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 5^th 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.

One of the presentations I hoped to make, but wasn’t able to (due to a prior commitment), at the 5^th 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:

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.

Supply Risk … and Supply Risk Management … are among my favorite topics because supply risk is everywhere … even where you least expect it! Just ask Boeing … a company that had to delay the launch of its next major commercial aircraft for want of a fastener!

Given the underestimated importance of this topic, I’d like to point out a recent article in Global Logistics & Supply Chain Strategies, recently reprinted on Supply Chain Brain, called “Snake Eyes!!! The Failure to Manage Risk in Supply Chain Can Be Catastrophic”.

Strikes, storms, congestion, disease, terrorist attacks, supplier failures, missed deliveries, raw-materials shortages: the possibilities seem endless. When it comes to supply risk, the possibilities are. And it’s not just natural disasters, work outages, or power failures you need to be concerned with. A fastener, a screw, even a dab of glue … each of these can shut you down if you overlook them.

The article, although a bit long winded, did have some good advice. And even though I’ve covered most of it in previous posts, it’s important, so I’m going to cover it again.

• If a competitor starts locking up large quantities of supply for a raw material or component you need, take action immediately.
  There’s more than one reason Apple conquered the personal music player market and are conquering the cell phone market.
• Visibility is key.
  Otherwise, you might be on the receiving end of the bullwhip.
• Balance the Cost of Mitigation vs. the Cost of Recovery
  For example, if your copper is being supplied by a single supplier, that’s probably not great, but chances are you can always switch suppliers in a pinch and not pay much more than market price (as there are multiple geographic sources). But if your tomatoes are only being supplied by a single supplier that only buys from one geographic area in a hurricane zone, that’s a recipe for disaster. Not only would you lose your supply, but so would everyone else that buys from the same region. Finding a new source of supply in a pinch could be a lot tougher.
• Asses and Rank all of Your Supply Risks
  What’s the probability of it happening? What’s the potential cost of an outage in recovery? How much would it cost to mitigate?
• Don’t just focus on physical risk
  Forthcoming regulations can post risks that are just as harmful if they cut off a current source of supply.
• Look for hazardous materials
  And eliminate them if at all possible!
• Use dynamic scenario planning and capacity modeling
  It will help you identify some of the hidden risks.
• Hire a few tight ends for your risk management team.
  They’ll help you block out distractions, catch passes from your supply chain partners, and create a stronger pocket in your supply chain organization.
• Communicate, Communicate, Communicate, Communicate
  And don’t forget to Collaborate, Collaborate, Collaborate, Collaborate!
• Portfolios aren’t just for artists!
  Having a portfolio of good supply chain partners can help you out if things go sour.
• Have alternate distribution strategies.
  It’s not just overflowing ports that you need to worry about, it’s border closings, and, every now and again, collapsing bridges.
• Don’t forget … services are part of the supply chain too!
  Good service is often the key to customer retention.

Risk is Everywhere … and if you don’t find it, it’ll find you!

Supply & Demand Executive recently published an article on “What You Can’t Afford Not to Know About Your Suppliers” by Jim Lawton of Open Ratings (acquired by Dun & Bradstreet), who guest-posted Five Types of Supply Risk, and How to Mitigate Them and Winning the Battle on Risk: Information and Technology back in February.

In the article, Jim states that although no one disputes that the procurement and supply chain function across multiple industries has taken on a far more strategic role today. Despite this rise – even with the introduction of new business processes and programs, skills and staff development initiatives, and new technology and systems – few organizations are equipped with the global insight necessary to operate at a world-class level on a new stage. I’d have to agree. The recent rise of China-related fiascos is just one example. More can be found in the article on “Worst Supply Chain Disasters” or in various headlines over on CNN.com.

Jim goes on to note that from regional supplier directories to detailed and current performance, risk and capability intelligence, global supplier insight can become as indispensable to sourcing and supply management as a stage is to an actor. It can also help organizations understand on a total landed cost basis – quantifying price, performance and risk – the difference between regional suppliers and those from emerging markets such as Mexico and China and that companies need global supplier insight and content that focuses on three key areas to maximize their supply management results. These three areas are:

• Supplier performance and quality management
• Supply risk management
• Supplier content and connectivity

Furthermore, to provide insight and connectivity into these three areas, global supplier insight solutions also need to deliver real-time content, analytics, risk management and supplier enablement capabilities. These solutions also need to be offered in a platform-agnostic environment, leveraging existing processes, systems and investments. Like Bloomberg’s financial information, which traders and financial managers use to improve their decision-making in the capital markets, purchasing and commodity managers must receive this type of content they way they prefer to digest it, whether pushed to their own desktop or through a specific application or even a designated terminal. After all, global supplier insight solutions can enable procurement organizations to take their supply performance to the next level. By empowering individuals with insight and connectivity, they bridge the gap between the internal and external, proving invaluable for strategic and tactical decisions alike.