Author Archives: Teddy Nee

Supply Chain News: Ford Takes New Approach to Supplier Risk Management

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Supply Chain News: Ford Takes New Approach to Supplier Risk Management

Both general trends and a series of recent events have more and more companies concerned with supply chain risk management.

Research has shown the impact of supply chain disruptions on a company’s share price,market share and/or brand image, for example.

In addition, a series of natural disasters and events, most notably the 2011 earthquake and tsunami in Japan that seriously hampered production at Toyota for months and impacted much of the rest of the global automotive supply chain as well, forced many companies to realize they had major risks in their supply chain of which they were not even aware, let alone had plans on how to mitigate those risks.

Major flooding in Thailand that seriously impacted the high tech supply chain, a volcano in Iceland that caused problems for hundreds or thousands of countries, turmoil in parts of the Middle East – all these and more focused companies on the need for better and deeper risk management strategies.

But there major challenges. How can companies mitigate risks such as natural disasters, or factory damage that simply cannot be predicted or modeled – the “unknown unknowns?”

And what level of investment makes sense to mitigate a given risk, or a series of risks combined? There aren’t many tools available for that, as most companies used a two-by-two type matrix, with likelihood of occurence (low and high) along one dimension, and level of business impact along the other.

The “high-high” quandrant was obviously the one that needed the most attention, and the “low-low” section the areas that could probably be ignored, but what about the other two “low-high” combinations? How much focus should they receive?

And even for the “high-high” areas, you are led back to the question of how much to invest in mitigation, and the lists of risks usually leaves out the tough “unknown unknowns,” naturally enough.

In 2012, Dr. David Simchi-Levi of MIT came up with a model and approach to answer these and other tough risk management challenges. Using what he calls the Risk Exposure Index (REI), the tool enables companies really for the first time to quantify the risks in their supply chain, especially those stemming from the unknown unknowns, such as natural disasters, factory fires, etc.

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5 top-of-mind matters for supply chain risk management

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5 top-of-mind matters for supply chain risk management

Former vice president and general counsel of GE Oil & Gas Kenneth Resnick discusses top-of-mind supply chain concerns for compliance officers

For large multinational companies, the supply chain can be one of the most critical risk areas. It is, after all, where the money is. As companies engage with vendors and subvendors, they have certain responsibilities up and down the chain. They have their own business and reputational interests to protect, but they also have a responsibility to the communities they affect. Inside Counsel recently spoke with Kenneth Resnick, president of ATRQ Global, an ethics and compliance consulting firm and former vice president and general counsel for GE Oil & Gas about supply chain risk and how to manage it. Click through the slideshow to see his advice.

Biggest concerns

Resnick feels there are four major areas of concern for compliance officers concerned about supply chain issues:

  • Conflicts of interest – kickbacks, fraud and the like
  • Corruption – moving people and things across borders, skirting customs and immigration issues
  • Reputational concerns – human rights issues, environmental health and safety matters and working conditions
  • Data/tech transfer issues – dealing with suppliers that have to transfer data back and forth, risking IP, trade secrets and personal data

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Where are Investors Placing their Supply Chain Bets for the Next Five Years?

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Where are Investors Placing their Supply Chain Bets for the Next Five Years?

When practitioners think of the advances that have been made in supply chain management, we tend to think about people, processes, and technology. We tend to forget how important the financial community is in terms of accelerating the development of new technologies and even the wider supply chain environment we inhabit.

The Council of Supply Chain Management Professionals (CSCMP) had a roundtable on this topic. The two financial panelists were Dave Anderson, the Managing Director at Supply Chain Ventures, and David Beatson, the CEO at Ascent Advisors. Both Supply Chain Ventures and Ascent Advisors are active players in the world of supply chain management venture capital. Supply Chain Ventures is an early stage investor, Ascent Advisors is late stage.

Early stage investors, known as angel investors, are looking for companies with $100 million is exit potential. Their investment horizon is one to ten years. Their due diligence involves looking for fatal flaws in a firm’s business model or weaknesses in the executive leadership. Only 10 to 20 percent of the investments make returns above what was invested in them. Making money in this game is about the small number of firms that are paying back ten times or more what was invested in them. The exit strategy involves an Initial Public Offering (IPO), the firm going bankrupt, or best case scenario an outside investor buys the company. Being an early stage investor takes strong nerves. In the event of bankruptcy, not all that uncommon in young companies, all assets get exposed, including the assets of investors.

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5 Solutions For Supply Chain EHS Performance Neglect

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5 Solutions For Supply Chain EHS Performance Neglect

The need to manage environment, health and safety (EHS) performance across our organizations and throughout our global plants has never been more apparent. While considerations of EHS performance were once limited to one organization’s performance within its four walls, things have changed. The increased reliance on supply chains extending across the globe, the visibility and traction afforded by online communications and social media, and the growing need to improve and report on end-to-end sustainability performance are compelling businesses to account for EHS performance across their supply chain.

As EHS regulations and best practices become more comprehensive and expansive, we’re seeing a new imperative in managing EHS supply chain performance. No longer is it acceptable to simply manage EHS performance within your own organization. And a number of high-profile examples in recent years have helped illustrate this trend. However, many global manufacturers are still grappling with how to extend EHS performance visibility beyond their organization and across their supply chain.

Five Ways to Improve and Integrate Supplier Performance

So, how do we proactively account for the possibility such adverse events will arise? We need to extend EHS capabilities across our supply chains.

1. Implement progressive policies that extend across the supply chain

As a global manufacturer, you may be dealing with a wide range of different levels of EHS regulations across various regions and jurisdictions around the globe.

2. Appoint an EHS and/or sustainability champion

Just as an internal EHS executive would champion exemplary EHS and sustainability performance within his or her own organization, this individual also ought to be afforded the power to apply similar requirements and accountability mechanisms across the supply chain.

3. Build a robust supplier EHS review process

Reviewing supplier EHS performance is not a new thing, but it tends to take a back seat to managing EHS performance internally.

4. Extend risk management capabilities across the supply chain

If you have risk-based capabilities built into your internal EHS performance programs, consider extending the risk frameworks you apply internally across your supply chain.

5. Drop suppliers that underperform

It’s tough medicine, but just as executives boot key members of their leadership team when a scandal arises or when systematic deficiencies persist, making an example of suppliers that underperform on the EHS front will show you’re serious about EHS

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Balancing Financial Settlement and Inventory Levels Remain Key Concerns For Supply Chain Managers

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Balancing Financial Settlement and Inventory Levels Remain Key Concerns For Supply Chain Managers

U.S. companies made only marginal improvements in their ability to collect from customers and pay suppliers in 2013, while showing no improvement in how well they managed inventory, according to the 16th annual working capital survey from REL a division of the Hackett Group, Inc.

“For inventory, the global marketplace has made issues like demand planning more important than ever before,” says Analisa DeHaro, Associate Principal for REL. “Companies need to factor in lead times that may not have been an issue when manufacturing was done closer to home. The best companies are becoming more savvy about this, and are more effectively balancing the various elements of inventory management.”

The amount tied up in excess working capital at nearly 1000 of the largest public companies in the U.S. is over a trillion dollars, according to the REL research.

The U.S. economy was slow but stable, with gross domestic product increasing by 3.2 percent in 2013. But at the same time, the REL research found that gross margins decreased by 0.3 percent, indicating that companies are spending more internally to generate revenue.

The researchers also found that companies are continuing to borrow, using low interest rates to improve their cash position, with cash on hand increasing by 12 percent, or $110 billion. At the same time, companies continued to ramp up capital expenditures, which have risen by 43 percent over the past three years.

The value of total net working capital rose by 3.2 percent in 2013, and days working capital improved by less than 1 percent. While days sales outstanding and days payable outstanding improved only slightly, days inventory on hand showed no change at all.

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Counter-measure Offers Cyber Protection for Supply Chains

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Counter-measure Offers Cyber Protection for Supply Chains

The supply chain is ground zero for several recent cyber breaches. Hackers, for example, prey on vendors that have remote access to a larger company’s global IT systems, software and networks. In the 2013 Target breach, the attacker infiltrated a vulnerable link: a refrigeration system supplier connected to the retailer’s IT system.

A counter-measure, via a user-ready online portal, has been developed by researchers in the Supply Chain Management Center at the University of Maryland’s Robert H. Smith School of Business.

The CyberChain portal is based on a new management science called “cyber supply chain risk management.” It combines conventionally-separate disciplines cybersecurity, enterprise risk management and supply chain management.

Funded by the National Institute of Standards and Technology, the UMD researchers developed the formula, in part, after surveying 200 different-sized companies in various industries.

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Companies need to realise the benefit of supply chains, says Professor Jan Godsell

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Companies need to realise the benefit of supply chains, says Professor Jan Godsell

We are all more involved in the supply chain industry than we might think. The products we buy and the places we work can all have some sort of impact on supply chains. We all contribute in some way, and in order to develop good practices in supply chains it has to start with leadership at the top.

Dr Jan Godsell, pictured, professor of operations and supply chain strategy at WMG, University of Warwick, is an expert in this field and has developed supply chain strategies in a number of FTSE 100 companies. She recently spoke at Business Reporter’s Supply Fest 2014 event on how to strategically align your business to get the best results in your supply chain.

“In the UK we talk about the economy being service orientated,” she tells us when we catch up with her post-summit. “People do not realise 80 per cent of our population work in the supply chain. Whether you are a farmer producing food or you work in a factory, have a lorry that moves the food or you’re working in a store to distribute it, that is all helping to feed the nation. Supply chains have an omnipresence that people do not realise.

“The more we can do to help raise the visibility of supply chains and help people understand how they contribute to that positively – not just to the UK economy, but also the European and global economies. That will really help to inspire people to work within it.”

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Supply chain management is gaining focus in China

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Supply chain management is gaining focus in China

We attended the Supply Chain Executive World Summit in Shanghai in September and were struck by the recent advances in supply chain management (SCM) in China. Not so long ago, in our line of work, we had trouble getting Chinese businesspeople to consider the SCM body of knowledge and how their enterprises could benefit by applying it. Now, it is quite clear that the tide has turned.

Until recently, it seemed to us, the typical Chinese business person was more worried about increasing capacity and simply satisfying demand through brute effort. Few took the time to see how SCM principles and practices could help them satisfy demand, nor were they worried about achieving cost reductions. Given the prevailing correction in the Chinese economy, they are becoming more thoughtful about such matters.

The key in retail is SCM.

China is ideal for e-commerce because there is a huge population and traditional retail is not as developed as in other large countries.

Business to Consumer (B2C) is developing the most quickly for Yihaodian, which has built good credibility in the field, while the mobile internet is enabling shopping anywhere, anytime.

Via e-commerce, the company can cover the whole country 24/7, with limitless storage and offerings. In future, with mobile, it will be able to penetrate more third- and fourth-tier cities.

The “internet of things” will drive people more and more to e-retail, cloud services, online finance, market segmentation and personalisation.

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Unleash Pixar-like Creativity in Your Supply Chain Management Organization

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Unleash Pixar-like Creativity in Your Supply Chain Management Organization

I recently read “Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration” and it got me wondering about creativity within supply chain management organizations. There’s obviously a level of ‘magic’ at Pixar, for them to be able to create 14 No. 1 movies in a row. Evidence that the principles they’ve developed has merit is easy to see as Disney Animation Studios, led by Pixar’s Ed Catmull (President) and John Lasseter (Chief Creative Officer), has now started producing blockbusters again (e.g. Frozen, the top-grossing animated film of all time, surpassing the $1.063 billion earned by Toy Story 3) after a long period of so-so animation movies.

I’m always curious if success in one area/industry can be translated to generate similar success in other areas/industries. In this case I do believe there are learnings that can be applied to supply chain management.

So what makes Pixar so creatively successful? How do they get from a movie that “sucks” to a blockbuster? And more importantly, can supply chain management leverage these learnings?

What do you think about cross-industries strategy? Do you have other example? Share with us in the comment box.

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Managing the Financial Supply Chain

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Managing the Financial Supply Chain

Manufacturers devote considerable time and resources to managing their physical supply chain, but often it’s their financial supply chain that needs the most attention. As costs continue to escalate, managing cash and capital is just as important as managing relationships among supply chain partners. And in many cases, the integration between the physical and the financial supply chain is such that any weak links in one of the chains will threaten the vitality of both chains.

By way of definition, “the financial supply chain refers to the transactions that occur between trading partners that facilitate the purchase of, and payment for, goods and services, such as sending purchase orders and invoices, and making payment,” explains Scott Pezza, senior research associate with analyst firm Aberdeen Group.

Just as finance involves much more than just “bean counting,” the financial supply chain represents the actual lifeblood of an organization, as it provides the cash flow needed to ensure the doors are kept open, the lights are kept on, the employees are being paid and products are being made and shipped.

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