Supply Chain Risk Management Process. Fortunately, the paper on which the presentation was based was one of the papers included in the conference materials.

The process the authors presented in the paper for supply chain risk management, defined as part of Supply Chain Management which contains all strategies and measures, all knowledge, all institutions, all processes, and all technologies, which can be used on the technical, personal, and organizational level to reduce supply chain risk, was pretty straight-forward and obvious – Identify Risk, Analyze risk, Assess Risk, Handle Risk, and Control Risk – without any new insights beyond what was already out their in the traditional and web 2.0 literature, but the paper contained a great table on the different risks that logistics service providers and manufacturing companies have to worry about, categorized by source. This table is as follows:

  Company Supply Demand Environment
Manufacturing
  • Loss of Production
  • Quality Failure
  • Logistics Service Provider Failure
  • Employee Shortage
  • Supplier Failure
  • Decreasing Supply Quality
  • Decreasing Supply Reliability
  • Increasing Supply Lead Times
  • Price Increase
  • Stock Outage
  • Logistics Service Provider Failure
  • Single Supplier Dependence
  • Demand Variation Increase
  • Customer Insolvency
  • Margin
  • Unpredictable Product Substitution
  • Single Customer Dependence
  • Logistics Service Provider Failure
  • Legal Risk
  • Liability Risk
  • Political Risk
  • War / Conflict Risk
  • Natural Disaster
Logistics Services Providers
  • Insufficient Capacity
  • Quality Failure
  • Employee Shortage
  • Subcontractor Failure
  • Decreasing Service Quality
  • Decreasing Supply Reliability
  • Price Increase
  • Subcontractor Dependency
  • Customer Insolvency
  • Margin
  • Service Substitution
  • Single Customer Dependence
  • Legal Risk
  • Liability Risk
  • Political Risk
  • War / Conflict Risk
  • Natural Disaster

The paper also addressed the rising importance of supply chain risk management, from the 3-8% range in 2000, to the 27-38% range in 2005, to a project range of 70-82% in 2010, as well as some of the barriers to the implementation of supply chain risk management, including competitive thinking, lack of transparency, lack of understanding, and lack of sufficiently qualified employees. What’s important to note about the barriers is that the first three are easily solved with training and organizational transformation, whereas the talent problem is going to be with us for some time.