“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.