Supply chain risk is a growing concern for the Pentagon

As the reliance of The Defense Department and its major contractors on vast global supply chains to provide the systems and weapons the DOD needs to perform its mission increases, so too does the risk. These potential risks come in many forms: the financial failure of a critical supplier; a supplier in violation of labor or environmental standards; or foreign infiltration into critical systems. The government is pushing contractors to provide more information about their supply chains, and this analysis will walk you through the supply chain of DOD’s (and the federal government’s) largest contractor, Lockheed Martin Corp., and uses it as an example of how Bloomberg can help you identify and report on potential risk areas.

Critical Nodes

It is possible to identify 350 of Lockheed’s suppliers by using the supply chain function SPLC on the Bloomberg Professional Service. Bloomberg’s entire supply chain database contains more than 1 million customer/supplier relationships. The same data also shows that some of these companies are highly reliant on Lockheed as a customer. Quickstep Holdings Ltd., a manufacturer of composite materials based in Australia, receives an estimated 70 percent of its revenue from Lockheed. Any change in Lockheed’s fortunes could have downstream effects on highly dependent suppliers like Quickstep.

For the Pentagon, Honeywell International Inc. is a much more critical supplier than Quickstep. Honeywell is a top 10 supplier to Lockheed as well as the other big five defense contractors: Boeing Co., General Dynamics Corp., Northrop Grumman, and Raytheon Co. Many defense programs could be disrupted, and alternative products and suppliers might be difficult to find if Honeywell’s goods and services were suddenly compromised.

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Accelerating Corporate Performance Management – Partnering Finance & Supply Chain

Corporate Performance Management (CPM) activities time-consuming and labour-intensive, usually because they rely on spreadsheets, old data and outdated manual processes. With financial controls growing increasingly tighter, CPM must be performed effectively. Recently there has been talk of needing Finance and Supply Chain integration to achieve increased corporate performance with them now being key business partners.

The Corporate Performance Management Summit will take place on January 27 & 28, in Miami. Over the two days, the summit will gather over 120+ Finance & Supply Chain professionals to discuss the challenges related to internal performance management and external decision-making. There will be 25+ industry expert keynote speakers, interactive workshops with industry pioneers and over 8 hours of networking opportunities to take advantage of.

Ever considered how to execute performance management initiatives? How to manage external factors in performance management? Or even the role of the CFO in corporate strategy? The summit will explore hot topics such as these, as well as explicitly covering how CFOs can drive strategic performance through acquisitions and harness data to drive decision making. A key component to this summit will also be face-to-face communication and the opportunity to learn from your peers in a truly open environment. ‘The creation of a thought-sharing and interactive setting was always a key aspect for me when creating this summit,’ said Aaron Fraser, International Events Director. ‘I wanted to cultivate a forum for cross-pollination of ideas and advice for those involved in corporate performance management”.

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External Insights Critical to Effective Supply Chain Performance

Traditional forecasting models that leverage historical data to predict future performance are the tools used by most supply chain executives to plan critical functions, yet these predictions are frequently inaccurate. In fact, research from KPMG International, in cooperation with the Economist Intelligence Unit, shows that most quarterly forecasts are off by 13 percent—meaning that supply chain managers are basing their decisions for ordering materials and scheduling distribution on erroneous projections. The result can mean surpluses or shortages, potentially costing companies millions either way.

There is a better way to anticipate supply chain demands—one that can vastly improve projections, and decrease the discrepancies between forecasting and reality, therefore helping supply chain executives perform their jobs more effectively. Few companies take into account macroeconomic factors, global manufacturing activity, consumer behavior, online traffic, weather data, etc. when making business projections. Yet companies that do identify leading performance indicators using such external data earn more than a 5 percent higher return on equity than those that use only internal metrics. Leveraging external factors, in addition to internal performance measures, is proven to result in more accurate, effective forecasts. Not to mention that improving forecast accuracy can represent huge bottom-line benefits. For a billion dollar manufacturing company, for example, improving forecast accuracy and overall return on equity even 1 percent can equal a $3 million increase in net income.

Forecasting accuracy, improved through external factors, benefits multiple business functions—from financial operations (shareholder value) to human resources (adequate staffing) to marketing (product innovation)—but is especially impactful on the supply chain management function.

Improves Inventory Management

Improved forecast accuracy using external drivers equates to reduced inventory management costs, ultimately improving bottom-line profit. By accounting for external factors, companies can see a 10 to 15 percent improvement in forecast accuracy, significantly decreasing the cost of excess inventory. By ordering raw materials based on correct projections, supply chain managers no longer have to worry about discounts necessary to move excess inventory or the cost of warehousing excess materials because they are ordering accurately from the start.

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