The greatest risk, perhaps, is that a company will remain in a reactive mode and not put in place the processes and technologies necessary to anticipate threats to their supply networks before disruptions occur. As George Devlin, chairman of Vivecon, a Mountain View, Calif.-based supply chain risk management solution provider, says, "We know that uncertainty is a fact of life, and companies need the ability to be proactive in managing that uncertainty."
Perspectives on Risk
Bob Eckles, Industrial Marketing director, Intermec Technologies Corp. (Everett, Wash.), a provider of wireless enterprise network equipment and auto-ID solutions, believes that the key to reducing risk in the today's extended, global supply chains is greater visibility into where goods in motion are at any given moment, and the two keys to increasing visibility are better business intelligence (BI) tools and, critically, better data.
"All the big software companies are starting to talk about business intelligence, being able to give you monitors and dashboards and different types of visibility tools to see what's going on in the supply chain," Eckles says. "Well, the BI tools are wonderful for giving you data in a very rapid manner, but my question is, how do you know if the data are good? You might just be making bad decisions faster based on bad data."
Eckles suggests that bar code, radio frequency identification (RFID) and other auto-identification technologies can help companies improve the precision of their supply chain data by allowing goods to be tracked, accurately, while in motion. "We're moving away from a transactional environment to an event-driven environment, and over the next couple of years we'll see that everything's going to be tracked in real time at the event level."
The winners in this environment, Eckles says, will be not only those companies that can best make use of the data coming in from their own suppliers and respond more rapidly to events, or even anticipate events, in their supply chains, but also those companies that can provide the most useful, the most accurate data to their own customers, so that the customers can take action to avoid any supply chain disruptions.
Sidebar: Perspectives on Risk
Jim Lawton, vice president of Marketing, Open Ratings (Waltham, Mass.), which provides supplier-oriented risk management solutions, sees a move among supply chain executives to become more proactive in managing their enterprises' risks, in part by more actively monitoring their suppliers, but also by working more closely with their suppliers to address issues in their vendors' supply chains.
"We're working with a company in the Boston area," Lawton says, "and as a result of trying to drive cost out of the system, they're making it more and more difficult for some of their suppliers to be competitive. Sometimes their suppliers will do smart things to reduce costs, and sometimes the suppliers will do some not-so-smart things to reduce cost and put themselves in the position where they can't effectively survive as a company. This company wants help in figuring out when they're squeezing too hard and putting suppliers out of business. Maybe pushing hard is the right thing to do, and maybe the supplier will go out of business, but this company is also a very strong proponent of Lean and Six Sigma, so maybe they'll choose to send in some of their Six Sigma black belts to help a supplier figure out how to make improvements."
Having this type of visibility into the state of a supplier can have enormous value, Lawton says, and he points to another Open Ratings customer, a heavy equipment manufacturer, that has estimated the cost of a major supplier going under at around $1 million a pop. "If they can help that supplier avoid bankruptcy, that saves them money," Lawton says.
Sidebar: Perspectives on Risk
Sridhar Tayur, CEO, SmartOps Corp. (Pittsburgh, Pa.), which provides supply chain and inventory optimization solutions, says that while the sensitivity to risk in the supply chain has increased in recent years, managing risk can itself be risky if a company opts to minimize its exposure to potential supply chain disruptions by over-compensating and holding too much inventory as a buffer. "A certain amount of strategic inventory needs to be kept somewhere in the supply chain, but not everywhere in the supply chain, and not every item," he says.
The tension between managing risk and managing inventory has been especially acute in those enterprises that have been pursuing lean manufacturing and lean supply chain strategies. The inclination of a lean expert is to squeeze as much inventory out of the supply network as possible, but lean manufacturers must understand that not all inventory is bad. Tayur is a proponent of applying a stochastic process to managing inventory, by which he means using a sophisticated, systematic methodology to account for the time-varying uncertainty of key supply chain parameters as a way of determining the right amount of inventory that should be kept at various points in the supply chain.
One challenge in making this type of planning work, Tayur notes, is ensuring that all the parties across the enterprise are on the same page and understand the enterprise's overall goals for balancing inventory and risk. "The operations guy is measuring cost of goods sold, and the sales guy is looking at revenues and sales, so clearly there's a tension there," he says. The key to resolving this tension is bringing all the interested parties to the table and having them arrive at a consensus on the company's level of risk-aversion based on an understanding of the total supply chain costs involved.