Category Archives: Risk Management

US Supply Chains More Vulnerable to Climate Risks

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US Supply Chains More Vulnerable to Climate Risks

Lack of preparation currently leaves supply chains in Brazil, China, India and the US more vulnerable to climate risks than those in Europe and Japan, according to a report by CDP and Accenture.

Supply chain sustainability revealed: a country comparison also finds suppliers in China and India deliver the greatest financial return on investment to reduce their greenhouse gas emissions and demonstrate the strongest appetite for collaboration across the value chain.

The research is based on data collected from 3,396 companies on behalf of 66 multinational purchasers that work with CDP to manage the environmental impacts of their supply chains. They account for $1.3 trillion in procurement spend, and include organizations such as Nissan and Unilever.

Analysis and scoring of suppliers’ climate change mitigation strategies, carbon emissions reporting, target setting, emission reduction initiatives, climate risk procedures, uptake of low-carbon energy, and water risk assessment efforts, as disclosed by suppliers to CDP, were used to create a sustainability risk/response matrix that shows how well prepared suppliers across 11 major economies are to mitigate and manage environmental risk in their supply chains.

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Risk management in an evolving global supply chain

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Risk management in an evolving global supply chain

The festive season has ended, and the retailers can breathe a collective sigh of relief. Their busiest time of the year means their operations have had to be resilient and robust. The supply chain is at the heart of this and it has been used to plan the Christmas period for months. But what lies at the success of this supply chain and what lessons can be learned?

Managing a supply chain in today’s global economy is fraught with difficulties. Supply chain managers have to maintain a balance of cost, agility, and sustainability, as well as manage the logistics and the manufacturing footprint. All these issues come with their own problems, but overall the trade-off is cost versus risk.

To strike a chord between cost and performance, supply chains have to be inventive. That means essentially going out into new markets, using new local suppliers, and accessing new customers. Invention comes at a cost, as these are new, unexplored areas of risk. So risk management is an important part of supply chain management in a global context.

As organisations strive for new opportunities for a more effective supply chain, so risks are more prominent. Who is that new local supplier? Can they be trusted with your product? The new country you’re now operating from – what are the geographical risks? The political risks? The legal risks?

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6 Steps To Supply Chain Risk Management Success

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6 Steps To Supply Chain Risk Management Success

Lean production may traditionally be considered the linchpin that holds successful supply chain management together, but reducing your exposure to risks is becoming a key priority for maritime companies.

Our dependence on, and partnerships with suppliers, whether it be via outsourcing or mitigating stock opens up a whole world of exposure for marine businesses and their procurement teams. That’s why risk management is so crucial to the supply chain.

Navigating risks really is the key to management success. With the global expansion of supply chains comes ever more complicated business structures and so countless issues can arise causing disruption, delays and ultimately money going down the drain.

Both buyers and suppliers can be hit by a number of unavoidable problems. From natural disasters to terrorism or cyber attacks. Each problem can have big effects on both upstream and downstream partners.

So what can you do to mitigate risk?

The best way to reduce exposure is to make sure you and your company keep up to date with developments in the maritime sector. And to follow a few key steps…

1. Choose your suppliers carefully

Conduct audits of your suppliers on a regular basis and if necessary, inspections to make sure they are committed to risk management like you are.

2. Authenticate suppliers’ insurance cover

It’s worth remembering that a certificate of insurance is only evidence of the insurance cover as it was when it was written.

3. Clearly define contract scopes and draft contracts

Be careful when defining contract scopes and draft contracts.

4. Understand the extent of your exposure

How much risk are you and your business exposed to?

5. Put a plan in place

Identifying risks is the easy part, now you have to get an action plan in place.

6. Lower the threat of risk by purchasing the right cover

Making sure your policy covers your company’s specific exposure mix and risk tolerance is important.

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What is the most crucial goal for supply chains?

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What is the most crucial goal for supply chains?

One of the driving forces behind the expansion of business relationships is a mindful effort to reduce risk. This is particularly true in supply chains.

To be sure, the pursuit for lower-cost materials and more efficient logistics are very important to industries of all kinds today. But reliability of supply and precautionary redundancy have prompted firms in industries ranging from basic materials like steel and chemicals to high technology, to establish supply networks across the globe.

Ironically, it’s likely that in going global, companies have not actually decreased their risk profile but actually increased it. Broadening exposures can actually drive total risk higher, either by actual exposure to new perils or simply by making existing risks more difficult to quantify or manage.

That is especially true of global supply chains, through which goods or services often come from countries with low per-capita income, weak regulatory control or where the quality of risk management practices—as well as building codes and standards—are weak or nonexistent. In several memorable cases, retail chains and clothing brands have had to respond to fires and collapses of the factories making their garments on the other side of the planet.

Even the industrialized world is not immune to global risks, as was proven by the earthquake and tsunami in Japan in 2011. Automobiles, car parts, electronics, and many other sectors saw their supply chains disrupted for weeks or even months, prompting them afterward to geographically diversify their sourcing, production and inventory.

What is the most crucial goal for supply chains in your opinion? Share with us in the comment below or send us message for discussion. Subscribe now to get updates in your inbox.

 

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Step by Step Supply Chain Risk Management

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Supply Chain Risk Management Step by Step

Managing risk in the supply chain can be a daunting task. Supply chain managers increasingly realize that protecting their supply chains from serious and costly disruptions. But often they don’t take action, because they are paralyzed by not really knowing how to start.

Zurich’s 2014 Supply Chain Resilience Survey puts some figures on the problem:

  • 73.5% of organizations surveyed said they do not have full visibility into their supply chains.
  • 76% of respondents reported at least one instance of supply chain disruption last year.
  • 44.4% of disruptions originate below Tier 1 suppliers.
  • Loss of productivity (58.5%), increased cost of working (47.5%), and loss of revenue (44.7%) were the most commonly reported consequences of supply chain disruptions.
  • 28.6% reported low mangement commitment to the issue of supply chain resilience.

Taking a step-by-step approach can help. Solid planning, carefully planned and executed, not only reduces risk but also can increase supply chain efficiency, enhancing the organization’s bottom line.

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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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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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Is Your Money Safe? Risk Management Blindspots That Cost Investors Dearly

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Is Your Money Safe? Risk Management Blindspots That Cost Investors Dearly

Both retail and institutional investors who have survived one or more economic recessions have learned that they cannot select their money managers solely on a demonstrated stream of at or above benchmark returns and that they need to include the underlying risk of their investment portfolio in the formula that calculates expected future value. However, the risk denominator in portfolio management analytics may be underestimated or misestimated because of the following three industry problems:

1. The traditional view of risk is disaggregated

The traditional view segregates risk into market, credit and operational.

2. Regulators are approaching the industry reactively

Significant regulatory tightening ensued after the 2008 mortgage crisis.

3. Operational risks is not adequately represented

To manage market risk better, most investors are well aware of basic portfolio hygiene principles including the value of diversification, the importance of looking at volatility driven asset correlation, rebalancing, the criticality of subtracting leverage when assessing quality alpha, the value of protecting for inflation through IL bonds or inflation-hedging assets such as real estate.

 

How can investors make safer investments?

What could investors do in an environment of confusing regulatory requirements and limited transparency around operational risk? For starters, Investors can raise their awareness and employ alternatives to address the information asymmetry in the following ways:

1. Select asset managers that demonstrate commitment to operational risk management

Certainly some asset managers understand and are willing to invest in operational excellence and risk management.

2. Look for business partners that can help

Whenever there are potential gaps, new business models emerge and the industry evolves.

3. Improve your investment due-diligence process

Investors are in the best position to demand greater transparency and accountability from money managers and one way to do that is to raise the standards of due-diligence.

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Code red: Big data risk management requires a safety net

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Code red: Big data risk management requires a safety net

When I advise leaders on a strategy that includes data science, I ask them to consider the probability that their great idea won’t bear fruit. It’s a tough space for visionary leaders to enter — their optimism is what makes them great visionaries. That said, most data science ventures don’t turn out, and most leaders aren’t in touch with the reality that the odds are against them. Having a fallback plan makes good sense, and having a fallback plan for your fallback plan makes great sense.

For instance, when I rolled out an upgraded loyalty platform for a large financial transaction processing company in 2010, we built four plans that successively addressed the failed execution of its predecessor plan. Fortunately, we never had to pull the trigger on even the first fallback plan; however, we were fully prepared for any and all scenarios. It’s a prudent approach that I recommend for you as well, because data science is a risky endeavor.

The colors of cautious management

The best leaders have a backup plan for their backup plan. In fact, when running a strategy that incorporates big data analytics, I suggest you have a series of colored plans: green, yellow, red, and blood red (or black).

  • Green is your plan of record.
  • Yellow is a contingent plan.
  • Red doesn’t meet your minimum expectations, but it doesn’t set you strategically backward either.
  • Blood red is your worst case scenario.

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