Category Archives: Risk Management

The Talent Series I: Succession Planning

I know you don’t want to read about it. I don’t even want to write about it. But in a marketplace where there is constantly “increasing competition for procurement professionals” (EuropeanLeaders.net) and where “consultants are able to command $1000/day, and more” (SupplyManagement.co.uk), you face a constant risk of losing your most talented people to your talent-hungry competitors, especially if you don’t have good incentive plans in place that will allow your employees to earn bonuses relative to their performance. (Considering that every dollar they save is generally worth at least five sales dollar relative to the bottom line, is performance-based compensation really a stretch?) Given this harsh reality, I think this is a topic worth discussing – and a great way to kick off the talent series and get those gears grinding.

The reason I’m getting to it now is that I was poking around my favorite analyst site (Aberdeen Group*) and stumbled upon the recently released Market Alert “The Key To Talent Development: Halogen Adds Succession Planning Functionality to its Employee Performance Management Suite”. The brief quotes Aberdeen’s “Enterprise Talent Management” report that identifies a number of challenges companies are facing in their development of the next generation of leaders. The two biggest challenges (at 61% and 56%, respectively), are lack of funding for leadership development and an inability to locate or create a talent pool of candidates.

The first problem is easily solved – recognize the need for talent and invest accordingly – after all, a solid investment in your people will pay for itself in increased productivity, which translates to hard dollar savings when we are talking about procurement personnel. The second problem is more difficult – attracting people is hard, and turning them into tomorrow’s leaders is harder. That’s where succession planning comes in. By figuring out the skill sets you will need to replace your current staff, you will identify the training and mentoring that your new hires need today to become your leaders tomorrow. That way, even if your best people leave or get poached, you will have leaders ready to take their place.

The Aberdeen brief also notes that to truly be successful, companies need to be committed to long term strategic succession planning that incorporates the following key elements:

  • support from the CEO and top executives
  • creation of a talent mindset
  • creation of a performance culture
  • ensurance of data-driven decision making
  • development of a “learning organization”
  • alignment with the overall strategic plan of the company
  • organizational readiness

In other words, it’s more than just a one time effort and more than just the adoption of a technology solution – although a solution that can be integrated with talent management processes such as employee performance management, training, and assessment could be of significant value. So I’d recommend that if you haven’t started working on a succession plan, that you start today. I know it often leaves a bad taste in the mouth, but I can assure you that’s preferable to walking in to work one day and finding yourself without a leader to carry the business forward. And in the future, I think it will be a fundamental part of talent-focused organizations who solve the talent problem. After all, if everyone has access to the same knowledge, training, and experience, then, if you believe everyone has potential, everyone can eventually become leaders in their own business domains.

* This was written pre-acquisition announcement
** Note to AMR (acquired by Gartner): if you want to know why, contact me.

Lack of Visibility Kills

I know it’s Saturday, and I know you’re probably expecting me to talk about something along the lines of Flaming Laptops since I usually take the day off from sourcing, but something happened this week that not only cost many large retailers a significant amount of money, but killed someone. If you haven’t figured it out yet, I’m referring to the E. coli outbreak that has hit 20 states (so far) as a result of tainted spinach.

Even though Wal-Mart Stores Inc., Safeway Inc., SuperValue Inc., and other major grocery chains stopped selling spinach and removed it from their shelves and salad bars, the problem is not over – since investigators still are not sure about the source of the problem, which they believe to be somewhere in California’s Monterey County, which grows more than half of the nation’s spinach crop.

The CNN article seems to suggest that the nation’s “fractured network” of food safety agencies is the problem – that they do not “communicate” well enough, implying that one of the agencies, or someone at one of the agencies, did not do their job. I do not think that is the problem. As far as I’m concerned, the problem lies with Wal-Mart, Safeway, SuperValue, and every other chain that sold the spinach. You should know who your suppliers are. You should be aware of their health and safety processes and policies. You should verify that they do regular health and safety inspections or do your own. Your supply chain should be visible to you and you should know that you can trust everyone in it and that everyone in it is doing their job.

It’s not just the benefits of global visibility, or the costs associated with having to trash or scrap and write-off a large buy since the quality was sub-par and the product unusable. In cases where you are producing a product for public consumption, lack of visibility, as this example clearly demonstrates, can produce a product so unsafe that someone dies. And that’s going to cost you a lot more than the high dollar lawsuit sure to come your way – it’s going to cost you brand image, customers, and if you’re the poor sap whose job it was to insure quality, a hell of a lot of sleep.

I’m not saying you need to rush out and buy a six, seven, or eight figure visibility solution (although I’m sure Apexon (acquired and merged with Infostretch in 2022) would love to talk to you if you thought that was the answer for you), although a solid visibility solution is definitely worth a reasonable investment, but that you need to develop a visibility mindset. Institute processes to make sure each supplier meets your health, safety, and quality requirements, perform your own random checks, make sure your suppliers do their checks when they say they do, and to the required level of quality, and, finally, make sure your suppliers have a culture of making sure their suppliers aspire to the same level of health, safety, and quality that they do. Visibility needs to permeate your supply chain to provide maximum benefit.

Global Supplier Visibility and Performance

Continued pressures to reduce costs while maintaining quality and other non-cost factors have caused enterprises to look towards outside providers. In many cases, outside providers refer to manufacturers and suppliers in foreign countries, thus adding other variability to an enterprise’s supply chain. Enterprises have undertaken various efforts to manage the new variability: supplier performance, supplier visibility, supplier costing and supplier collaboration are all activities which can help.

Aberdeen has just released the “2006 Global Supplier Visibility and Performance Benchmark Report” (sponsored access) that not only examines GSVP drivers, hurdles, strategies, and tactical action plans for more than 110 companies but offers solid suggestions for improving your GSVP programs.

Considering that Aberdeen has found that the average company has had an average of two major supply chain disruptions per year and that industry average and laggard companies are only able to meet customer-requested ship dates 40% of the time, the need for improved GSVP programs is becoming paramount.

Furthermore, Aberdeen found that despite all of the growing concerns regarding natural disasters, terrorist strikes, political uprisings, etc., the top 3 risks (accounting for over 75% of surveyed disruptions) are actually quality & supplier reliability, lead time increase, and the downstream effects of forecasting errors. Therefore, as I indicated in my posts on supply risk management (I: “An Introduction”, II: “Risks and the Need for Resilience”, and III: “Managing Risk”) and supplier performance management (I: “An Introduction”, II: “The Road to Success”, and III: “Best Practices”) on eSourcing Forum [WayBackMachine] , there is a lot you can proactively do to minimize the chances and effects of disruptions and significantly improve your on-time delivery (by as much as 50% in some cases), and the insightful Aberdeen report is a great start if you want to take your supply chain to the next level. I recommend checking it out. I’ll be posting my own thoughts on it later.

How dependent are you on your supply chain?

This summer, the Supply Chain Management Review ran an article entitled “Ready for the Digital Future” based on an interview with M. Eric Johnson, the Director of the Center for Digital Strategies at the Tuck School of Business at Dartmouth College. Re-reading it closely, I was struck by the quote “a lot of interesting learnings emerged from this research [on supply chain risk]. One that really caught my attention was that supply chain managers, and many managers in general, don’t fully realize how dependent they are on information flows and on others in the supply chain“.

You’re not just dependent on the manufacturer you get your components from, the third party logistics firms that handles transportation from the manufacturer’s warehouse to your plant, and the third party logistics firms that handles transportation from your plant to your customers warehouses, but the individual carriers on which they depend, the service providers that provide the systems that connect you with your suppliers and distributors, the telecommunications carriers that provide the backbones on which their systems run, the feeds from your customers indicating current and forecasted demands, the feeds to your suppliers indicating your current and forecasted demands, etc. Dozens of events could knock out part of your supply chain, and even a single point of failure could have wide reaching repercussions. In fact, that’s why most companies would not be able to articulate the dependencies until they really start digging down deep into the details of their supply chain operations and why you should be doing regular supply chain audits.

Another quote that caught my attention, and a point that is not often addressed well enough in articles about supply chain risk, is how do you protect intellectual property in your supply chain and with your partners. The research documented that all extended enterprises are leaking information all of the time. And they are leaking in ways that many managers would not believe unless I showed it to them. Now, sharing is important, as it is the basis of collaboration, but so is security. Make sure your collaboration systems are secure, your partners under NDA, and that you only share information with a third party that is relevant to the collaboration – in other words, don’t open your whole system when you are only collaborating on a couple of products, restrict access to information that relates to those products. Furthermore, make sure collaboration is based on trust and a common understanding that everyone’s IP needs to be protected. This will be just as effective as any security protocols you can put in place.

There are a number of other really good points in the article, which I highly recommend you read, but the last one I’m going to reflect on in this entry is his definition of a good digital strategy. A good digital strategy is:

  • aligned with the business strategy,
  • designed to harness the organization’s unique competencies, and
  • enabling of new levels of agility, trust, and collaboration.

In other words, supply chain technology is only useful when it aligns with the business. Your business should not have to align to the technology. This is why on-demand software-as-a-service solutions are great – you don’t have to revolve around technology, only solutions that serve your business. To that effect, I’d like to point out Tim Minahan’s recent entry on SaaS, “A Tale of Two Articles” (over on SupplyExcellence [WayBackMachine]), which notes that the center of power for enterprise application decisions has shifted from the CIO to the line-of-business executives and that SaaS makes this possible. With SaaS, you can choose the applications that best suit your need, and not the applications your IT organization is configured to support.

Supply Chain Audits

Recently, Supply and Demand Chain Executive published a guest column by Dr. Jeff Karrenbauer of INSIGHT entitled “The Case for Supply Chain Audits” which not only coincides with my views on the need for Global Supply Chain Visibility, Integrated Sales and Operations Planning, and Supply Risk Management, as well as the views I share with my colleague David Bush on “Supply Chain Weather-Proofing” (over on e-Sourcing Forum) and the need for solid planning, but emphasizes the fact that vulnerabilities cost dearly, noting that Terrorism, civil wars, dock strikes, attacks on oil fields in Saudi Arabia, potential pandemic, last year’s disastrous hurricanes and the ongoing threat of political, social and economic instability around the world have exposed U.S. firms to more than $300 billion in supply chain disruptions, according to a recent study by Aon.

The article points out that every chief executive, operating, and financial officer should be demanding a comprehensive supply chain risk audit and a corresponding set of mitigation strategies immediately, noting that only 11% of companies are actively managing risk (as per Aberdeen’s recent “Global Supply Chain Benchmark Report”) and that this action gap is one of the greatest weaknesses of current corporate global supply chain strategies.

As such, companies should perform a supply chain audit that identifies where supply chains may be vulnerable, the strengths and weaknesses of the supply chain, where response programs are weak, and where safeguards or alternative sources are missing. A supply chain vulnerability audit is a three-step holistic processes that encompasses the entire supply chain, starting with a company’s customers and the products they purchase, then working back to the uppermost tier of raw material suppliers. The result is a plan for resiliency in the form of right-sized and strategically located facilities with flexibility for the supply chain, thereby “hardening” it against disruption.

The three steps are:

  1. Educate
    Use case study examples from experienced supply chain planners that establish first principles to dispel false tribal wisdom, define concise terminology, and provide an overview of standard risk categories and mitigation methods. (See my supply risk management weekend series on eSourcing Forum for some basic methodologies: I: “An Introduction”, II: “Risks and the Need for Resilience”, and III: “Managing Risk”.)
  2. Audit
    Gather relevant data for all supply chain components, commodity types, customers, channels, and facilities; identify critical elements and specific categories of exposure for each component; and identify potential vulnerabilities. This step asks a lot of questions, including can we operate the business after a disaster? if not, what must we do to get back into operation as quickly as possible?.
  3. Prescriptive Analysis
    Determine what affordable changes can be made where to minimize risk and harden the supply chain to ensure business continuity after a disruption or a disaster. Use techniques such as critical commodity analysis, critical customer analysis, critical location analysis, and short-term crisis response analysis to formulate the action plans. Use sophisticated supply chain modeling tools to quantify and rank the cost and service effects of various scenarios and the effect of proposed improvements.

And when you consider that the article also points out that knowledgeable observers are predicting that supply chain certification may come to be required as part of Sarbanes-Oxley compliance, I’d say that an audit is a great place to start.