The Chartered Institute of Procurement & Supply (CIPS) has launched a free online tool to support procurement and supply management professionals and those with an interest in buying to develop resilience in their own supply chains.
A CIPS survey in 2016 of 900 professionals revealed a growing awareness that unmitigated risk can have disastrous consequences for companies in terms of revenue and impact on margins.
Of those surveyed, 46% ‘sometimes’ have mitigation strategies in place and yet 52% expected the same level of service from their suppliers in the event of a disruption.
The Risk and Resilience Online Assessment Tool helps procurement professionals to identify where specific risk exists in their supply chains in seven key areas:
- Geographical. Restrictions on commodities or trade tariffs can have devastating effects on supply chains along with environmental concerns and reputational damage.
- Functional. Poorly conceived strategies and poor systems controls can make critical parts of the supply chain high risk.
- Performance. Suppliers may be engaging in bad working practices or failing to provide the right product, at the right time, to the right place.
- Technical. An inadequate level of internal security surrounding IT systems could lead to cyber risk and loss of customer, or partner data and loss of revenue.
- Governmental. Actions from governments could influence the movement of goods, with sanctions and embargoes and could affect reputation if found to be supportive of human rights abuses.
- Ethical. Dents in customer confidence will affect revenue streams and reputation, disaffected workforces can produced delayed, poor-quality goods.
- Legal. Breach of laws and statutes will cause delays and issues in supply chains. Diligence is required to ensure suppliers and contractors are also compliant.
The market for supply chain management (SCM) software, maintenance and services continued its growth in 2016, generating more than $11.1 billion, a 9% increase over 2015 revenues, according to the research firm Gartner.
That total includes applications for supply chain execution (SCE), supply chain planning (SCP) and procurement software. Since the market’s 2% decline in 2009, the market has posted double-digit growth in four of the past six years, according to Gartner. The SCM market is expected to exceed $13 billion in total software revenue by the end of 2017 and exceed $19 billion by 2021, Gartner forecasts, with software as a service (SaaS) enabling new growth opportunities.
“It continues to be a good year for the supply chain overall,” says Chad Eschinger, managing vice president of Gartner. “The Cloud-based segment grew 20%, which is consistent with what we’ve seen in recent years.”
The push for Cloud capabilities also fueled some of the acquisition activity over the last year. Eschinger cites examples such as Infor’s acquisition of GT Nexus, Kewill’s acquisition of LeanLogistics, Oracle’s acquisitions of LogFire and NetSuite, and E2open’s acquisitions of Terra Technology and, more recently, Steelwedge.
“Broadly speaking, we’re seeing cyclical consolidation,” Eschinger says. “For some companies it’s a land grab, for others it’s an effort to add functional and technical underpinnings to go to the Cloud or provide a fuller complement of Cloud capabilities.”
Suite vendors are increasingly inclined to offer end-to-end solutions, Eschinger says, tying in customer relationship management capabilities, replenishment, network design, clienteling and more. In addition to supply chain efficiency, these solutions are also aimed at improving and standardizing the consumer’s experience.
“The Amazon effect continues to wreak havoc in retail and for manufacturers selling direct-to-consumer,” Eschinger says. “Everyone wants real-time visibility into inventory, so data and the associated analytics continue to be front and center for most organizations.”
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As an analyst who covers supply chain management (SCM) and procurement practice across industry, I tend to keep my keyboard focused on the disruptive themes that continue to re-define it. That said, if you’re expecting me go on about the unprecedented growth of the SCM solution markets, the accelerated pace of innovation, tech adoption, social change, etc., don’t hold your breath. I can’t, as the data argue otherwise. Too many of us conflate diversification with acceleration –and there’s a difference.
The most notable, defining advances of the last decade (Amazon, Twitter, Google, etc.) share something in common: they do not require consumer investment. If you take those monsters out of the equation and focus on corporate solution environments, the progress, while steady, has not been remarkable. Let’s just say there remains plenty of room for improvement, especially in supply chain and procurement practice areas.
I fell onto this tangent unexpectedly. It happened while interviewing Mr. Dan Georgescu, Ford Motor Company, adjunct Professor of Operations and Supply Chain Management, a highly regarded expert in the field of automotive industry supplier development. “For supply chains to be successful, performance measurement must become a continuous improvement process integrated throughout,” he said. “For a number of reasons, including the fact that our industry is increasingly less vertically integrated, supplier development is absolutely core to OEM performance.”
Read more at Great Suppliers Make Great Supply Chains
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Supply chain risk management (SCRM) is becoming a top priority in procurement, as organizations lose millions because of cost volatility, supply disruption, non-compliance fines and incidents that cause damage to the organizational brand and reputation.
Bribes to shady government officials, salmonella in the spinach and forced labor in the supply chain can all result in brand-damaging headlines that can cost an organization tens of millions in sales and hundred of millions in brand damage. And while reputation may only be important for name brands, cost volatility and supply disruption affect all manufacturers.
In fact, in the latest 2015 study by the Business Continuity Institute, supply chain disruption doubled in priority relative to other enterprise disruptions (48% of firms are concerned or extremely concerned). Roughly three-quarters of respondents said they had at least one disruption, and the same amount lack full visibility of their supply chains.
In the same study, 14% had losses from supply chain disruptions (e.g., natural hazards, labor strikes, fires, etc.) that cost over €1 million, and these disruptions can easily go up to nine figures. For example, Toyota estimates the costs for the recent Kumamoto earthquakes to be nearly $300 million. Imagine being out of stock on a product line that does $12 million in annual sales for two months. That’s $2 million in immediate lost sales and longer-term brand damage.
Risk management, and what is necessary for ongoing risk management, never gets operationalized, and as new suppliers get added, supply shifts and supply chains change, new risk enters the picture — risks that go undetected unless risk management is embedded in all key procurement activities, including sourcing. It is important to remember that:
1. When You are Sourcing, You are Really Changing Your Supply Chain Network
2. Supplier Risk is Only One Aspect of Supply Chain Risk
3. Your Sourcing Criteria Must Be ‘Protected’ and Risk Must Be Factored In
4. You Need to Cost the Risk” and Also Get It in the Contract
5. You Must Design a Monitoring System That is Part of Onboarding
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As part of our ongoing series on what procurement technology providers see as the biggest challenge for procurement in 2016, we recently spoke to riskmethods to hear its thoughts on the topic. Heiko Schwarz, riskmethods founder and managing director, pointed to increased external risks, globalization and regulation compliance as the main issues procurement and supply chain managers will have to tackle in the new year.
These three major trends will expose organizations to risks in 2016, Heiko said. External risk will continue to be an issue. For example, extreme weather such as rain or snow storms will expose and disrupt supply chains even more than in the past, he said. Political risks have been a growing trend for years, but will continue in 2016 as well, he added.
Globalization is also pushing enterprises to search for new suppliers in countries or regions they probably have not worked in before. Procurement’s scope in the last year has dramatically changed, going from a “domestic-centric” view to a more global one, Heiko said. Specifically, he believes we will see movement away from China as the cost of operating there continues to rise. China is no longer a low-cost sourcing country, and this is putting pressure on companies to move to new areas, places such as the northern regions of Africa, he said. This globalization push will put increase supply chain complexities in 2016.
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Supply chain, sourcing and procurement executives are feeling immense pressure to cope with the expansion into global markets, waves of disruptive innovation, rising customer expectations and complex regulatory requirements. These are catalysts that require supply chain management strategies to become bimodal and to make a shift from tactical to strategic.
In addition to the sourcing of goods and services, cost management and internal stakeholder compliance, executives’ responsibilities will include the ability to promote and support the top line. They have to be a trusted advisor to internal business partners and will have a tremendous impact on the success of an organization engaging with suppliers, managing relationships with strategic vendors and solving business problems.
For 2016, I see leading supply chain organizations making these top-five data-driven supply chain management challenges a priority.
1. Meet Rising Customer Expectations on Supply Chain Management
2. Increase Costs Efficiency in Supply Chain Management
3. Monitor and Manage Supply Chain Compliance & Risk
4. Make Supply Chain Traceability and Sustainability a Priority
5. Remain Agile and Flexible in Volatile Times and Markets
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Supply chains are suffering a rise in costs and multiple disruptions due to the reintroduction of border controls in Europe and the rise of radical Islam in the Middle East.
The Charted Institute of Procurement and Supply (CIPS) – with a presence in 150 different countries – confirms that ISIS activity and Russia’s rigid attitude in world politics have contributed to the heightened risk.
Meanwhile, the migrant crisis is making some European countries close their borders, as is happening in Hungary, Croatia and Slovenia. Crossing the border in these countries can take up to 90 minutes, while other activities such as the transport of livestock have stopped entirely for several days in the past month.
This supply chain issue has caused the delivery prices for some German companies to rise by as much as 10 per cent and has increased the risk of the supply chains in other several countries of the Middle East and North Africa, such as Kuwait, Bahrain, Turkey and Tunisia.
Almost two thirds of buyers think their organisations are not managing their supply chain risk effectively.
Responding to a mini-poll held during a webinar organised by Supply Management in association with business information publisher Bureau van Dijk, 63 per cent of listeners said they didn’t believe their organisations managed threats in the best way.
Ted Datta, BvD’s strategic account director – London, said a majority of negative response underlined the increasing awareness among companies and buyers of the key importance of good supplier risk management. This was increasingly important because legislation was covering new and wider areas, said Datta.
“Know your suppliers, business partners and third parties,” he said, emphasising buyers needed to be up-to-date with new risks as situations changed every month. Datta said as there was so much information to monitor, companies could segment their supply base to identify key strategic suppliers and monitor those suppliers ‘in real time’ or as frequently as possible depending on their resources. Others could be reviewed in a more structured way, he said.
David Lyon, head of procurement at Cancer Research UK, told the webinar, Enhanced supplier due diligence: the implications for supplier risk management, reputation was vital for a charity and it had to ensure suppliers were aligned with its core purpose. “As an organisation that spends 80 per cent of every pound donated on our core mission of research, we must work hand in hand with all our suppliers,” he said.
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Retailers and their suppliers are under more pressure than ever before to deliver more goods to more destinations faster.
To stay competitive, “retailers need to know where things are at all times so they can redirect shipments, rebalance inventories and respond to new demands on the fly,” says Rich Becks, general manager, Industry Value Chains, E2open, which delivers cloud-based supply chain collaboration solutions.
And if there is a problem with their supply chain, and they can’t get products to stores and/or consumers, retailers (and their suppliers) risk losing customers.
So what steps can, and should, retailers take to make sure their supply chain operations are running smoothly? Following are four suggestions from retail supply chain experts.
1. Use cloud-based software that can track and manage inventory in real time.
“Retailers struggle to balance uncertain consumer behavior and long, complex supply chains,” explains Kurt Cavano, vice chairman & CSO, GT Nexus, a supply chain technology company.
2. Use source tagging and RFID to keep track of inventory and stock levels.
“To improve supply chain management from the moment product leaves the manufacturer’s warehouse all the way through to the point-of-purchase, retailers should deploy a source tagging solution,” says Steve Sell, director, North America Marketing, Retail Practice, Tyco Integrated Security.
3. Become a part of a B2B e-procurement network.
“B2B [or e-procurement] networks can help companies predict supply chain disruptions and act quickly to adapt business processes,” says Sundar Kamakshisundaram, vice president, Procurement and Business Network Solutions, Ariba, an SAP company.
4. Make sure your marketing and supply chain teams are in sync.
“When executing a promotion, a lot of retailers overlook the alignment of the supply chain and marketing teams, which is crucial [if you want] to successfully launch a promotion,” says Pat Sullivan, senior vice president, Promotions Management, HAVI Global Solutions, a consulting company.
Read more at 4 ways retailers can improve supply chain management
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Supply chain risk is a major issue, and new sources continue to pop up. Adverse weather, natural disasters and factory fires have historically grabbed the attention of CPOs, but there are other risks procurement leaders must be aware of that are just as hazardous. The world of procurement is constantly changing, and supply chain managers must be on top of their game. Here are 5 new threats that you might not be ready for:
1. Financial Fraud
Financial fraud can come in the form of collusion, poor monitoring of employee expenses, or misconduct from the vendor, including falsified labor and inflated bills. Did you know that less than one-third of executives are utilising data-analytics tools that can detect fraud or vendor waste?
2. Cybersecurity Threats
Many companies have lax procedures in protecting critical data, leaving businesses vulnerable to attacks that could harm customers, operational processes and brands. Even if you have security measures in place, the suppliers you work with may not.
3. Supply Chain Management Regulations
New rules and regulations continue to pop up in the supply chain, and companies need to be ready to disclose information about their sourcing and supply chain practices. For example, the Transparency on Trafficking and Slavery Act requires companies to file annual reports with the SEC, disclosing efforts to address specific human rights risks in the supply chain.
4. The Talent Gap
Baby boomers are retiring and there are few up and coming procurement gurus to take their place. CPOs are scrambling to find a solution to this problem, as the implications of this issue are likely to last for at least a decade.
5. Rising food costs
Droughts are worsening across the United States, increasing food prices and ultimately raising the cost structure for many firms. Overall food prices are expected to increase by 2.5-3.5 percent this year, with fruit up 3.5-4.5 percent and vegetables up 2-3 percent.
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