Managing Supply Chain Risk – Find the Weakest Links

Triple-A Supply Chains are agile, adaptable and aligned, as we discussed last week, and that makes them less vulnerable to risks.  Triple-A describes what they have become, and not so much how to get there, so let’s look at what you can do to become adept at dealing with an uncertain world.  Risk management is a key part of supply chain strategy, and agility and adaptability are the outputs of the planning and preparation process to manage the disruptions that you may encounter.  So how do you measure up to your risks?

The first place to start is to identify the risks you may face:  Take a look at the Supply Chain Council SCOR Model for classifying risks:

Supply Chain Risk Model

Source: Managing Risk in the Organization Using the SCOR Methodology, Supply Chain Council (2008)

 

If you are not worried by now, maybe you should be.  The key to reducing your worry is planning and preparation.  Here is an 8-point plan to help bring you some peace of mind.

Step 1:  Analyse your Supplier and Materials Base.  Commodity materials available from multiple suppliers are the least risky end of the spectrum.  Specialty materials with only one supplier are at the opposite most vulnerable end.

Step 2:  Review your Manufacturing Base:  Who manufactures your end-product for you, and where.  Again, single-sources are going to be of high concern.

Step 3:  Identify your Logistics Providers:  Look for the points where you move products and materials critical to success through single providers.

Step 4:  Prioritise the Likely Risks:  For each area above, determine the likelihood of it occurring and assess the vulnerability if the anticipated risk materialises.  Highly likely and highly vulnerable will be what you are looking to identify.

Step 5:  Quantify the Impact:  It is preferable to have a $ sign in front of these.  Think in terms of inventory losses, lost output value, lost customer sales.

Step 6:  Develop the Contingency Plan:  Alternatively known as business continuity planning, this details what you are going to do now, and what you are going to do in the event the risk materializes.  Both will have costs associated with them and you need to be able to explain these because your next step is:

Step 7:  Prepare the Cost/Benefit Analysis:  Effectively this is calculating the cost of insuring your customers against your supply chain risks.  Insuring against everything is going to be too costly, leaving too much unplanned for is too risky.  This is the point you have to use your best judgement, and going forward learn from experience.  The collective knowledge of the organisation is an important resource to help you make these calls.

Step 8:  Implement the Measures:  Diversify the supplier base, use multiple logistics providers, have alternative manufacturing locations.  If this isn’t possible, collaborate with the suppliers to produce their own business continuity plans.  Test everyones capabilities, and if you have an in-house action plan developed, train everyone to use it and practice it regularly.

It looks deceptively simple, but there is a lot of work required here.  It touches on every process and functional area within your organisation.  Although the plans are essential, having associates that are prepared is even more important.   The most dangerous risks are those that are unforeseen, and employees who can recognise and react to disruptions are the key to being agile and adaptable.

 

Are you responsible for developing risk management plans?  Please do share your experience in the comments section so all readers can benefit from your knowledge.

 

If you want to learn more about the Cosmapec approach to supply chain development, visit us at http://www.cosmapecsupplychainmanagement.com or contact us

About :  Rob Ward has extensive global experience working in supply chain organisations.  He co-founded Cosmapec to help companies and executive teams establish, develop and optimise their supply chains.

 

 

Triple-A Supply Chains

In 2004 Dr Hau Lee released some surprising research results.  Companies that have low-cost and high-speed supply chains have historically failed to gain a sustained competitive advantage.  Given the huge amount of work that has gone into making supply chains as cost-effective as possible, this was unwelcome news for many.  What he found gave real competitive advantage was a combination of factors that few supply-chain practitioners were addressing.  Dr Lee described these as Triple-A Supply Chains, which were Agile, Aligned and Adaptable.  So what do these characteristics look like in the real world?

Agility, in supply chain terms, is the ability to respond to the unexpected.  It is more than just flexibility, which implies reactions to known issues and possibilities.  Agility also requires alertness to detect when an unexpected change has occurred, and to be able to act with speed to address the change.  Decision-making in an agile supply-chain is fast because the planning systems have been developed to provide regular customer-focused forums on what to produce, and when to produce it.  Agile supply-chains also are prepared for the worst, they keep inventories of low-value items that may become bottlenecks in the case of disruptions.  They have clear back-up plans in case of catastrophic failures to parts of their supply chain, and have multiple providers for key services to minimize vulnerability if one supplier fails.

Alignment behind the key purposes of the organisation is essential.  Supply chains that are developed to meet the needs of the customer first, and are then optimised for cost provide better customer value than those aligned on cost alone.  In practice this means developing a collaborative supply chain, in which all participants in the process are aligned behind creating value for the end customer.  The process must also fairly share the costs and rewards between the different firms that comprise the supply chain.  The keys to successfully aligning the elements centre around information, incentives and performance.  Aligned supply chains are working on the same information, and all the companies involved understand that to improve returns, performance of the supply chain to the end consumer has to also increase.

Adaptability to quickly changing consumer demands or competitive pressures is the last element that distinguishes truly excellent supply chains.  Companies with adaptable supply chains are constantly developing them, retiring parts that are no longer relevant and putting in place new ones that better suit customer needs.  They don’t rely on one single supply chain, and often have multiple ways of serving their customers that are segmented to meet different consumer preferences.  This also adds in resiliency to the supply chain as multiple supply chains can be re-directed to support customers if one element fails.  Out-sourcing of the supply chain parts is also seen as a way of building resilience as it enables rapid switching between different specialist suppliers as customer needs change.

Triple-A supply chains are not necessarily the lowest cost, but as Dr Lee found, cost is not a predictor of competitive advantage.  Supply chains need to be more than just low cost and efficient, they must be both evolutionary and revolutionary as the situation requires.  This is not an information technology challenge, although good data is essential.  Counter-intuitively, it is also not about efficiency.  Instead it is a management and leadership imperative to take charge of the supply chain from end to end, and to be agile enough to adapt and align to new opportunities and threats as they arise.

Are you working towards a Triple-A supply chain?  Please do share your experience in the comments section so all readers can benefit from your knowledge.

If you want to learn more about the Cosmapec approach to supply chain development, visit us at http://www.cosmapecsupplychainmanagement.com or contact usTriple A Supply Chains

About :  Rob Ward has extensive global experience working in supply chain organisations.  He co-founded Cosmapec to help companies and executive teams establish, develop and optimise their supply chains.

10 questions about management consultants you were afraid to ask – Part 1

As we move closer to launch, it is important that we keep focus on the needs of our potential clients, and what drives them to use consultants or not.  Recognising the common barriers to hiring consultants will be important when developing a relationship with a client.  This 2 part blog reviews my top 10 questions that create doubt and uncertainty for our clients, and how Cosmapec can answer these.  Part 1 will answer Questions 1 to 5, with 5 more to follow next week.

 

1.  If we hire them, will they say nasty things about us?

The brutal truth here is that management consultancies are usually hired at critical points for companies.  Expansion into new markets or product sectors, acquisitions or mergers all can stretch the capabilities of an organization past its breaking point.  Alternatively consultants may be hired to engineer a turnaround for a struggling company.   These require that consultants point out the weaknesses that are holding the company back.  Delivering the bad news is one of the hardest parts of a consultants work and it requires tact and understanding to do this successfully.  All conclusions that are critical of a clients operation need to be backed up with clear data and analysis to support the need for change.

 

2. Will they find out our worst secrets?

Probably.  There are a host of reasons why some undesirable practices in a company persist, however the great companies show that it is possible to continuously improve and eliminate these.  Cosmapec consultants have the expertise to recognize when difficult situations need to be addressed, and the experience to recommend implementable solutions. 

 

3.  Will the staff think the company is in trouble?

If the company is, they will know anyway, and if it’s not there will be a need to explain why consultants are being hired.  If the company is in trouble the good news is that the staff will most likely have the answers to the problems.  The answers just aren’t getting up to the decision makers.  Consultants are free from the complex organisational constraints that bind full-time staff and can bring solutions to the table.

 

4.  Are we going to have to change the way we do things?

Most likely yes.  One of the main reasons for hiring consultants is so companies and organisations can safely navigate through the difficult process of change.  Producing implementable recommendations, and if necessary helping to facilitate the change management process is a key deliverable for Cosmapc.

 

 5.  Who will do my job when I’m working with them?

This is often a big question for many associates when they find they will be working with consultants.   If a company is going to get the expected results from using consultants it needs to free up its best and brightest to work with them.  For short-term assignments this is usually straightforward, but for longer-term projects, then one of the main success factors will be putting in place the organisation to support it and free up the talent required. 

 

Tune in next week for the answers to the final 5 questions:

  1. Are we ready to work with management consultants?
  2. We’re unique, how can they understand us?
  3. Why do we need consultants when we’re successful?
  4. Can’t we do this without them?
  5. Aren’t they expensive?