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The future of supply chain risk management

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The COVID-crisis has prompted a period of introspection as organisations question how to best structure their supply chains and manage their risk

Trends towards global sourcing, mobile warehousing, just-in-time production and lean manufacturing have created supply chains that are highly optimised, but also increasingly complex. When things are going well, this means cost-effective operations, less waste and companies can react flexibly and in an agile way to customer demands.

However, these trends also expose the supply chain to new, sometimes hard to recognise risks. And when there is interruption, the complexity of these supplier systems and the immediate nature of production can mean businesses are suddenly facing significant disruption with immediate impact to bottom lines, or even market share and reputation.

For instance, when governments imposed lockdowns to curb the spread of coronavirus, many firms found that manufacturing ground to a halt as the transportation of goods was interrupted. Where once a business was likely to have spares and back-ups in warehouses, just-in-time practices mean that many businesses are now left without access to the services or parts they need to operate.

Shifting sands

The uniquely volatile business environment of the past year has brought to the forefront of the business agenda the supply chain vulnerabilities they face. For some, this could signal a change in practices in the future to increase supply chain resilience – whether that’s looking at near shoring and onshoring, reintroducing back-up stock in warehouses or installing alternative production sites.

Kocher said: “What’s changing is how risk managers, management and insurers alike recognise and factor supply chain risk into their decision-making. With more and more severe supply chain interruptions materialising, businesses have started to reconsider certain aspects, such as having suppliers nearby to eliminate certain risk factors from their business activities.”

The role of risk engineering

As organisations continue down the path of introspection and question how to best structure their supply chains and manage their risk, it becomes ever-more crucial that risk managers understand the full extent of the vulnerabilities in their own production process. Kocher believes that risk engineering plays an increasingly key role in this process.

“One of the key value drivers is to understand your supply chain and the assumptions you are making about it in case of disruption. This may sound trivial, but it is a fundamental condition to be in place before conducting impact assessment, quantification, deciding on the mitigation strategy and implementing mitigation measure. A structured approach to ensure adequate understanding in sufficient depth is critical. ”

Empowering better decisions

Often, when a company considers key or critical suppliers, it is examining its supply chain with a financial lens, or with a strong focus on individual business sections. A realistic company-wide, impact-oriented view, underpinned with decades of actual loss experience, supports the identification of key exposures which may otherwise go unnoticed.

Kocher concludes: “There is no one perfect way of managing supply chain risk. The risk engineer brings to the table a wealth of experience of what the process could look like, and is able to pick up the individual client where they stand in their supply chain risk management journey, with the goal of bringing them further towards a comprehensive supply chain risk management adapted to their specific needs.”

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Future-proofing the supply chain

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Future-proofing the supply chain

Future-proofing the supply chain

Supply chains matter. The plumbing of global commerce has rarely been a topic of much discussion in newsrooms or boardrooms, but the past two years have pushed the subject to the top of the agenda. The COVID-19 crisis, postpandemic economic effects, and the ongoing conflict in Ukraine have exposed the vulnerabilities of today’s global supply chains. They have also made heroes of the teams that keep products flowing in a complex, uncertain, and fast-changing environment. Supply chain leaders now find themselves in an unfamiliar position: they have the attention of top management and a mandate to make real change.

Forward-thinking chief supply chain officers (CSCOs) now have a once-in-a-generation opportunity to future-proof their supply chains. And they can do that by recognizing the three new priorities alongside the function’s traditional objectives of cost/capital, quality, and service and redesigning their supply chains accordingly.

The first of these new priorities, resilience, addresses the challenges that have made supply chain a widespread topic of conversation. The second, agility, will equip companies with the ability to meet rapidly evolving, and increasingly volatile, customer and consumer needs. The third, sustainability, recognizes the key role that supply chains will play in the transition to a clean and socially just economy.

Boosting supply chain resilience

Supply chains have always been vulnerable to disruption. Prepandemic research by the McKinsey Global Institute found that, on average, companies experience a disruption of one to two months in duration every 3.7 years. In the consumer goods sector, for example, the financial fallout of these disruptions over a decade is likely to equal 30 percent of one year’s EBITDA.

Historical data also show that these costs are not inevitable. In 2011, Toyota suffered six months of reduced production following the devastating Tohoku earthquake and tsunami. But the carmaker revamped its production strategy, regionalized supply chains, and addressed supplier vulnerabilities. When another major earthquake hit Japan in April 2016, Toyota was able to resume production after only two weeks.

During the pandemic’s early stages, sportswear maker Nike accelerated a supply chain technology program that used radio frequency identification (RFID) technology to track products flowing through outsourced manufacturing operations. The company also used predictive-demand analytics to minimize the impact of store closures across China. By rerouting inventory from in-store to digital-sales channels and acting early to minimize excess inventory buildup across its network, the company was able to limit sales declines in the region to just 5 percent. Over the same period, major competitors suffered much more significant drops in sales.

Supply chain risk manifests at the intersection of vulnerability and exposure to unforeseen events (Exhibit 2). The first step in mitigating that risk is a clear understanding of the organization’s supply chain vulnerabilities. Which suppliers, processes, or facilities present potential single points of failure in the supply chain? Which critical inputs are at risk from shortages or price volatility?

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The future of supply chain management is AI and Data

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The future of supply chain management is AI and Data

The future of supply chain management is AI and Data

Because enterprises are like organisms in an economic ecosystem, the principles that enable a healthy biological ecosystem are, from a physical, chemical and informational perspective, identical to those that enable a healthy business ecosystem and that ensure the survival of members of that business ecosystem. Value is created by solving problems through the application of information and creativity. By speeding the information flows and reducing inefficiencies, we are equipping our part of the bigger picture to operate effectively, adapt quickly and evolve to meet competitive threats and exploit opportunities in the environment.

Supply chains are a crucial and complex part of the information flowing in this ecosystem. They are an intricately structured and variable system that is highly sensitive, with many possible outcomes based on even minor changes in the initial conditions or components. Supply chains feature a large collection of interacting components that are difficult to understand or examine due to their design and operations. And they represent a system in process, changing and developing over time.

It’s critical to think holistically about the information ecosystem as you prepare the digital representation of various stages of product design and development. Even a product designed in isolation from other systems and groups—whether in a specialized department or in a separate contracting organization—is still part of an information ecosystem. Information that may be inconsequential to the group that is creating the product, such as an obscure material specification that has no immediate value, will likely have value either downstream (perhaps to a distributor or engineering group) or upstream (perhaps to a procurement manager or supply chain manager).

Too often, these unseen dependencies and information relationships are neglected, and the impact of this neglect can be significant. If a piece of data that will be needed when assembling or distributing a future product is not captured, is lost or is incorrectly represented, the cost of remediation is orders of magnitude larger than that of addressing the data need at the source.

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Reducing logistics costs by enabling a pull-based, vertically integrated supply chain through IoT

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The traditional supply chain model often used in retail distribution is outdated and broken. Customers want more and they want it now but businesses’ inability to step up to the mark can leave customers waiting for product or worse – not waiting and going elsewhere. To match modern customer expectations, business needs to adopt modern methods. Changes of this type are far from easy, however, IoT could hold the key to unlocking the supply chain of the future.

Thanks to the rise in on-demand services and almost anything you want being just a click away, consumers are becoming more and more demanding. In sympathy with this, commerce and industry are responding by doing everything they can to improve the customer experience and get an edge on the competition.

In the best case scenario, the customer will wait for the goods to become available and purchase anyway; in other cases, the customer will shop elsewhere or even give up on the purchase altogether. It’s all too familiar a story and it’s as old as the concept of commerce itself. However, it doesn’t have to be the case. With a combination of IoT (Internet of Things) technology and vertical integration of the order process, businesses can achieve a leaner supply chain and ultimately say goodbye to the phrase, “out of stock”.

The supply chain as we know it

In a traditional supply chain model, the process typically begins with the manufacture of a product. For this to happen, the manufacturer will need to create a bill of materials for the product and order enough raw materials from their suppliers to make enough of the product to meet consumer demand. For this to happen, the raw materials suppliers need to have enough stock themselves to fulfil the order. If this doesn’t happen, production could be delayed which could lead to a lack of stock at the retailers.

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How Robotics Take the Supply Chain to the Next Level

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We all expected advanced robots to have a disruptive effect on industry — and now robotics has entered the supply chain, too. Some of the ways robotics will advance and reinvent supply chain operations and management are fairly straightforward, while others have been a little more unexpected. Below are four major ways robotics are already taking the supply chain to the next level — complete with specific technologies and implications for each one.

Robots Assume Customer-Facing Roles

Sometimes talking about supply chain operations makes it sound like something that happens away from the public eye. That’s far from the truth, because there are two major points along the average product journey where robots are poised to make a dramatic entrance.

Selective Automation Reduces Injury and Error Risks

One of the greatest supply chain robotics trends to come about so far is selective automation. Far from replacing human jobs outright, selective automation is helping us organize our efforts more effectively by getting people out of dangerous or risky environments, or out of the pilot’s seat of heavy equipment, or away from tedious and error-prone tasks.

Bolt-on Autonomy for Vehicles

There’s an emerging and appealing middle-ground between replacing machinery outright with automated versions and retrofitting your existing equipment, including vehicles, with technology that allows it to operate autonomously.

New Types of Human Jobs

This is not a specific technology. Instead, it’s a cumulative benefit of the technologies we’ve discussed here, as well as many others that are coming of age. All of them come with some welcome reassurance: We’re not obsolete quite yet.

The Supply Chain’s Bright Future

Each one of the benefits of robotics we’ve talked about is helping our global supply chains and all their operators realize a future where machines don’t reduce our quality of life, but rather help us better manage our resources and time. The intelligent application of robotics is one major piece of that puzzle.

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Commentary: Managing risk in the global supply chain

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The World Economic Forum defines global risk as an uncertain event that, if it occurs, can cause significant negative impact for several countries or industries within the next 10 years.
Global supply chains create both opportunity and risk. Some of the macro issues we face both in day-to-day operations and future planning include cybersecurity, terrorism, climate change, economic instability, and political discord.
More specific to executives who manage global supply chains, risk is more apparent, and on a micro-basis potentially more consequential in the short term, in areas such as but not limited to reducing spend, leveraging sourcing options, creating sustainability, political and currency instability, government regulations in the U.S. and abroad, trade compliance management, free trade agreements, energy costs, and what the incoming Trump administration will mean for global trade.
Since the recession in 2008-2009, we have witnessed a serious uptick in companies worldwide reviewing their operational exposure and then creating risk strategies in managing these vulnerabilities. Risk exposure can negatively impact margin, profits, growth strategies, operational stability and personnel maintenance.
For companies operating in global supply chains the risks are vast, convoluted and often unanticipated. As a result, we tend to be unprepared for the impacts.

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How Does Big Data Analytics Help in Decision Making

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Staying ahead in the game is paramount for any business organization to survive in this competitive world. The future poses challenges that need tackling in the present. Every decision made today has a significant impact on the future of that organization. The rate at which a company responds to challenges in the present and the future is what determines their rate of success. Data Science and Big Data analytics can help organizations in decision making and drive the company to a realistic future.

The Deciding Factor

It is paramount for businesses to understand the big data concept and how it impacts the organization activities. Discussed below are ways in which Big Data facilitates faster and better decision making;

Accelerating Time-to-Answer

The time cycle for decision making is decreasing rapidly. Companies have to make decisions more quickly in this period than in the past. Accelerating decision-making time is crucial for the success of any organization. The use of Big Data doesn’t change the urgency of decision making. Big Data analytics mitigates.

Customer reaction to a product is an important factor to consider when making a decision. Using data resources to understand the preferences of customers is one way of pointing out gaps existing in the market. However, the problem is how do you integrate and act in real time? The key is to know how to combine Big Data with your traditional Business Intelligence to create a more convenient data ecosystem that allows for the generation of new insights while executing your present plans.

Accelerating your time-to-answer is crucial for customer satisfaction. For example, if your answer time is usually in minutes, Big Data can reduce it to seconds. If it takes weeks for a client to have their problem tackled, then reducing it to days is more convenient for your customers. Customer retention is critical to the success of your organization.

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To Woo Apple, Foxconn Bets $3.5 Billion on Sharp

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The Apple iPhone transformed the technology industry by popularizing the smartphone and blazing a path to a mobile future. But to do it, the company needed an important ally: a penny-pinching Taiwan-based factory operator named Foxconn.

Employing hundreds of thousands of workers at vast facilities in mainland China, Foxconn figured out a way to assemble the iPhone at a cost low enough that middle-class Americans could afford it. The business offered low profit margins, but the work buffed Foxconn’s financial results and cemented its status as the world’s largest maker of hardware for companies like Apple and Sony.

Those relationships are now shifting — and Foxconn is betting heavily to keep up.

On Wednesday, Foxconn said it had struck a deal to acquire control of the Japanese screen maker Sharp for $3.5 billion, after weeks of negotiations and high-profile setbacks.

The deal, for a 66 percent stake in Sharp, is intended to make Foxconn a more attractive partner for Apple. The American technology company uses Sharp screens, which could give Foxconn added leverage in dealings between the two.

The screen is an especially lucrative piece of the smartphone, costing as much as $54 each, according to estimates by the research firm IHS. Sharp provides roughly 25 percent of the iPhone displays, IHS said.

Still, the Sharp purchase will saddle Foxconn with an ailing business that will take considerable money and effort to turn around, some analysts say. Reflecting those problems, the purchase price is $2 billion lower than a deal the two sides struck just last month, after Sharp disclosed the potential for costly problems — nearly $3 billion in potential liabilities — down the road.

But Apple has been diversifying its supply chain, giving some production contracts to other assemblers and component makers. And Foxconn is grappling with China’s rising labor costs and a slowdown in the global smartphone market.

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