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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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Apple’s Cobalt Play: A Lesson in Competitive Strategy, Navigating Uncertainty and Securing the Supply Chain

Another Apple Trifecta?   If recent reports of Apple being engaged in discussions with cobalt suppliers are true (and I bet they are) then we are about to witness another  lesson in how to gain competitive advantage as Apple simultaneously executes competitive strategy, uncertainty navigation and supply chain risk management.

Competitive Strategy

CEOs and strategists often define competitive strategy as a point-of-view about the future in which they execute against.  To do so requires focus, unique value and achieving superior returns on capital investment.  One of Michael Porter’s key principles to competitive strategy is that one must thoroughly understand the industry value chain and the value creating and cost generating activities associated with it.   Note:  competitive advantage is achieved at the activity level or in this example, the supply chain resources, technology and processes.

Apple’s leadership has achieved competitive advantage over the past decade by consistently and thoroughly understanding the industry value chain as well as their own product supply chains and related sourcing activities.   As a result, uncertainty surrounding these activities has been greatly reduced thus allowing faster and bolder investment decisions.  The sourcing activity has clearly provided Apple with unique and sustainable value.  Decision making about the future of essential materials, such as Cobalt, are viewed simultaneously through a market and operational lens, then linked to financial performance.

For example, in 2011, Tim Cook revealed that he had entered into long term component supply contracts worth $3.9 billion over the next two years. Apple had locked up 60 percent of the world’s touch panel capacity, creating an industry-wide shortage and making it hard, if not impossible, for competition to release new products or keep the shelves filled. Not the first time, or the last, Apple leveraged its deep insight into the market, strategic suppliers and “timing” opportunities throughout its materials-to-customer supply chain to separate themselves from the competition. They exercised similar prowess with batteries, NAND flash memory, LCDs glass for iPad retina display, memory chips, image sensors, and the special resins that are used to hold chipsets together. Events like these delay competitors from coming to market or keeping inventory on the shelves.  (excerpt From: Gary S. Lynch. “Uncertainty Advantage.” iBooks. https://itunes.apple.com/us/book/uncertainty-advantage/id1196773501?mt=11).

Navigating Uncertainty and Managing Risk in the Supply  Chain

As EVs (Electric Vehicles) and energy storage become more widely adopted the  lithium ion cathode battery demand and use of cobalt will shift from mobile devices to mega-industry equipment for transportation and energy.   Cobalt is an essential material in the production of the lithium ion cathode and Apple’s leadership certainly understands the potential risk.  More importantly, their view is not limited to their primary industry value chain but also competing and adjacent value chain (another Porter principle, competing for profits and understanding the five forces).

Apple once again is aggressively navigating uncertainty, clearing the obstacles ahead as the proceed down the highway.  To do so not only requires a willingness to take risk but also a commitment to gain deep insight into the broader industry value chains, the activities that differentiate their products and the competitiveness for key commodities and capacities.

Now the elephant in the room, do organizations in the healthcare, food and other industries exercise similar rigor?  Are they prepared for a potential large-scale shift in capacity or cost?    Will organizations in these industries be able to compete for supply with the mega-energy and automotive industries?  A shortage of radio-isotopes in 2009 should have been a wakeup call to the industry and strategic planners that a broader view of industry value chains that support their products and services would be needed.   It that case it was the failure of a major producer.  Now these industries are faced with a similar threat because cobalt is used in many products including:  external beam radiotherapy, sterilization of medical supplies and medical waste, and radiation treatment of foods for sterilization (cold pasteurization) – (Wilkinson, V. M; Gould, G (1998). Food irradiation: a reference guide. p. 53. ISBN 978-1-85573-359-6)

 Bottom line:  Apple continues to demonstrate the opportunity to leverage uncertainty for competitive advantage.  To do so requires relentless pursuit of the data and details while simultaneously understanding the competitive landscape both within and outside your industry.

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Toyota navigates uncertainty, manages risk by design

Interesting article from CNBC that reflects how risk is being considered as part of the design and innovation activity.

Toyota is trying to make electrified vehicles less dependent on Chinese minerals

Toyota is navigating uncertainty and managing risk by design.   As a result, Toyota may be able to minimize customer/dealer delivery disruptions of it EVs (electric vehicles) arising from changing trade policies, higher sourcing cost, and/ or geo- socio-political- events (e.g. tariffs, taxes, political posturing, war).

Bottom Line:  I don’t believe this is an isolated case but rather it reflects the early stages of an emerging trend.  Personally, I’ve recently received a number of calls from Supply Chain and Operations Executives who are seeking greater insight and risk related data.  As the discussion evolves, it is clear that their intent is to gather this data for competitive differentiation rather than defensive investment. 

I’ve included several examples in my recent publication, “Uncertainty Advantage:  Leadership Lessons for Turning Risk Outside-In” including an excellent example of how Rockwell Automation incrementally improved their risk and resilience investments from defensive to offensive weapons (Chapter 7, pages 242 – 244).

UA 3D 1 on 1 to Left

 

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Unilever Tackles Palm Oil Risks: Single Point of Opportunity Not Far Behind

Bravo!  The industry consumer good giant, Unilever, has decided enough is enough when it comes to socio-environmental, regulatory and economic risks throughout the palm oil supply chain (see you can’t outsource your responsibilities).    Unilever plans to release all of the details of its palm oil supply chain in order to ensure greater accountability for deforestation, animal and human rights abuse, greenhouse gas emissions, and financial inequities.

Palm Oil Risks

Source:  http://www.cifor.org/publications/pdf_files/brief/6670-RSPObriefsummary.pdf

According to a recent post in Metro UK (thank you Ashitha Nagesh),  “Marc Engel, Unilever’s chief supply chain officer, said the company hoped sharing the location of more than 1,400 mills and 300 direct suppliers of the oil would spark an industry-wide movement towards supply chain transparency”.

On the surface, the initial move will illuminate then address many of the previously described risks (as it did with those mining conflict minerals).   However, as consumer, regulatory and social pressure increase others will find it necessary to mimic Unilever’s actions. The investment community will be excited by this change since further disclosure will lead to a more precise, aggregate view of the consumer product industry value chain activities, participants, and key dependencies.  A revelation of this nature could reveal significant opportunities for the investment community including mergers, acquisitions, and industry consolidation (as well as bad behaviors).    Stay tuned!

AFTER THE ORIGINAL POST…

Came across this excellent article posted on Richard Branson’s Virgin site about the “real cost of illegally produced palm oil”.   Worth the read!

 

 

 

 

 

 

 

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Vendor (3rd party) Risk: Who will win the platform wars?

Over the past seven years we’ve witnessed extensive growth in the vendor risk management cloud-based solutions market (also commonly referred to supplier and third-party risk).   Two major events in 2011 accelerated market expansion; the Tohoku earthquake and tsunami and Thailand floods.  The market for vendor risk assessment and management solutions shifted from a concept (stuck in the chasm between early adoption and the early majority) to reality as many automotive, electronics and other manufacturers realized the need for greater transparency and monitoring of their upstream supplier network.  Vendor risk management regulation (e.g. HIPAA, OCC 2013-29, MMOG/LE, ISO 9001:2015, IATF 16949:2016) and pressure to comply with more stringent vendor risk assessment requirements by the large hi-tech, automotive, energy, chemical companies requirements led to further market expansion.

The law of physics applies here as well; what goes up must come down or in this case, markets consolidate as solutions become more widely accepted and less unique.  The commoditization phenomenon leads to acquisitions, roll-ups and yes, even the demise of the weak.

What are the implications to your current vendor risk management program?

The big question, which general platform will thrive and which will just survive.   Let’s take a quick look at the market for solutions.  Here’s one way to view the market of direct and indirect solution providers.

  • ERP (Enterprise Resource Planning) and operations platforms that include vendor risk management capabilities as well as APIs to integrate data feeds (e.g vendors such as SAP, Oracle, IBM, QAD).
  • Procurement, Sourcing and Vendor Management platforms that are managed by the CPO and sourcing functions and dedicate entire modules to vendor risk  (e.g. vendors such as Ariba, ProcureWare, Gatekeeper, Ivalua, HICX).
  • Risk Driven GRC, Supply Chain Risk and Data-Risk platforms that are typically managed by sourcing, procurement, enterprise risk management, and/or supply chain risk management functions.  (e.g. vendors such as Resilinc, RiskMethods, Lexis Nexis, D&B, Rapid Ratings, iTrust, Hiperos, Logicgate, Navix, 360 Total Solution, SupplierSelect, Virima)

All provide valuable intelligence to decision makers on how to anticipate and react to vendor risk in the upstream supply chain.  However, the risk driven platforms (GRC, Supply Chain Risk and Data-Risk) platform) market will be the first to see consolidation, acquisition and exiting.  History has demonstrated that risk-based solutions in the technology space ultimately succumb to the OEM providers of performance (firewalls, anti-viral software, desktop and network security hardware/software).   The ability for the risk-based platforms to operate as a stand-alone market for an extended period of time is highly unlikely; market penetration and working capital (or investment) is minuscule in comparison to the activities of the ERP an Procurement platform providers.  All ships rise with tide and eventually, many of the advanced risk monitoring and assessment features will be standard to the broader operational platform offering.

Now is the time to begin assessing how the shift will impact your vendor risk management program.  Questions such as: where is the vendor data maintained and how easily can it be ported or exported to another platform?  Will the same level of risk rigor and associated features be maintained if the risk platform is integrated into and ERP or Procurement platform?  Organizationally, who will be responsible for the conversion, integrity and sustainability of the new/modified solution?  These are just a handful of the many questions that you will need to begin thinking about as the market transforms.

What do you think?  Please comment or send me a note to discuss further.