The Risk Agenda in the Age of Impermanence

Today’s supply chain agility challenges require nothing less than the ability to peer into the future, see the before-unseen problems, and have mitigations in place well before the first hints of trouble.

In previous articles, I’ve described what I believe to be the new Age of Impermanence; A world constantly in a state of flux where winners have adapted, and the laggards are left behind. Competent and aware business leaders will look to leverage new artificial intelligence decision augmentation tools to enhance their ability to sense and react faster than their competitive peers. Essentially utilizing the 2020’s version of what radar was to those in the mid 1900’s. ?

How and when will our transportation networks free up? Will companies move their manufacturing away from China, and if so, how fast and to where? Will US policymakers change the financials of onshoring capabilities? These questions loom and, even more difficult, there will be neither a single nor a stable answer.

To lead in the Age of Impermanence, one must utilize over-the-horizon capabilities and new competencies. Staff members must become ad at integrating augmented A.I. decision-making in almost every aspect of the efficient enterprise. For Supply Chain professionals, here are six areas that need to be high on the agenda.

1.??????Supply base mapping – Most supply chains spread their expenditures over the fewest amount of their most “strategic suppliers”. However, those preferred suppliers rely upon many sub-tier suppliers to feed sub-component material up to them. Below the first tier are subsequent other tiers of suppliers who feed inventory to the respective tiers above them. All totaled, strategic suppliers and their sub-tiers suppliers could combine into a vast number of companies and plant locations, numbering in the thousands. To add to this complexity, most risk management specialist will tell you that managing only the top 90% of suppliers by expenditures is insufficient. Even the smallest screw or inexpensive label could shut down production and irreparably harm revenue to the business. Map-out and continuously monitor 100% of the suppliers’ manufacturing locations for the top revenue-generating products down as many tiers as you can afford.

2.??????Tactical risk monitoring and communication protocols – During this Age of Impermanence much will be happening within your extended supply base, including several tiers downstream. Commodity managers need better tools to be aware, and then manage, the many layers of global suppliers and the events that affect the suppliers’ factories, warehouses and shipping lanes. Don’t wait for your suppliers to call you on their own timing with their own message. They have their own interests and priorities. Supply management teams need to be equipped with automated notices that alert them of potential trouble spots. Once alerted, they need to preemptively contact the pre-arranged supplier representative to assess the actual circumstances what action needs to be taken, if any. The Supply Chain Risk Management software industry has developed many options from which to choose. Investigate and adopt Natural Language Processing (NLP) event-sensing technology and have supplier communication plans in place to assess suppliers’ impacts to your deliveries. Regularly test your suppliers’ business continuity plans (BCP) and updated 24 X 7 contact points.

3.??????Manufacturing Agility – Between COVID and US-dependency issues, companies will be looking to move parts of their supply chain from Asia, specifically China, to nearer shores or even back to the U.S. These moves will take some time but need to be contemplated in strategic supply plans. If a major semiconductor outsourcer moves to the U.S., as was announced recently, the supplier base under them will also adjust. New economies of scale will emerge as entire supplier ecospheres will change. Landed Cost Analyses will take constant iterations as underlying assumptions will change over time. Assign a supply chain team member to challenge assumptions and be in touch with the changing chess board and latest landed-cost math.

4.??????Supply Chain Risk Council Governance – Supplier managers and their work product – Commodity Sourcing Strategies and Cost-Reduction Initiatives – will have to constantly be on the lookout for events driving their suppliers’ pricing and deliveries. Regional events, geopolitics, tariffs, factory fires, mergers and acquisition all drive discontinuity of supply. Companies adjusting their manufacturing strategy and therefore their sub-tier supply sources could create pockets of under-served and over-served markets. Component prices could experience sudden spot price increases or decreases. Establish a Supply Chain Risk Council with representation from other business functions such as legal, security, IT, HR, and finance. Meet regularly. Discuss world events that could impact future business and develop potential mitigations. Assign a resource to oversee implementation of mitigation plans. Be prepared to make fast strategic inventory decisions.

5.??????Integrate Environmental, Sustainability and Governance (ESG) with Business Continuity Risk and manage holistically – Before Coronavirus, companies were increasingly focused understanding their suppliers’ social character and sustainability program. These green efforts have added an extra dimension to supplier sourcing selections. Layering in environmental objectives can not only add cost and complexity to the supply chain but can also add in unintended business risk. For example, environmentalist successfully lobbied against rare earth mineral refinement in the US. ?These rare earth element technologies are critical part of most technology products used today. As a result of the environmental push, China has become the global leader for conversion of rare earth materials into a final usable form. The US is now at their mercy for materials that are essential for high-tech products. A siloed view of environmental concerns pushed resources out of the US into the waiting arms of China without the benefit of companies appreciating the increased risk to their longer-term business needs. Business continuity realities and ESG interests need to be brought together into the same conversation. Be real. Integrate Supply Risk Scoring and ESG metrics together. Consider these trade-offs in commodity sourcing strategies.

6.??????Compete on Supply Chain competency – Supply chain decisions are becoming inextricably linked to the products which they support. If reliable sourcing is an issue for customers, Sales and Marketing teams will be the first to hear it. How your company manages its supply chain will join product specifications, quality, and price as features of interest to your customers. Supply Chain leaders invited to customer presentations should be prepared with a professional description of efforts to manage ESG, risk, continuity of supply, and drive for outcomes that are perceived as competitive differentiators.

Budgeting and deploying these new capabilities will take strategizing as well as a dose of courage, but there are plenty of companies who have implemented supply chain risk programs for a decade or more. Their results tell us that investments here have a positive return and a source of their company’s competitive advantage. Most of the above can be done with limited dedicated staff. SCRM software tool choices are available and have replaced much of the tactical work being done by commodity team members, whose time should be reserved for more strategic work. Along with Opex savings, better inventory management and lowering of expedite fees are tangible expenses that will show benefit. Conversely, if not managed well, stranded WIP inventories, idle staff and dissatisfied customers can do irreparable damage to the income statement. Don’t wait for the next business-impacting event before starting. Your competitor may already have!

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Joe Carson

CEO of Spend Strategies, LLC.

Among many areas of supply chain excellence, Joe has been establishing and managing Supply Chain Risk Management programs in corporate setting since 2011. He is the former Chief Procurement Officer at Micron Technologies and at Lucent Technologies as well as holding additional roles as a Vice-President Supply Chain Management, Operational Excellence Executive, and Chief Strategy Officer. Joe earned his bachelor’s in electrical engineering at the Georgia Institute of Technology, and his MBA from Duke’s Fuqua School of Business. If you want to continue the conversation, Joe can be reached for more insights at [email protected], his LinkedIn profile or www.spendstrategies.com website.