supply chain

Can You Take the Risk?

by Lora Cecere on April 11, 2014 · 0 comments

“This is not a supply chain process. It is a new way of doing business.”

Financial Leader in Discussions on Demand Sensing

In 2013, 80% of supply chain leaders had a material supply chain disruption. It was not just one. The average company had  three. Yet, in a study that we just completed, when asked about business pain, supply chain risk rates low. How come?

It is new.  It lacks a consistent definition and set of practices. Companies reward the urgent. Risk management requires a focus on the important. It requires leadership and orchestration. Teams don’t know what to do. The companies that are the most mature learned the hard way. They had a disruption.

Defining the Topic

Let’s start with a definition. For the purposes of the study that we just completed, we defined supply chain risk management as the proactive identification and resolution of potential risks to the supply chain. The key word in this sentence is proactive. Unfortunately, too many supply chains are reactive. The systems respond, but they do not sense. Performance is measured by indicators, not by performance predictors. The reward systems focus on the urgent, not the important.

In this series of posts, I will be sharing insights from the research from this recent study. This data will also be featured in an upcoming report in our newsletter.

New Insights

When you talk to supply chain leaders about risk management, their answers tend to be hard-wired for supply. Many will wax eloquently about the work that they are doing on “control tower” or “supply chain visibility.” It is not sufficient. We are only dipping our toes into turbulent waters.

I have been working as an analyst in supply chain management for the last decade. In this role, I have done a study on risk management about every five years. I seldom get surprised on study results; but, the answer to the question on risk drivers in this survey surprised me.  As you can see in Figure 1, today it is less about supply and more about demand. The largest gap in risk management expected over the next five years will be the management of global operations. For me, these two trends hop off the page:

  • Increasing Complexity of Operations. With a decade of building global supply chains behind us, companies are feeling the impact. Local regulations, fair labor, variability in shipping lanes, new materials, outsourced manufacturing and faster product development cycles are all contributing to the pain. The financial stability of contract manufacturers and third-party logistics firms is a growing risk. It is not just one factor. We are better at managing regional supply chains than tangled/knotty global ones. The organizational dynamics and politics make regional/global governance difficult.
  • Demand Variability. The biggest surprise for me in the research is the role of demand uncertainty on risk. The building of demand sensing capabilities requires the automation of market sensing and the use of channel data. The change management issues are high. It is difficult for the supply chain to accomplish this by themselves. Why?  The term “supply chain” is politically charged. It has become a function, not an end-to-end process.  Marketing and sales are also functions. The functional approach does not allow us to build demand processes. By and large, marketing and sales are not good at forecasting demand. They introduce bias. To combat this issue, and drive success in demand sensing, many companies have to rename the work stream so that it can truly be an end-to-end focus. For sales-driven and marketing-driven companies, this is a major change management issue.

 

Figure 1.

Supply Chain Risk Drivers

So, What Should Companies Do?

Recognize the Issue. Simplify OperationsThis includes simplification of the product lines and the definition of standard ingredients and/or interchangeable parts. Our research supports that getting this on the product development agenda is a barrier. Mitigating this risk issue requires striking the right balance between global and local governance. There is less variability in the management of regional supply chains. Accountability and priorities are clearer.

Use Channel Data and Build Demand Sensing Capabilities. Reduce demand latency and automate the processes of demand. I work with many companies on the differences between marketing-driven and sales-driven processes and the journey to become market driven. When marketing and sales operate as functions, they are not aligned to more holistic end-to-end processes. This is growing as an enterprise risk.

Focus Where It Matters. Yesterday, I hosted a webinar with David Simchi-Levi of MIT. He has defined a Risk Index which analyzes the Time for Recovery and the Financial Impact (FI) to analyze the risk of the supplier base. It is a great technique to use in supplier development and network design.  For those interested, check out David’s recent article on Harvard Business Review. His work with Ford is profiled in Figure 2. After the analysis of Ford’s supplier base, David offers recommendations and actions that are shown in figures.  However, to use this methodology requires the organization to be proactive. In the Ford example, the greatest risk was with a tier 2 supplier of O-rings that had low spend. David’s methodology is a stark contrast to the conventional work on supplier development and network design. In the conventional approach, companies would look at the suppliers with the greatest spend and miss the impact on the tier 2 suppliers with low spend. David’s point in the webinar is that you have to be focused and deliberate. Ford has 5,000 suppliers. It is not a simple activity. It requires work. However, based on the results of the study, it is worth it.

 

Figure 2.

Chart by David Simchi-Levi

 

The slides from the risk management webinar are now available on SlideShare. Check them out. We will be doing complimentary webinars twice a month in a countdown to the Supply Chain Insights Global Summit. In this event on September 10th-11th, 230 supply chain leaders will gather to focus on the supply chain of the future. With the coalescence of digital manufacturing, new forms of analytics, The Internet of Things, and the collaborative economy, we think that it is time to re-think supply chain practices and imagine what it could be. Today, 45% of the seats are sold. It is limited to 15% technology and consulting attendees. We would love to see you there.

 

 

Happy Holidays!

by Lora Cecere on December 10, 2013 · 0 comments

The snow is falling outside my window. It is the quiet, steady kind that mounds on the window sill… a strong signal for me to relax and enjoy winter.  I want to light a fire and curl up on the couch with a good book. I am a voracious reader. I think that this is one of the reasons why I love to write.

Three months ago, one of my clients asked me to help him out. His name was Tom. His request was, “Could you please publish collections of your blog posts? You write so much that I cannot keep up. And, the blog format makes it tough to read old posts.”  It is for this reason that I published the second Supply Chain Shaman’s Journal today. It is a collection of my favorite blog posts on supply chain leadership.

The Supply Chain Shaman blog is now four years old. Deep in the bowels of WordPress there are many, MANY posts. Over the course of the next year, we will be bundling these by theme and pushing them out. They will first publish in a pdf format; and over time, they will be available in a digital format for your ereaders.

I also had a request by Joe. He is another of my loyal readers, but he lacks the time to read. Joe asked, “Lora you write so much, and I have SO LITTLE time. Can you produce a series of podcasts so that I can stay up-to-date by listening to the insights through podcasts?” We responded to Joe also. Today, we have 65 podcasts that are available on iTunes. We are publishing 7-9 per month and hope to have over 150 by the end of 2014.  Over 85% of these podcasts are our interviews with supply chain leaders. Our goal is to serve the community. We want to make our research the fabric that helps supply chain leaders reach new levels of corporate performance.

So whether you are Joe or Tom, we have an option for you to learn more about supply chain leadership on this snowy day. I find that business slows down the last two weeks of December, and that it is a great time to reflect. So whether you want to read our now more than 40 reports, or check out our new infographics, or read our two journals, or listen to our 65 podcasts, we want to serve you in the way that you want to learn.

What Have I Learned about Supply Chain Leadership?

As I put together the Shaman’s second journal, it was a great time to reflect. I had not read many of these posts for four years. The journal is 33,000 words and over 80 pages. It will take you some time to digest. So, let me give you the short version:

  1. Most companies are stuck on delivering supply chain performance because they have defined supply chain too narrowly as a function. Less than 1% of companies have defined a leader to focus on end-to-end processes. The opportunities for the company lie in the cracks between the functions.  A good leader develops influence skills to be able to guide the company to seize the end-to-end opportunity.
  2. One in three companies has a supply chain center of excellence, but only  50% are effective. The issue is the lack of alignment and definition on an operating strategy. In the journal, I focus on how to remedy this issue.
  3. Talent is the missing link for most organizations. The issues to develop and retain talent are growing. The average planning job is open now for five months and 19% of companies have an opening in supply chain planning.
  4. Supply chain performance is about strength, balance and resiliency. It takes discipline and a focused program. It can only be measured in inches, not miles. Companies that have outperformed peers have had an unwavering focus against a strategy.
  5. Leaders design their supply chains and take responsibility for it end-to-end. In the words of one interview that I did this week, “In the last decade, many of us outsourced our supply chains. We hired contract manufacturers and third-party logistics providers; however, we cannot outsource the responsibility. I have to own the fact that I lengthened payables and passed bad forecasts to suppliers increasing costs and waste in the supply chain. I need to be a better partner. My team needs to do the tough work.”

Have a great holiday! Curl up and enjoy our content. Both the journals and the podcasts are available on our Supply Chain Insights website. And, if you have a great idea for us like Tom or Joe did, please send it our way!