Category Archives: Risk Management

Keeping Strategic Decisions on Track and the CFO Happy

A recent article in the McKinsey Quarterly on “How CFOs can keep strategic decisions on track” is a good read for any CPO looking to impress the C-Suite. Noting that judgement can often be colored by self-interest, and that CFOs are generally the most disinterested parties where strategic decisions are concerned, the article points out how a disinterested CFO can often provide hard financial data to counter inherent biases.

This implies that a great way to keep your strategic supply management decisions on track, keep the CFO happy, and impress the C-Suite is to run your proposals, with your projections, by the CFO before you take them to the rest of the executive suite. And if you need number crunching help, and they have staff, the CFO, who will likely be impressed that you asked for help before making a final recommendation, will probably be glad to lend you some support to confirm or verify your projections. Not always, but much more likely than if you make a presentation first and ask for help later.

What’s the Biggest Problem with Sourcing from China

Quality? Supply Reliability? Or Management Expectations?

In last year’s CPO Agenda inaugural debate on “Assimilate to Accumulate”, Martin Lockstrom, of the BMW-SMI Center for Purchasing and Supply Management at China Europe International Business School, said that the most difficult thing is not necessarily to manage the Chinese suppliers but managing HQ expectations on these kinds of things.

With all of the issues making the news in recent years with respect to outsourcing from China around supplier quality, reliability, and intellectual property, it’s important to remember that the biggest issue is not always the supplier, who may respond well to sincere attempts at supplier improvement initiatives, but management expectations. It is amazing how many executives still believe that outsourcing will fix all their problems and that, because outsourcing to China has been going on for over a decade, the supplier will deliver high quality and cost savings off the bat. While the irrational exuberence is not at the high it once was, there are still executives who hold on to unfounded beliefs because “it worked for the competition”, failing to realize that the competition may have worked years on supplier development to get the performance they are achieving.

Done right, sourcing from China will pay off, but great results can still take time.

Key Questions When Assessing Supplier Health

A recent article over on Industry Week that indicated that it is “time for a supplier health check” made a good point — Tier 1 suppliers may need to expand globally in the high-growth markets more quickly than they had originally anticipated, and manufacturers need to know if their Tier 1s are up to this challenge. In order to make this assessment, they have to do a detailed supplier assessment of their current Tier 1 suppliers, which should ask, at a minimum, these questions:

  • Does the supplier have access to capital to retool and meet an increase in demand?
  • Does the supplier have the talent to support a ramp up? Or did they do significant layoffs?
  • Does the supplier have the leadership to accomplish a ramp up? Or was the management team significantly reduced by layoffs or attrition?
  • Does the supplier have the right technology to support new systems and processes?
  • Does the supplier have the right financial controls in place to support a larger operation?
  • Is the organizational structure suitable to expansion?
  • Does the supplier have a viable business plan to support an expanded operation? Has it been executing against the plan?

If any of these questions yield negative answers, the supplier might need to be replaced. The alternative, if the supplier is critical, is for the organization to take an ownership position in the supplier and get it back on track. Either way, the supplier base needs to change.

Do You Really Think It’s A Good Idea To Have Your Head In The Clouds?

eWeek.com recently published an article on how “many data centers [are] unprepared for disasters” that’s downright frightening. According to the recent AFCOM “State of the Data Center” survey that polled 358 data center managers from around the world,

  • more than 15% of respondents said their data center had no plan for backup and recovery,
  • 50% of respondents have no plan to replace damaged equipment after a disaster,
  • 65% have no plan to deal with cyber criminals!

Well sufferin’ cats!

This says that if you outsource your data center management, you have a:

  • 15% (1 in 7) chance of losing your data
  • 50% (1 in 2) chance of being down for an extended amount of time after a natural disaster
  • 65% (13 in 20) chance of getting screwed if you’re targetted for cyber crime.

Do you really like those odds?

Does Your Supply Chain Have An Audit Trail?

A recent article in Industry Week on “Lessons Learned from High-Profile Product Recalls” had a number of good tips on what to do to prepare for a recall before it happens, but one tip in particular stood out. Specifically, the need for audit trails. Every risk management article these days talks about being prepared, identifying key stakeholders and information requirements, developing communication plans, preparing reverse logistics and fulfillment operations, and evaluating risk vs. cost, but few point out the need for good audit trails down to the component, and sometimes raw material, level.

Without a good audit trail, if a serious defect is discovered across a product line, or one or more food products you are selling is tainted with E. Coli or salmonella, you will have no choice to recall the entire product line because you will have no way to trace the defect back to the source and forward to only the affected units. For example, if all of the tainted soup cans came from a cannery in Michigan, then there is no need to recall the cans from Nebraska and Georgia. And if all of the overheating batteries came from one plant in China, and they were only used in two specific lines of laptops, and you have six, at most you will be recalling one third of the units.

So make sure you can trace each product back through each supplier, component manufacturer, and, in the case of food products, each grower. Otherwise, when a recall does happen, it could be financially devastating.