Industry awareness regarding supply chain risk management continues to grow each day. In fact, 80 percent of companies worldwide see better protection of supply chains as a priority, according to the World Economic Forum’s “Risk Response Network” report, in collaboration with Accenture. But while the heightened educational level is both necessary and a great first step, it is not enough.
The use of risk management platforms, risk mitigation at just the first tier of one’s supply chain, business continuity planning (BCP) strategies and even maintaining inventory buffers—it is not enough to use just one of such a handful of processes to proactively protect and support the supply chain processes of today for any business.
We all observed what happened with the fire that broke out and killed 112 workers at the Bangladesh apparel factory—which manufactured items for Wal-Mart Stores Inc.—because of a lack of visibility in the retailer’s lower tier supply chain. Let’s also not forget the horsemeat scandal. The same lack of visibility that was obvious in the Bangladesh fire is also a similar issue in the continuing awareness regarding horsemeat that appeared in beef products sold to the consumer market, which already affected a number of countries such as the United Kingdom, Ireland and Britain.
Perhaps the most obvious factor to understand is that such incidents are not the first of their kind in the world. What must be addressed is the fact that no one is exempt from such supply chain disruptions. And businesses must not just react to such supply chain disruptions but instead adopt holistic, preventative measures to counteract the next potential disaster—especially as supply chain disruptions have the potential to destroy more than seven percent of a company’s shareholder value, according to the WEF report. As such, businesses must obtain constant, real-time visibility into the multi-tiers of their supply chain—from their suppliers to their suppliers’ suppliers and further.
“There are structural changes that need to be made,” confirmed Kevin O’Laughlin, Managing Partner, U.S. Supply Chain and Operations Advisory Services, KPMG. “There needs to be awareness and training about how to respond effectively. There’s got to be controls in place to enforce policies around dual sourcing of supply or other activities as well as a technology that provides visibility. Any one of those alone is not the whole answer. It’s a combination of those things.”
In the wake of natural disasters
“Over the years, with customers doing more single sourcing and outsourcing operations to tier suppliers, that really caused a lot of fragile supply chains,” said Jon Bovit, Chief Marketing Officer, Resilinc Corp. “A lot of the challenges are the risks in the sub-tier levels—those are of major concern. It’s not good to just put tools in place. We have to bake it into the fabric of standard operating procedure which means that it can’t add to the workload. It has to automatically identify things and get people working on it so they can automatically detect certain things and optimize the process.”
Superstorm Sandy, the 2004 Indian Ocean earthquake followed by the tsunami that hit Indonesia, India, Thailand and Sri Lanka, and even dating as far back as to Hurricane Katrina of 2005, which current residents of the Gulf Coast still see consequences of today as a result of it—such natural disasters fall into the “expected” realm of disruptions, i.e., natural disasters do occur all over the world and because of weather monitoring, can be prepared for. Despite that, some businesses in today’s supply chain may still claim that they cannot be accounted for because of the scope of their nature.
In many cases, that can be true. But let’s take for example, the Thailand flood of 2011. The natural disaster had perhaps the most severe supply chain impact to the disk drive and storage industry as reports followed months after, even up to a year, regarding some of the manufacturer’s difficult bounce back to the economy after its impact. But because of the country’s annual monsoon season, some manufacturers such as EMC were more than prepared to act on any impacts to its supply chain.
“The Thailand flood wasn’t a surprise,” confirmed Steve Cleary, Vice President of Supply Chain and Chief Procurement Officer, EMC. “Of some of the natural disasters that occur in the world, the tsunami was certainly unpredicted. But the Thailand flood built over the course of two or three months. As we saw the crisis start to emerge, we got in extra orders and we ended up relying on very strong partnerships we have with our key suppliers that really helped us through that event. We had weekly reports of where the water was and what the water was doing and whether we thought it was going to hit the factories. I can’t say that we had zero disruption as a result of that Thailand flood. We had shipment delays in the beginning of the quarter as a result of this, but by the end of the quarter we had satisfied all of our system-level demands. The industry recovered a lot quicker than most people thought.”
While Cleary confirmed EMC did grow through that quarter and had record revenue shipments, still a number of its peer groups in the area did announce shortfalls and shortages.
“I think what was a surprise and what we have done differently going forward with some of our partners is we’re more involved in getting into second and third tier aspects of our supply chain,” added Cleary. “Where we were looking at direct components that we use in the manufacturing of our products, what we weren’t doing necessarily as aggressively as we are now is with some of the second and third tiers to the component suppliers. So we are much more focused on having folks take us through their business continuity plan as it relates to a motor in a product or perhaps even the magnetic in that motor that might have been single sourced. So what are the plans? What are the mitigation strategies, should there be a disaster, that the second tier or third tier supply chains are protected? That is something we have put more focus on as a result of the flooding,” he said.
While natural disasters play a large part in a supply chain’s disruptions, other factors come to light as mitigating supply chain disruptions must become a natural part of a company’s business blueprint. Conflict and political issues, labor strikes, cyber risk, rising insurance, trade finance—companies are starting to put more all-encompassing strategies in place to mitigate against such economic and regional issues.
“It’s not just enough to say that something ‘is risky,’” explained Bindiya Vakil, Chief Executive Officer and Founder, Resilinc Corp., a cloud-based solution provider for proactive Supply Chain Risk Management (SCRM). “There is a risk tolerance level that a company has. And any kind of tool that is existent in that space needs to be accounting for exceptions that fall outside the company’s risk threshold. When we say high risk, high recovery time and high-revenue impact—that high is set by the company. And this is why you have to go down to the products and parts level because typically, risk threshold companies think about those in terms of products or revenue and suppliers always think about that in terms of spend. There is an inherent gap in how companies or people think about risk or risk threshold and risk acceptance levels and then decide what to choose to mitigate,” she explained.
While a majority of its focus is around factory and transportation issues related to the supply chain, Resilinc continues to address the industry’s challenges within the sub-tier supply chains through a number of technological capabilities, such as a developed C-TPAT compliance capability within its platform.
“Resilinc also offers their dashboard, which is built very tailored to our supply chain,” said Cleary. “So once we say ‘map 400 factories around the world that are providing things into our supply chain and all the risk variables associated with them,’ what they’ll do is monitor those 400 specific sites for us and we will get daily alerts as to events that are happening or emerging events that may be of concern. And so that kind of a dashboard too is very critical to us because even if we were to be able to get to that basic level and understand what the exact addresses are of each of our 400 factories and what their risk profile is, monitoring those on a daily basis is again, a very large activity,” he explained.
While the IT storage hardware solutions provider already had risk mitigation strategies in place—such as its business continuity plan (BCP), supply chain disruption disaster simulations implemented annually at its partner sites and buffer inventory—it stressed the importance of incorporating all BCP plan, risk mitigation and anticipatory strategies holistically and from the ground up.
“When we first started to look at developing a platform and not just having a set of discrete capabilities, it became pretty obvious to us that it was a major endeavor and it was a significant investment in resources,” said Cleary. “The issue with these types of systems is, once you create them, you have to feed them and take care of them. I think that anybody who seriously takes a look at it in a thoughtful way and really tries to understand what it would take to do it internally, would probably come to the conclusion that this is an outsourced opportunity.”
Engaged with Resilinc as of Q4 of 2012, EMC expects to have 95 percent of its 400-plus sites mapped by Resilinc by the end of 2013.
“What Resilinc provides is really what we need to facilitate this bottoms-up approach—they provide us with the resources to help us build the data out and help us understand the data,” Cleary added. “And so it really becomes not only just a platform but an offshoot and a resource bank of people to help us collect and analyze the data that we would have had to build internally. Their business motto is they can do it more efficiently across a number of supply chains. Being able to leverage that back and forth is of huge value to somebody like EMC.”
A road better planned for supply chain risk mitigation
Aside from the already obvious factor that multi-tier mapping and visibility into one’s supply chain is an increasing issue businesses must factor, is perhaps also the implication of such a demand for holistic risk mitigation strategies that impact such technology providers of today. As the awareness and demand for improved risk management processes increases, technology providers who provide risk mitigation toolsets must be prepared to address such demand at all times now.
“This class of software is at its very early stages,” said O’Laughlin. “When you think about all the supply chain risks that companies face, it’s everything from the financial stability to the performance risk to their supply base or their supplier’s supply base and the geopolitical risks—where are these suppliers located and what risks are inherent in the locations in which they are located? There are lots of different risks and each of these technology solutions really only addresses a sliver of them. So the question becomes, how do you put a 360-degree view together? I think all of the platforms want to be the integration platform and be the over-arching tool. But I think they are still in the very early stages and we’ll still see a lot of innovation and a lot of shakeout over the next three to five years as the technology vendors compete for a piece of this puzzle,” he concluded.