Time to rethink risk in the supply chain?

Beer, CO2, chicken, fuselage, pallet, whiskey, and drug shortages are keeping Executives up at night!

I got a kick reading the recent articles about the CO2 shortage in the UK and the impact on the beer industry supply chain during World Cup fever (pardon the weak attempt at humor). According to the MetroUK, beer supply chains are being constrained by a "shortage of food grade CO2 due to a shutdown at ammonia at plants that manufacture fertilizer". Apparently, at least five suppliers and their plants are shutting down for summer maintenance at a point of peak CO2 consumption. And the exposure is not limited to the food and beverage industry. As typically is the case, many industries use CO2/carbon dioxide for oil recovery, fire extinguishers, wine, and in medicine as it is added to oxygenfor stimulation of breathing after apnea.

Those in Supply Chain Management and Procurement are well aware of how the little things that are seldom thought about can cause great pain. Whether it's a shortage of a $1.50 piston ringthat caused a 70% of Japan's auto production was shut down for more than a week or a scarcity of sawdust/wood wastewhich impacted poultry, drilling, auto-part manufacturers, and even the wine industry. The list of what could quickly impact your supply chain, profitability and market share is a long one: the bankruptcyof mega-toy distributor Toys-R-Us, a shortage of production capacity for the blockbuster Ford line of pickups due to a fireat a supplier, and yes, who can forget the shutdownof KFC stores in the UK due to a change in logistics provider that resulted in the lack of chicken of gravy. More recently there was an explosion at a UPS facility, a fire in a major wood pallet warehouse in Texas, a rogue employee and corporate espionage at Tesla, and a shortage of Boeing aircrafts' fuselages.

A Call to Action

Why does history repeat itself? Why are some organization repeating the mistakes of their peers? A decade or two ago industry lacked the necessary tools and awareness. However, today there is the widescale availability of advanced data gathering and management software, monitoring and warning systems, and descriptive, predictive, and prescriptive analytics.

Here are three assumptions that could be causing you unnecessary exposure in your supply chains.

• Product supply chains and associated activities are unique. It's true, you've seen one supply chain, you've seen one supply chain. What drives profitability and the activities that create superior value matters!! Sure it's important to view your supply chain through the asset, functional or process lens. But it's not as important as conducting the analysis of risk from the customer or industry value chain inward. Generic business continuity and resiliency programs fail to recognize the value of the trade-off between performance and risk. Begin with what matters most at a business segment or divisional level. What product(s), product families generate profitability (current or future). Begin your mapping from the customer back through origination. In today's digital world, don't forget to simultaneously map information and financial flows.
• Supply chains do not stand-alone. It's no secret that today's supply chains are not chains at all but rather an intricate, constantly shifting network of resources. The relationships amongst these resources are complex both financially and operationally. Switching can be difficult, uniqueness can be a barrier to diversification. Understanding who you are competing with for profits is not limited to competitors. Michael Porter's work on Competitive Strategy and Advantage can help here. Understand the industry value chain and competitive forces. You are competing with suppliers, producers, potential new entrants, customers, and competitors. Understand their needs, leverage, and the dynamics of the market.
• Supply chain risk is not limited to just supplier or third-party risk. It's important to check this box, supplier risk programs and products have matured over the past five years. Implement the products, gather the data, activate event monitoring, and link the process to change management and procurement operations. Don't stop there!! Refer to the two bullets above. Analyze the end-to-end life cycle of the critical value or product streams. Prioritize the activities that provide unique or superior value. Understand the exposure of the full set of resources and assets that support the value or product stream. For example, what are the critical/hard to replace skills; technology & data; physical assets; and relationships needed to source, produce, deliver, and service what makes you money?

Interested in finding out more? Send me an email, [email protected] or give me a call, 862 812 2176. Comments always welcomed!!