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Are Your Suppliers At Risk? ZURICH Insurance Article

insider.zurich.co.uk/risk-mitigation/supply-chain-management-are-your-suppliers-a-risk/

Supply Chain Management – Are Your Suppliers a Risk? ZURICH

As we are currently witnessing, risk in the supply chain can be triggered by an infinite number of events. The coronavirus virus and cyberattacks on industrial control system demonstrate why the approach should address four critical categories of assets that support the creation, sourcing, production, movement/logistics, and servicing. They are human capital, digital assets, physical assets, and third party relationships. Over the past decade working with global orgs, I’ve found that applying an activity-based framework across the life cycle of a product/category helps accelerate and organize the data gathering, manipulation, analysis, presentation, and later Managment of risks across the supply chain. It’s taken me more than a decade and several dozen large scale projects to develop a process, tools and a platform to become efficient and thorough in this process. Bottom line, managing risk is a data driven process and those who relentlessly pursue the data will not only minimize exposure but will also create competitive differentiation! Thanks for sharing!!

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Shifting Supply Chains: Are today’s​ risk strategies and programs up for the challenge?

“We cannot direct the wind but we can adjust the sails”  Dolly Parton

Supply chains will shift, will the organizations risk programs and strategies keep pace?

Facing the prospect of a 31% EU tariff, Harley-Davidson must choose between a $2000 per unit or bike increase or dramatically reduce production costs.   Of course, Harley-Davidson is not alone.  The food, drug, agriculture, industrial manufacturing, automotive, mineral and mining, and energy industries all face a similar challenge.    The profitability implications of the global trade wars are being driven by a variety of geopolitical actions such as tariffs, taxes, quotas, banning products, social media propaganda that aim to shift sentiment, and contractual and permitting obstacles (delays).  All these actions impact the supply chain, forcing leaders to seek relief in their supply chains.   For Harley-Davidson, it could result in a shift in manufacturing operations from the U.S. to the EU.

The shift will happen quickly and introduce new processes, technologies, relationships, and players (both internal and external resources).  

Will a “program based” risk strategy keep pace and adapt to cultural, societal and political influences? 

Let’s assume for a moment that the supply has shifted.  Let’s also assume that there are new “local” suppliers or supply networks, transportation and logistics partners, manufacturing facilities (or at least an expansion), regulators and regulatory agencies, warehouses and distribution centers and networks, and on and on.

What is the likelihood that the supply chain related risk programs would be updated in lockstep?  This includes risk programs such as insurance (property, marine & cargo, etc.), supplier risk, supply chain resiliency/continuity, emergency management, safety, security, disaster recovery, crisis and event management, and product recall.  What level of effort and investment will be needed to adapt, adjust or recreate these programs?   How fast can these programs be applied and where on the long list of operational priorities will they rank?   In theory, the operational change and risk management program refresh should occur simultaneously.  In theory! If you are like most organizations, you’ll eventually get there in one to three years.

Why wait?  A change represents an opportunity as well as a risk, correct?  Leading organizations such as Apple, Toyota, Cisco, Biogen, Amgen, JPMorganChase, Amazon, GM, Rockwell Automation, Boeing, and many others rely on a data-centric strategy to support an operational dialogue about performance and risk trade-off decisions.  They rely on historical data and descriptive analytics (the past), augment with real-time market and operational data and predictive (future) and prescriptive (action-oriented leading to  ML/AI opportunity) analytics.

What are some of the ingredients of a Data, Dialogue, and Decision based supply chain risk strategy?

  • consider an investment of time, management priority, resource, and capital to collect the end-to-end product/family related supply chain activity data.  Leverage existing franchise sources of data including the Bill of Materials, ERP systems, sensor data, and numerous functionally maintained spreadsheets that do a darn good job of profiling necessary skills, application software, physical assets (including inventory), warehouse info, critical 3rd parties. Don’t forget to tap into your event, insurance and supplier management SaaS systems. Collect it once and connect to your change management process.
  • aggressively tap into your data scientists (or leverage external resources) to design the data management (architecture, pools, platforms, etc.), data feeds (threat and event categories and vulnerability analysis groups – e.g. switching costs), and algorithms for analysis and dialogue.  This is the first step on your way to applying machine learning and artificial intelligence to managing risk in the supply chain.
  • consider adopting a profitability, value-based strategy for navigating uncertainty and managing risk in your supply chain.   This will require greater knowledge of the industry value chain and your place in it.  It will also require a deeper dive into the financial, information and material flow by product, category, or group level.  This will be important in preparation for the operational effectiveness/performance and risk trade-off dialogue and decision (e.g. should we qualify a second site or supplier, how much safety stock/inventory should we hold and where do we place it, how much insurance coverage do we need, etc.).

Bottom line:   A program approach to risk management is an essential base-level defensive strategy to get the masses to manage risk as dictated by the leadership of the program.   Adopting an aggressive data-driven risk strategy to exploit the opportunity and minimize risk in real-time is needed to compete on risk.

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Is it time to rethink ​Supply Chain Risk? ​Beer, CO2, chicken, fuselage​, pallet, and drug shortages keeping Executives up at night.

I got a kick reading the recent articles about the CO2 shortage in the UK and the impact on the beer industry supply chain during World Cup fever (pardon the weak attempt at humor).  According to the MetroUK, beer supply chains are being constrained by a “shortage of food grade CO2 due to a shutdown at ammonia at plants that manufacture fertilizer”.  Apparently, at least five suppliers and their plants are shutting down for summer maintenance at a point of peak CO2 consumption.  And the exposure is not limited to the food and beverage industry.  As typically is the case, many industries use CO2/carbon dioxide for oil recovery, fire extinguishers, wine, and in medicine as it is added to oxygen for stimulation of breathing after apnea.

Those in Supply Chain Management and Procurement are well aware of how the little things that are seldom thought about can cause great pain.  Whether it’s a shortage of a $1.50 piston ring that caused a 70% of Japan’s auto production was shut down for more than a week or a scarcity of sawdust/wood waste which impacted poultry, drilling, auto-part manufacturers, and even the wine industry.   The list of what could quickly impact your supply chain, profitability and market share is a long one:  the bankruptcy of mega-toy distributor Toys-R-Us, a shortage of production capacity for the blockbuster Ford line of pickups due to a fire at a supplier, and yes, who can forget the shutdown of KFC stores in the UK due to a change in logistics provider that resulted in the lack of chicken of gravy.   More recently there was an explosion at a UPS facility, a fire in a major wood pallet warehouse in Texas, a rogue employee and corporate espionage at Tesla, and a shortage of Boeing aircrafts’ fuselages.

A Call to Action

Why does history repeat itself?  Why are some organization repeating the mistakes of their peers?  A decade or two ago industry lacked the necessary tools and awareness.  However, today there is the widescale availability of advanced data gathering and management software, monitoring and warning systems, and descriptive, predictive, and prescriptive analytics.

Here are three assumptions that could be causing you unnecessary exposure in your supply chains.

  • Product supply chains and associated activities are unique.  It’s true, you’ve seen one supply chain, you’ve seen one supply chain.  What drives profitability and the activities that create superior value matters!!   Sure it’s important to view your supply chain through the asset, functional or process lens.  But it’s not as important as conducting the analysis of risk from the customer or industry value chain inward.   Generic business continuity and resiliency programs fail to recognize the value of the trade-off between performance and risk.   Begin with what matters most at a business segment or divisional level.  What product(s), product families generate profitability (current or future).  Begin your mapping from the customer back through origination.  In today’s digital world, don’t forget to simultaneously map information and financial flows.
  • Supply chains do not stand-alone.  It’s no secret that today’s supply chains are not chains at all but rather an intricate, constantly shifting network of resources.   The relationships amongst these resources are complex both financially and operationally.   Switching can be difficult, uniqueness can be a barrier to diversification.  Understanding who you are competing with for profits is not limited to competitors.  Michael Porter’s work on Competitive Strategy and Advantage can help here.  Understand the industry value chain and competitive forces.  You are competing with suppliers, producers, potential new entrants, customers, and competitors.  Understand their needs, leverage, and the dynamics of the market.
  • Supply chain risk is not limited to just supplier or third-party risk.  It’s important to check this box, supplier risk programs and products have matured over the past five years.   Implement the products, gather the data, activate event monitoring, and link the process to change management and procurement operations.   Don’t stop there!!  Refer to the two bullets above.  Analyze the end-to-end life cycle of the critical value or product streams.  Prioritize the activities that provide unique or superior value.  Understand the exposure of the full set of resources and assets that support the value or product stream.   For example, what are the critical/hard to replace skills; technology & data; physical assets; and relationships needed to source, produce, deliver, and service what makes you money?

Interested in finding out more?  Send me an email,  gary.lynch@theriskproject.com or give me a call, 862 812 2176.  Comments always welcomed!!

 

 

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Is Your Free Trade Zone a Channel for Counterfeit Goods?

Is it time to take a closer look at another potential risk in your global supply chains and trade policies?  Industrial manufacturing and apparel and clothing are a few of the many industries that utilize Free Trade Zones and as a result, maybe unknowingly exposing their supply chains and business to a greater risk of the introduction of counterfeit goods.

Recently published research by the OECD (Organisation for Economic Development) and EU Intellectual Property Office revealed a 5.9% rise in the counterfeit exports and the establishing a new Free Trade Zone.

The OECD report, Trade in Counterfeit Goods and Free Trade Zones, concluded that “exports of counterfeit and pirated goods from a country or economy rise in parallel with the number and size of free trade zones it hosts. Comparing growth in free trade zones, measured by the number of firms and employees in the zone, and customs seizure data from around the world shows that establishing a new free trade zone is associated with a 5.9% rise in the value of counterfeit exports from the host economy.”

The number of free trade zones is up from 79 located across 25 countries in 1975 to more than 3,500 located in more than 130 countries today.

What is a Free or Foreign Trade Zone?

Free-trade zone, also called foreign-trade zone, formerly free port, is an area within which goods may be landed, handled, manufactured or reconfigured, and reexported without the intervention of the customs authorities. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties. Free-trade zones are organized around major seaports, international airports, and national frontiers—areas with many geographic advantages for trade (Source:  Encyclopedia Britannica).

 

 

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Navigating Uncertainty, Managing Risk: China’s Cobalt Play and the Future of Battery Capacity

Detail view of power supply for hybrid electric car on Automobile charge station on street of Amsterdam, Netherlands

China secures 30% of Glencore’s output of Cobalt. With autos competing for material, what capacity remains for everyone else in the automotive and mobile battery supply chains?   See my prior post:  Apple’s Cobalt Play

IndustryWeek

China Leaving West Behind in Race for Electric-Car Raw Materials