On February 24th, President Obama signed into law the Trade Facilitation and Trade Enforcement Act of 2015 which now officially prohibits the importation of goods produced by forced labor or child labor, closing an 86 year old loophole and reauthorizing the Customs and Border Protection Agency to seize any imports suspected of being produced by forced labor. The International Labor Organization estimates forced labor fuels $51 billion a year in profits in international trade and more than 14 million people worldwide work as a result of force, fraud or deception in homes, factories, mines, and farms.
“If the US government works to really keep out goods made with forced labor, this change will have a profound ripple effect on supply chains worldwide,” said David Abramowitz, vice president of Humanity United and a major advocate of the Act.
Resilinc has released a new report entitled "New Forced Labor Legislation to Impact Global Supply Chains" which, in concurrence that forced labor produced goods are common across industries and that the new law can significantly impact global trade, examines forced labor hidden in the supply chain as a palpable, three-pronged risk to companies, irrespective of industry or company size. These include business continuity risk, brand risk, and compliance/legal risk.
“Companies may be inadvertently linked to sub-tier suppliers that may engage in unethical, and now, purely illegal, business practices,” said Neil Shenoi, the lead analyst and primary author of the report. “Clean companies may still be at risk due to increased scrutiny of US imports and newly implemented import regulations. Regardless, the new law will inadvertently require companies to achieve a greater degree of supply chain visibility to assure both the government and the public at large that forced labor has no role in their supply chains.”
An overview of the Trade Facilitation and Trade Enforcement Act
Why SCM practitioners and stakeholders should care about the new law
An examination into how the legislation will be implemented and enforced
An assessment of key regions, industries and goods impacted by the new law
Tactical and strategic recommendations on how to prepare for the foreseeable supply chain impacts
The report concludes that it is critically important not to think about supply chain risks in isolation.
“Companies need to think strategically about supply chain risks in the context of the broader array of risks that they face every day,” said Shenoi. “Supply chain risks should be addressed as part of a comprehensive resiliency strategy and not a “one off” risk mitigation exercise. This is because the processes associated with risk mitigation and the treatment options available are common across a wide variety of risk types.”
Companies need to be realistic when it comes to the disaster preparedness of their supply chains. Natural disasters, factory explosions, labor disputes, power outages, chemical spills, geopolitical crises - these supply chain disruptions and continuity risks are not matters of if, but when and where. Once a disaster strikes, do you know what is going on at the part-level of your suppliers? Have you identified which activities and roles you need to concentrate on so your business can weather the storm?
Any effective supply chain resiliency program will include contingency plans that ensure production and product delivery continue - either uninterrupted or with minimal financial, competitive, or customer impact - in the event of a supply chain disruption. A developed supply chain business continuity plan fosters corporate mindfulness and prepares your business and network of supply chain partners to perform uninterrupted regardless of where and when a supply chain disruption event may occur.
Even though we're three months into 2016, it’s not too late to prepare your business for the supply chain disruptions that are bound to happen. As such, I provide 10 reasons why you should focus on Supplier Business Continuity Planning this year:
Your organization may be required by government legislation or corporate governance to implement a form of Business Continuity Management into its policies.
Insurance companies will view your company more favorably should a crisis require your company to summon their services.
Supplier Business Continuity Planning gives upper management a better grasp of the minute details of the business’ suppliers and helps the organization identify supply chain vulnerabilities. It offers useful ways to improve organizational processes, even in areas that were previously unconsidered.
Supplier BCP minimizes Time to Recovery (TTR) whilst fostering supply chain visibility.
Supplier BCP can prepare smaller businesses from large-scale revenue loss from disruptions, disruption which larger enterprises may have been better suited to mitigate.
Business Continuity Planning bolsters your business against large-scale problems affecting suppliers through detailed planning and helps eliminate smaller problems that may have caused continuity interruptions.
A Business Continuity Plan shows your investors and stakeholders that you take your shared business’ continuity seriously, and that your organization is prepared and desires to maintain productivity regardless of setbacks.
Your customers will appreciate that your organization has taken steps to ensure continuity to fulfill your commitments. Business Continuity Plans display your commitment to quality service and instill a confidence in your business.
Business Continuity Plans help protect your company’s brand, image, and reputation.
Most importantly, a thorough Supplier Business Continuity plan can significantly reduce your revenue losses in the event of a disaster.
Since disasters come in all shapes and forms, and each disaster has its unique cascade of impacts (see:Anna Karenina Principle), this requires companies to prioritize which parts of the business to keep running when a disaster hits. Since there are too many variables to plan a response for each potential disruption, supply chain business continuity plans are vital supply chain resiliency measures.
Resilinc provides a cost-effective and repeatable process for assessing supplier business continuity risk and recovery capabilities at the part level, and integrates that information into a comprehensive supplier risk evaluation and mitigation program. The solution leverages Resilinc’s existing network of “on-boarded” suppliers and information repository to facilitate supplier collaboration and data sharing. Analytics are then applied to drive supplier scorecards, revenue impact analysis, and risk mitigation strategies and tactics.
Across companies and industries, there is a growing awareness of the importance of supply chain risk management and resiliency programs. However, establishing an enterprise-wide supply chain risk management and resiliency program within your company doesn’t happen overnight, nor should it. It’s a multi-pronged process unique to each company, and each company is at a different stage of awareness, preparation, implementation, adaptation and maturation.
On the second day of the recent annual Global Supply Chain Resiliency Council event, we held a live poll at the conclusion of our customer training sessions to gauge where attendees were in their respective SCRM and resiliency journeys. The supply chain practitioners in attendance represent some of the largest companies with the most extensive global supply chains. As such, this post provides our poll’s findings to give you a better sense of where other major companies are in their SCRM journeys, and as to why they choose to pursue supply chain resiliency.
You will see that companies of all sizes, regardless of industry, can fall along a “resiliency spectrum”. While some are well into implementing and maturating their supply chain risk management and resiliency programs, others are still gaining awareness and planning their processes.
Major supply chain disruption events, a.k.a black swan events, can take a tremendous toll on business continuity and revenue, affecting some companies and industries more than others. When we published the whitepaper "Tianjin Explosions Global Supply Chain Impact: It's Worse than You Think", we predicted that the crisis was, as the title suggests, worse than you would think. As the poll data suggests, the Tianjin explosions truly did have a far-reaching, rippling impact across industries.
Black swan events are unpredictable and can take a major toll on an enterprise. Having a formal Crisis Management program gives companies a significant competitive advantage when confronted with unexpected crises. As the poll indicates, Crisis Management programs are growing more common among enterprises with complex multi-tier supply chains. Given that 40% of the polled attendees either did not have a formal Crisis Management program or have non-centralized Crisis Management processes, it is fair to assume that companies that have implemented a cohesive Crisis Management program are better suited to respond and mitigate major supply chain disruptions than those that are not fully prepared.
It is important for SCM departments to identify their weak spots and figure out how they can become more resilient in the coming year. Nearly one third of the polled attendees recognized that governance, or the structures and processes by which supply chain constituents share power, can always have room for improvement and lubrication. One fifth wanted to bolster their Crisis Management programs to be resilient in the face of unexpected crises. About one sixth of the attendees want to address their business continuity planning. Nevertheless, risk mitigation appears to be the most common arena for improvement among companies across industries.
Some companies’ SCRM programs are driven from the top-down, while others are driven from the SCM upwards – the motivations to manage risk and become resilient are as varied as risk itself.
Learn More About SCRM and Supply Chain Resiliency
As the global supply chain risk terrain continues to evolve, companies across all industries realize they need to adapt. Although addressing and preparing for the encompassing scope of supply chain risk may be intimidating, waiting for risks to manifest and maintaining a reactive stance towards the supply chain risk can be far more damaging to a company’s revenue and brand.
For those who are unfamiliar with Resiliency, we highly encourage that you download "The Ultimate Guide to Supply Chain Resiliency". In this document, we provide supply chain risk management practitioners with concrete suggestions and guidance on how to create, roll-out, and institutionalize a global supply chain resiliency program (SCRP). The premise of this guide is that there is an unserved need for information on the topic of building and managing a SCRP that adequately addresses the crucial initial phase of building the business case, establishing strategic alignment, and securing executive sponsorship.
I hear the terms supply change risk management (SCRM) and supply chain resilience used interchangeably by industry practitioners, stakeholders, solution providers, and industry analysts alike. So, are we essentially talking about the same thing or do we invoke one term over the other in certain circumstances to convey something different?
For all practical purposes, both terms describe the same business discipline and process and, as such, cover the same ground when you break down the concepts into its various components. However, the message that they each evoke is very different. They both describe the same “glass”, but one describes the glass as half-full (resilience) and the other half-empty (SCRM).
While risk is something you want to minimize, resilience is something you want to maximize. Risk is a threat, while resilience is an opportunity. For example, in terms of value propositions, the messages that flow easily from a discussion of SCRM are around cost and disruption avoidance, vulnerability identification and remediation, and other operational and tactical concerns. On the other hand, supply chain resiliency connects more easily with strategic themes like competitive advantage, market share, and ultimately brand and shareholder value.
For example, companies that recover faster from a supply chain disruption event through early detection and crisis response preparation, or avoid its impact altogether as a result of proactive planning, can gain a time-to-market and market share advantage over competitors that depend on the same suppliers and components to ship product. Studies have shown that the loss in market share and shareholder value from supply disruption events can take a decade to recover from, not to mention the brand/reputation impact of having to delay shipment.
Both the SCRM and resilience value propositions are real and compelling and relevant to the growth of SCRM/Resilience as a critical business discipline and function moving forward. One resonates with sourcing and supply chain operations professionals, while the other piques the interest of the C-suite. The discipline of SCRM/Resilience will reach escape velocity when the operations folks can drive the C-level messages up the chain and the C-suite can drive “buy in” from the top down with a viable operational improvement message.
So while the strategies and tactics to manage risk and achieve resilience may be the same (e.g. qualify additional/alternate sources for high revenue-at-risk components; improve supplier collaboration and planning; design products and supply networks for resiliency, etc.), the benefits may be perceived and valued differently. Let’s continue to use both terms because they both matter, but let’s also be aware of their nuances and evoke the term that is likely resonate most with whomever you are talking to.
Downloadthe Ultimate Guide to Supply Chain Resiliency Program Success to learn tips on how to sell your SCRM/Resilience initiative to any audience.
The winners of awards for supply chain resilience and risk management excellence were honored by the Global Supply Chain Resiliency Council at its annual event which took place on Wednesday, February 24th, 2016, at the Sheraton Palo Alto, in Palo Alto, California. This year’s event attracted over 100 attendees from all over the country. There are now almost 1,100 general members of the Resiliency Council.
Its goal is to bring together supply chain risk management (SCRM) and resiliency practitioners with industry experts and thought leaders to advance the professional discipline through opportunities to collaborate, develop and share best practices, and be recognized for innovation and leadership. The awards program is one of the key elements of the Resiliency Council’s strategy to accelerate enterprise adoption of supply chain risk management and resiliency as a professional discipline and mission-critical business process.
“As evidenced by the over 100% year-over-year growth in event participation and general membership, the Resiliency Council has emerged quickly as the leading SCRM professional community,” said Bill Hurles, Executive Director. “We continue to believe that recognition of companies and individuals within that community will be critical to the institutionalization of resiliency concepts and business practices within the enterprise.”
The awards program is designed to recognize organizations and individuals that serve as role models and leaders in driving supply chain resiliency strategy success within their company, supply chain network, and across industries. The awards committee considered nominations from its general membership of over 1000 members worldwide comprised of OEMs/brand owners, suppliers, and experts from the Council’s technical advisor, Resilinc. The six award categories and winners announced were as follows:
RESILIENT SUPPLY CHAIN PARTNER OF THE YEAR: Palo Alto Networks
This award was based on a number of criteria and input related to customer collaboration practices and culture, technology adoption, and overall breadth and maturity-level of processes in place, as well as the organization's commitment to institutionalize best practices and demonstrate innovation and continuous improvement over time. Vonnie French, vice president supply chain operations, Rachel Yabut, senior project manager, and Dmitriy Krichevskiy, risk manager, accepted the award on behalf of Palo Alto Networks.
RESILIENT SUPPLY CHAIN INDUSTRY LEADER OF THE YEAR – LIFE SCIENCES: Amgen
This award goes to the company that has done the most to advance the SCRM and resiliency discipline both within their company and across their industry. The industry leader is early to adopt advanced SCRM and resiliency processes and technology and is closely watched by its peers. As such, the company serves as a role model for industry peers via its commitment to institutionalizing SCRM processes and best practices and track record of achieving benefits and results. The industry leader also generously shares experiences and lessons learned with peers at industry events. Patricia Turney, executive director of supply chain, Rod MacLea, director of supply chain, and Martin VanTrieste, senior vice president of quality, accepted the award on behalf of Amgen.
RESILIENT SUPPLY CHAIN TECHNOLOGY DRIVER OF THE YEAR: Juniper Networks
This award recognizes the company that is most advanced in terms of technology adoption, the use of technology to achieve customer-supplier collaboration, and the overall maturity-level of technology-enabled processes and best practices in place. In addition, the committee considered organizational culture as it relates to technology adoption and risk taking, as well as the organization’s commitment to leveraging innovation and driving continuous improvement over time. Steve Darendinger, vice president supply chain, and Mark Graham, director supply chain, and Ashu Gupta, senior manager, risk & analytics, accepted the award on behalf of the company.
RESILIENT SUPPLY CHAIN EDUCATOR OF THE YEAR AWARD: Yossi Sheffi
This award recognizes the educator that best supports further development of university-level education programs focusing on supply chain operations and resiliency and is best preparing the next generation of supply chain risk management superstars with hands-on training using real life scenarios, tools and case studies. In addition to talent development, this award also recognizes educators that play an important role in cross-pollinating ideas and strategies between academia and the business community. Yossi Sheffi is the Elisha Gray II Professor of Engineering Systems, MIT and the author of several books including the recently published The Power of Resilience.
RESILIENT SUPPLY CHAIN PROFESSIONAL OF THE YEAR: Jamie Love, Sigma Aldrich
This award recognizes individual success in championing the importance of supply chain resiliency within one’s company and being a change agent. The individual’s efforts to advance the profession–by sharing best practices, collaborating with key supply chain partners on successes and lessons learned, via active participation in industry events and media communication opportunities – was also a consideration in the selection process. Jamie Love is vice president of global operations at Sigma Aldrich.
RESILIENT SUPPLY CHAIN COLLALBORATOR OF THE YEAR: HGST
This award recognizes the supply chain partner that collaborates most effectively with customers for mutual benefit. The Collaborator of the year is proactive, responsive, transparent, willing to share appropriate information, and committed to working with its customers to achieve multi-enterprise supply chain performance excellence, KC Wong, principal field applications engineer, and Clifford Bast, senior global manager, accepted the award on behalf of HGST.
About the Global Supply Chain Resiliency Council
The Global Supply Chain Resiliency Council is a professional community and network for supply chain risk management practitioners, leaders, and stakeholders. The principal goals of the Council are to (1) bring together SCRM and resiliency practitioners with luminaries and thought leaders to advance the professional discipline through opportunities to collaborate, share best practices, and be recognized for innovation and leadership and (2) elevate the profile of supply chain risk management and resiliency challenges and opportunities vis-a-vis the C-level strategic agenda. The Global Supply Chain Resiliency Council has over 1,000 general members and has an open membership policy. Interested individuals within the business community and academia that wish to become a member of the community can do so by joining the LinkedIn discussion group by the same name.
Yesterday marked the conclusion of the 2nd annual Global Supply Chain Resiliency Council conference and awards event. With over one hundred supply chain practitioners in attendance from around the world, the amount of collaborative knowledge and best practices shared made it an event for the books (at least, within the supply chain community!). Some of the most brilliant minds in the supply chain risk space, from IBM's Lou Ferretti to MIT's Yossi Sheffi to Amgen's Patricia Turney, presented their takes on global supply chain risk and resiliency. As the event was held over two days, the hashtag #Resiliency2016 emerged early on during the conference and gained momentum in the Twitterverse.
The great thing about Twitter is that digestible nuggets of information and wisdom can be instantly broadcasted at the touch of a button and filtered by utilizing hashtags. As such, many attendees (including myself: @resilient_neil) took to live-tweeting #Resiliency2016 to share the loads of valuable information they gathered from the event's sessions to the online supply chain community. As only a portion of the tweets spurned by the event are presented below, be sure to check out the #Resiliency2016 hashtag to get the full scoop.
Supply Chain Resiliency Management (SCrM) is a growing area of interest and study. Yet it can be daunting to sift through the swaths of information to find relevant tidbits on social media sites like Twitter. While the #Resiliency2016 hashtag was born out of the recent GSCRC event, let's take it a step further. We invite the supply chain community at large to use this hashtag, not only to bolster discourse, but gain visibility to target audiences. By keeping #Resiliency 2016 alive and trending, we can keep the online conversation surrounding supply chain risk and resilience alive in an easy-to-find nook in the Twitterverse. Don't get lost in the flurry, hop on #Resiliency2016!
Around 4 a.m. on February 6th, a 6.4 magnitude earthquake rattled southern Taiwan at the start of Lunar New Year, the island’s largest nationwide holiday. With a current death toll of 114, it is the deadliest earthquake to hit the island since the “921 Earthquake” of 1999. Taiwan is the world’s leading producer of semiconductors and integrated circuits (IC), and high tech companies are wondering how this earthquake could affect the global electronics supply chain. While initial reports of the quake emphasized minimal damage and interruption to the major chip foundries concentrated in southern Taiwan, there are less apparent global supply chain impacts that will likely be felt in the near future.
Resilinc has released a white paper analyzing the recent earthquake and the forseeable supply chain impacts. This analysis is organized into five parts:
Summary of the earthquake event
Review the global importance of the Taiwanese IC industry
Examination of the confirmed impacts to chip manufacturers on the island
Discussion of interruption risk factors associated with modern chip fabrication plants
Recommendations on how to mitigate impact to supply chains for future similar events
The report discusses the specific and confirmed impact to major semi-conductor, electronics components and assembly service providers including UMC, Innolux, and ChipMOS, and warns that there are many other smaller manufacturing operations in the affected area that have not released a public impact statement.
“Many of these companies located in the Southern Taiwan Science Park in both Tainan and Kaohsiung are dwarfed by these huge chip manufacturers,” said Neil Shenoi, EventWatch® Program Analyst at Resilinc. “That does not mean they are any less important to IC supply continuity from Taiwan. Companies should monitor Taiwan/Tainan based companies in the coming weeks because it is not always the large players that are at risk, but smaller sub-tier partners who might supply a Tier-1.”
The analysis concludes with several specific recommendations for addressing the lingering potential risks associated with the Taiwan quake as well as steps that should be taken now to avoid impact from future similar events. For example, high tech OEMS and brands should assume their competitors, as well as other companies from other industries, are vying for available inventory, capacity and freight bandwidth. Companies should also conduct mapping exercises to determine which sites, products, parts, and materials are derived from southern Taiwan and which may be impacted by the quake and then monitor and collaborate with suppliers to mitigate evolving risks.
Finally, Resilinc implores brands to take steps to proactively mitigate future vulnerabilities that will be exposed by similar incidents by investing in supply chain risk management (SCRM) and resiliency strategies and program initiatives. This includes people processes and technologies for (1) proactive risk identification, quantification and prioritization and (2) rapid crisis detection and response via 24x7 global event monitoring and analysis services.
“While this earthquake paled in comparison to the 921 Earthquake of 1999, businesses should not underestimate its looming supply chain impact,” said Shenoi. “Though bigger companies may have a higher tolerance for such unplanned disasters and supply chain disruptions, younger and smaller downstream companies are more vulnerable and are urged to reap the benefits of investing in SCRM and resiliency strategies and programs that ensure proactive risk mitigation, crises preparation, and rapid response. It’s only a matter of time to tell how this earthquake will affect the global supply chain and for how long its ripple effect will be felt downstream.”
Resilinc has published its 2015 supply chain events annual report which summarizes and analyzes nearly 750 unique supply chain alerts and notifications generated by the EventWatch® 24x7 global event monitoring, alert, and analysis service in 2015. 2015 saw a high-level of disruptive supply chain event activity as several significant events occurred throughout the year, from the major chemical explosions at the Port of Tianjin to numerous chart-topping typhoons in the critical Asia-Pacific region and the arrival of El Nino in the latter half of the year. Evident in the report, numerous geo-political, macro-economic, social/technology and environmental trends continue to impact global supply chain continuity.
The annual report analyzes global supply chain incidents and trends according to risk type, industry, geography, severity, and seasonality, comparing 2015 data in these categories with 2013 and 2014. The report also includes the EventWatch Top 5™ Supply Chain Events for 2015, a key takeaway for supply chain practitioners. In this post, we provide an overview of the report; however, for a closer look at our data graphs, trend charts and analyses, check out the full EventWatch Annual Report.
Top 5 Supply Chain Events of 2015
A key takeaway from the annual report is the EventWatch Top 5™ supply chain events of 2015. The top 5 events ranking is driven by the estimated aggregate revenue impact from the highest-impact events reported by EventWatch throughout the year. The estimated revenue impact is calculated by leveraging Resilinc’s database of over 80,000 suppliers and approximately 1.5 million parts which are tracked by Resilinc’s cloud supplier intelligence repository.
The top 5 supply chain disruption events are listed below. Included in the annual report are estimates of the top 5 events’ revenue impact, average site time-to-recovery (TTR), and number of sites affected:
Event Type: For a third year in a row, factory fires/explosions were the most commonly reported supply chain disruption event and represented 17% of total EventWatch bulletins in 2015.
Industry: From 2013 to 2015, the automotive industry was the most frequently impacted industry, but a narrow margin over the reported incidents that impacted the high tech and life sciences industries.
Geography: In 2015, the majority of supply chain events reported by EventWatch emanated from Asia, followed closely by North America. However, in 2014, North America produced the lion’s share of supply chain events reported by EventWatch.
Seasonality: In 2015, the three most impactful months to global supply chains were December, August, and September/March (tied). December was characterized by an unusual increase in factory fires/explosions, the impact of El Nino (which peaks during winter time), and increased merger and acquisition activity toward the end of the calendar year. August had a rare spike in activity due to the devastating Tianjin explosions and their subsequent disruptions.
Event Severity: Medium potential for disruption events were most common in 2015 and comprised 52% of all EventWatch bulletins, consistent with current supply chain impact research that suggests smaller, more frequent disruptions can be more costly in aggregate than those caused by high-impact, infrequent events. In 2015, medium and low-impact events represented around 90% of Eventwatch bulletins.
While these are only highlights of the report, please check out the full report for trends charts and analyses, data graphs, and a deeper discussion of supply chain risk in 2015.
About the EventWatch Annual Report
For those unfamiliar, the EventWatch Annual Report aggregates, analyzes, and summarizes supply chain event information generated by the EventWatch service. The EventWatch Annual Report helps supply chain risk practitioners, analysts, and executive stakeholders understand global supply chain risk trends through various lenses, answering questions like: Which event types are most common or becoming more common? How does my industry compare to other industries in terms of the number of events experienced? Which regions are impacted the most? What months see the most supply chain disruptions?
Compared to other “Top 10 Supply Chain Event” lists, the Eventwatch Annual Report is uniquely driven by data and focuses on upstream impacts to specific brands, suppliers, sites, and parts, based on calculated value-at-risk. Resilinc’s rapidly expanding supplier repository contains risk information associated with over 80,000 suppliers and 1.5 million parts, and already on-boarded suppliers represent up to 90% of a company’s upstream supply chain. This is in contrast with other publications that provide more qualitative assessments based typically on estimates of damage to public or shared infrastructure, which invariably steers the focus toward downstream/logistics-related disruptions.
In a fiercely competitive global market, demand fluctuations pose on-going supply chain risks and require companies to do more than just invest in better forecasting tools to avoid inventory understock, overstock, and supplier capacity risks. While there are numerous sophisticated tools and algorithms for demand forecasting, more companies are realizing the importance of a supply chain’s design in determining its agility and demand-responsiveness. Consumer demand is volatile and statistical forecasting models have their fundamental limitations. Thus, the question is: how do resilient companies facing uncertain demand organize their operations to respond optimally to unanticipated fluctuations in demand? In this post, we check out three steps your organization can take towards a more flexible, agile, and demand-responsive supply chain.
1. Utilize ‘Range Forecasting’
Since forecasting for a single demand figure can be unwieldy and inaccurate, more resilient organizations are turning to forecasting a range of potential outcomes as a way to prepare for changing market conditions and increase supply chain flexibility. Range forecasts can be used to inform supply contracting terms and contingency plans. By establishing a range of uncertain yet potential outcomes, a company gets a better idea of how to respond when demand is on either the high or low end of the range. With a fleshed out range forecast, companies can be confident that they will sell at least the low end of the range while being as prepared as possible to sell at the high end of the forecast range.
Range forecasting is useful for more than just modeling future demand volume. A company can develop a range forecast for future supply volumes and prices for its variety of products as well. Let’s suppose Company X compiles all the possible outcomes for a new product, then assigns probabilities to each possible outcome that has more than 15% likelihood of occurring. Company X can then develop contingency plans according to these outcomes. By utilizing range forecasting as such, Company X’s planning effectively covers nearly 80% of the possible outcomes, thereby increasing its flexibility and resilience.
2. Establish Flexible Supplier Contracts
Companies can use range forecasts to establish flexible contracts with their suppliers and manufacturers. In addition to aiding process integration, flexible contracts spell out the range of acceptable supplier performance and grant a company the flexibility to ramp production up or down as demand fluctuates.
Flexible contracting allows companies to specify to their suppliers the amount of time it should take for the supplier to ramp up production to meet demand. For example, a company can embed flexibility in its contract by specifying that its suppliers should be able to ramp up production by 50 percent within two weeks and by 100 percent within a month’s notice. Contracts with this level of specificity encourage the supplier to think in terms of multiple demand scenarios.
3. Implement Strategic Multi-Sourcing
Multi-sourcing is a strategy whereby an enterprise chooses to procure a certain component/material from multiple, different suppliers. Unlike single-sourced and sole-sourced scenarios which can be prone to bottlenecks and diminished flexibility in responding to demand fluctuations, companies involved in multi-sourcing can spread demand across numerous suppliers that together would collectively have more capacity. Multi-sourcing leverages the respective strengths and competencies of supply chain network partners to achieve greater responsiveness to market needs.
With an appropriate multi-sourcing strategy, companies can prioritize suppliers according to different stages of the demand range forecast and activate those suppliers when needed. Let’s say Company X manufactures computer monitors at two different plants, one in Calgary and one in Thailand. While its Calgary plant is more flexible, speedier, and closer to the market, the Thai plant has lower manufacturing costs. Company X may assign its more predictable, high-volume manufacturing to the Thai plant while reserving the Calgary plant for the uncertain segment of the demand range. The Calgary plant could be used to satisfy temporary demand surges and be used during a particular product’s end-of-life, a time when demand begins to dry up and grow more uncertain.
4. Automate Supply Capacity Visibility and Analysis
Supplier Capacity Management tools may provide a proactive capacity management system to ensure you have the necessary supplier capacity at a part-level to meet fluctuating demand forecasts. The first step is to map your supply chain and survey suppliers for capacity information (e.g. total capacity, line capacity, allocated capacity, etc.). Analytics on data collected can then focus you on high-risk suppliers and parts based on risk thresholds you define, while alerts, mitigation workflows, and complementary event monitoring services may facilitate on-going capacity management excellence.
Demand variability and inventory planning are fundamental challenges facing supply chain operations and requires strategic supply chain design initiatives. While too much product equates to high inventory carrying costs and product value depreciation, too little inventory can mean lost sales and customers. Considering the limitations and inaccuracies of conventional statistical forecasting models, companies can minimize forecasting errors by designing more responsive and agile supply chains through range forecasting, flexible contracting, strategic multi-sourcing, and tools to gain visibility to supplier capacity and manage risks in a more proactive and responsive way. While the aforementioned steps are by no means an exhaustive list of the ways a company can foster a demand-responsive supply chain, they bolster an organization’s strategy to ensure supply is synchronized with the peaks and troughs of demand.
In the wake of major disasters and crises, many supply chain, procurement and finance executives think about things they can do to be better prepared and more resilient before the next big crisis comes their way. As a result, risk assessments, quantifications, and supplier evaluations are often conducted as limited duration, project-based, response-level measures. However, supply chain resiliency is not a limited duration, project-based exercise. It is a strategic long term priority and requires commitment from the very top level of an organization, down to individual contributors with key roles throughout the company.
As any supply chain or procurement practitioner will agree, we are in a fast paced, risky, and highly dynamic global supply chain environment. Short lifecycles, rapid innovation cycles and product proliferation mean that any project-based risk management effort can be outdated from the day it is kicked off. Let’s say you create a simulation model and populate it with data about components, suppliers, product revenues, and global dependencies. The chances are that within the 6 months it takes to get the model built, populated, functional, and able to provide insightful results, the reality on the ground has already shifted. To add to the complexity, suppliers themselves can change their parts/raw materials and manufacturing locations without due notice.
Fostering a Culture of Resiliency in your Enterprise
Supply chain resiliency is a journey that starts with a commitment at the highest level and trickles down the layers of the organization over time. To be successful, the resiliency focus must permeate throughout the culture of an enterprise.
The resiliency culture of an enterprise is influenced over time by stacking 5 elements: information, analytics, tools, processes, and incentives. Incentives tied to critical processes keep these elements in motion. Building on a foundation of supply chain visibility information enables an organization to develop a set of analytics that help to quantify risks and expose critical vulnerabilities in the supply chain. Analytics for resiliency are primarily centered on revenue impact and risk scores. These two key metrics provide the best way to expose weakest links in an organization’s supply chain, revealing deeper insights into strategic vulnerabilities hidden throughout the supply chain.
For a resilient enterprise culture, information serves as a solid foundation for supplier visibility, feeding into an analytics platform grounded in revenue impact and risk scores. A tool can then bring the analytics together and deliver meaningful insights at people’s fingertips – a complete resiliency-related decision support system that gleans key insights quickly and enables risk optimized decisions. Processes are put in place to track risk mitigation and resiliency related progress over time, topped with incentives to ensure that processes are followed and rewards are in place to recognize achievement.
The process and incentives discussion itself is a lengthy topic. But in my opinion, these five ingredients together determine culture, and a resilient culture cannot be attained overnight or within 6 months. In order for an organization to be resilient from the inside-out, a multi-year commitment at the top level is imperative. CXO level briefings on risk management, centralized strategy development tied to incentive programs for resilient choices, and rewards tied to successful risk mitigation help an organization shift from being an ad hoc decision making body to one where risk information is readily available and people are willing to consider risk as a key input into their sourcing, manufacturing, inventory, offshoring, outsourcing, and make vs. buy decisions.
Reward and Incentivize Resilient Choices
When an enterprise averts a disruption that hits its competition, the good news is usually attributed to luck. However, I say that it should be attributed to a resilient choice someone made at some point. Think about it – you held more inventory, you second sourced that high-risk part, you spent more money near shoring or gave up some cost savings in exchange for redundancy! Consider analyzing why you weren’t disrupted and make a reward program for the team involved – a sure way to capture people’s interest in making more resilient choices. Usually, we reward the person who saved the day buying up inventory at 300% premium and expedited freight to get product out to customers – all at the expense of profitability. I’m not saying we shouldn’t take these types of recovery measures, but that we stop rewarding the last minute diving catches, and instead reward proactive resilient choices.
Ultimately, we take the risks that are essential to our businesses. However, with the above approach, we can take those risks intelligently without completely crippling our resiliency. We can strategically invest in protecting those critical, fundamentally exposed areas of the business so that when the next crisis approaches, we are better equipped, better prepared, and able to respond faster or avert disruption altogether.
Bindiya Vakil is CEO and founder of Resilinc and is a recognized thought leader in the area of supply chain risk management. She has been a practitioner in high-tech supply chain management with companies including Flextronics, Cisco and Broadcom. Ms. Vakil has a master’s degree in supply chain management from MIT and an MBA in Finance. She is a published author and frequent speaker at top supply chain conferences and universities on the topic of supply chain resiliency. Ms. Vakil’s concept of “Design for Resiliency” is being widely adopted as a best practice in the industry.
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