Building a resilient Supply Chain
5 May 2008If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Building a resilient supply chain is a report (freely available) published by Marsh (MMC) which focuses on supply chain risks as assessed in a free wheeling interview with a panel of six experts.
Karen Avery : National practice leader for Marsh’s Business Continuity Risk Management Practice.
Chris de Wolfe: Risk manager at Mars Incorporated, one of the worlds leading food manufacturers.
Diane Foley: Director of mission assurance at BAE Systems, a leading defense contractor.
Scott Warren: Managing director with Kroll Business Intelligence and Investigations.
Thierry Brevet: Mercer Investment Consulting on growing concerns of shareholders related to environmental risk.
Rosaline Chow Koo: Asia business leader for Mercer HR Consulting
Three primary Supply Chain risks are highlighted:
- First, clients are struggling to efficiently and effectively manage the risk of complex and interdependent supply chains.
- Second, insurance doesn’t fully manage the risks, meaning that much risk is retained more so than in the past especially for tier-two, tier-three, and tier-four suppliers.
- Finally, taking on some of this risk used to be an accepted practice, but now it represents a material exposure. And the activities to mitigate this risk now represent the potential of a material investment.
However, I didn’t remember when this turn of events came about:
Traditionally, a supply chain was defined as a network of internal and external resources that performed three main functions procuring materials, transforming the materials into intermediate and finished products, and distributing the finished products to customers and consumers. Over time, organizations have narrowed the definition to where "supply chain" refers more specifically to managing the primary suppliers responsible for the key inputs into a product or service. The definition has become much less focused on the end-to-end process and the upstream and downstream risks in the extended supply chain that involve creating value for customers.
Something did happen along the way but perhaps not in a change in the manner of realization of what a supply chain truly is. Or what it became? The "transforming the materials into intermediate and finished products" step doesn’t reside in the stateside supply chain anymore- it, largely, went overseas. Therefore, it became an imperative in the supply chain to manage that overseas transformation function as well as the larger inventories all over the place.
Thus,
Speaking in terms of the risk-intelligent supply chain is our way of avoiding that more narrow definition. We are reestablishing the original intent of the definition of supply chain for the end-to-end process from raw material source to the ultimate consumer"farm to fork."
recasting the fact of outsourcing/offshoring in terms of a risk-intelligent supply chain does really nothing about returning to an earlier concept of the supply chain - an important part of the supply chain has been outsourced - perhaps, even commoditized for many industries. In my humble opinion, what risk management should really be about is realizing the impact that globally stretched and tightly constrained supply chains present in the face of disruptive events (terrorism, pandemics etc) and exposure to economic agendas of several nations housing pieces of the supply chain and myriad market inputs (oil, port capacity, transportation lanes etc)? It is a distraction to think that a risk informed supply chain is a return to a truer concept of the supply chain.
I’ve always contended on this blog that offshoring/outsourcing multiplied risks dramatically (which was never truly appreciated at that time), trading off burgeoning inventories (which will remain at a much higher level regardless of any and every effort at efficient allocation) against lower unit costs while they last. But that’s what we have right now. That said and recognizing it as being one of the primary causes, secondary effects have accompanied it such as trade deficits, consolidation and growth in aspects of the supply chain such as transportation as providers have to integrate from the end point (stateside) to the source (overseas production points), an increase in the demand for oil etc. These are the macro-level changes that affect every supply chain and within each supply chain lie a set of micro-level priorities that need to be addressed.
One of the industry based contributors to this report is Chris de Wolfe who is a Corporate Risk Manager at Mars Inc. One of the items on his plate is global business continuity initiative. But here is something interesting about how the talk of risk management meets the road:
GL: I imagine you have hundreds of suppliers. How do you ensure that these suppliers are prepared for any of the numerous catastrophes that can occur?
CDW: Its actually one of our key challenges. Because of all the work we’ve done with Marsh, Im pretty confident that everything under our own roof. But outside of our own operations, we rely on contractual relationships. One of the functions that we rely on specifically is our vendor-assurance process. Managers in this function essentially do a comprehensive business impact analysis for each of the vendors we work with, whether they are raw materials suppliers, or packaging suppliers, or distributors. With the output from these business impact analyses, were able to assess which of the vendors or business partners need to perform a thorough risk assessment.
Its a good process. It works very well. But it is very reliant on the managers who are involved. And therefore, were going to develop a checklist for these vendor assurance managers so we can get a much better idea of what kind of shape our suppliers are in and what sort of preparation they have in place.
The fact of the matter is that a firm’s supply chain is only as good as the talent it brings to bear upon the problem (if the firm has outsourced a particular function - then by extension, as good as the talent the firm has outsourced that function to). Risk Management for the supply chain, as illustrated here in this report, is not a formulaic concept that can be readily applied anywhere, even the processes that bear application require a Plan->Do->Check->Act (PDCA) approach. Much of what can be found under this heading of RISK has been addressed in the annals of Quality Management, methinks, but protecting Intellectual Property and Business Continuity, which the report delves into in some measure are contributions to a firm’s critical task of Quality Management, something that has to be revisited in the age of Outsourcing/Offshoring. Just when you thought that you had a handle on all things Quality stateside, you’re called upon to revisit this same topic overseas.
HT: Ehsan @ Supplychainer.com - New Supply Chain risk management study by Marsh
Tags: Risk Intelligent Supply Chain, Marsh Risk Report, Supply Chain Resiliency, Building a Resilient Supply Chain
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