Tag Archives: risk management

Automation: Who Says You Can’t Manage What You Can’t See?

If your business is engaged in international commerce, you’re probably struggling to toe the line with supplier risk management. Automation, alerts, and third-party data are your best defense.

Managing supply chain risk is no walk in the park. Exogenous events like the recent terrorist attacks in Barcelona have drawn attention to the EU’s rules to combat terrorism financing through stricter anti-money laundering (AML) regulations. These rules impact many companies that are increasingly added to the law’s scope: possibly yours.

Meanwhile, modern slavery violations can surprise even the most astute contract or supply chain managers who may have unknowingly relied on invalid or falsified information. In the U.K., The Modern Slavery Act 2015 includes a Transparency in Supply Chains clause, which requires companies operating in the U.K. to address modern slavery in their supply chains. If you’re at a big company, you’re probably on the hook to comply.

Once you add in the more common types of risk, such as the financial or credit health of your suppliers, changing markets, and natural disasters, the sense of how challenging it is to manage them all—in the age of digital disruption with fast-paced change and volatility—can quickly become overwhelming.

Fortunately, there is technology and automation to help you maintain control, gain visibility into your supply chain, and mitigate much of these risks. The right technology can help you proactively steer your organization clear of minefields that can damage everything from reputation to sales. And it’s only getting better.

 Start with real-time monitoring and alerts

The first step is to identify the most likely disruptions to the supply chain, like a natural disaster or a work stoppage at a supplier’s supplier. One way to deal with this type of risk is with real-time monitoring. Real-time monitoring of your suppliers means that you can receive an alert whenever there is a potential for disruption. Such alerts can help you find an alternative source of supply, maintain production, and avoid missed deliveries or even a plant shutdown.

Real-time alerts should be an extension of an overall solution consisting of a platform and business network. This is the ideal foundation to set up, monitor, and manage a portfolio of suppliers to ensure that all essential documentation about labor practices, certifications, certificates of insurance, and so on, is in place before you start doing business.

Integrate third-party data sources

Documentation and data about your suppliers can come from many sources, not just what you gather during an onboarding, contracting, or surveying exercise. There are plenty of third-party sources that have standalone solutions and open APIs or integrations into supplier management platforms that let you address various dimensions of supplier risk and to set up corresponding alerts.

If your company is engaged in trade and has a 10,000-euro or more money transfer in any way, it will need to comply with the EU 4th AML Directive. In addition to digitally onboarding your supplier base, you may want to automate KYC / KYB (know-your-customer, /-business), AML (anti-money-laundering), and EDD (enhanced due diligence) requirements. These steps will help you comply with the directive

One provider that is using cutting edge technology like distributed ledgers is Austria-based Kompany. Their counterparty verification data allows users to streamline the supplier verification process at the point of onboarding (and continually) with up-to-the-minute alerts on any material changes to supplier vitals. Their information comes directly from the commercial registers. Kompany even includes PEP (politically exposed person) screening and sanction lists.

Who says you can’t manage what you can’t see?

Other popular sources of company and industry data include Moody’s (credit ratings), EcoVadis (sustainability scorecards and ratings), riskmethods (transparency into risk exposures in 1-n tier supply chains), and Made in a Free World (visibility into modern slavery), to name a few. These data sources can help you continuously monitor for risks and evaluate your risk portfolio during the sourcing process.

Through technology and regulatory technology systems like those described above, you can design an automated, customized, and intelligent risk management strategy. In turn, this can boost trust between you and your suppliers and you can plan more confidently in an environment full of uncertainty.

Cladding Purchase in the Spotlight After Grenfell Tower Fire

After the tragic death of at least 58 people in the Grenfell Tower fire, confusion remains over whether the decision to use combustible panels in its construction was in accordance with British building regulations.

 

The Guardian and the BBC have both reported that Reynobond panels with a combustible polyethylene (PE) core were used in a refurbishment of the 24-storey Grenfell Tower, completed last year. This has yet to be independently confirmed by investigators, although it would explain the frighteningly rapid spread of the fire. The thermoplastic material is known to melt and drip as it burns, which spreads the fire downwards as well as upwards.

Manufacturer’s own warning ignored

A Reynobond brochure from 2016 shows that PE cores are only suitable for buildings up to 10 metres in height, while panels with a fire-retardant (FR) core should be used up to 30 metres. Grenfell Tower is 60 metres tall, for which Reynobond recommends their A2 model, with a non-combustible core.

The Guardian’s report states that the Reynobond PE cladding supplied to the companies refurbishing Grenfell Tower was £2 cheaper per square metre than the alternative Reynobond FR.

Confusion over legality of PE panels

While media outlets have pointed out the PE panels are banned in the U.S. and Europe, there remains some confusion as to whether they are legal in the U.K. or not.

Two Government ministers have said that “in their understanding”, the use of the cladding is against British building regulations.

Treasury chief Philip Hammond told BBC News: “My understanding is that the cladding in question, which is banned in Europe and the US, is also banned here. So there are two separate questions: one, are our regulations correct; do they permit the right kind of materials and ban the wrong kind of materials; and the second is were they correctly complied with, and that will be a subject the inquiry will look at and will also be a subject the separate criminal investigation will look at.”

Trade Minister Greg Hands told Sky news: “My understanding is that the cladding that was reported wasn’t in accordance with UK building regulations. We need to find out precisely what cladding was used and how it was attached.”

Vague building codes

A Reuters report found that British building regulations documents did not specifically say PE-core panels should not be used, yet that doesn’t mean builders are clearly permitted to use them: “British safety regulations across many industries are usually principles rather than rules-based.”

This means the law often requires companies to act safely without giving a specific definition of what this would involve. Firms are instead expected to be able to prove in court that they “behaved in a way that their industry would consider safe, given current knowledge and technology”.

The Fire Protection Association (FPA), an industry body, has reportedly lobbied for years for the government to make it a statutory requirement for local authorities and companies to use only fire-retardant material. 

Paper trail

Lawmakers have urged the Government and the police to immediately seize all documents relating to the building’s renovation to prevent the destruction of evidence that could show criminal wrongdoing.

“The Prime Minister needs to act immediately to ensure that all evidence is protected so that everyone culpable for what happened at Grenfell Tower is held to account and feels the full force of the law,” said Labour lawmaker David Lammy. This means that all emails, minutes of meetings, correspondence with contractors, safety assessments, specifications and reports, must be kept intact.

The Government is reportedly carrying out an urgent inspection of other tower blocks in Britain to assess their safety. There are roughly 2,500 similar apartment towers throughout Britain.

Supply Chain Risk Management: Not a Procurement Priority

This article was first published on My Purchasing Center.

Procurement teams struggle with supply chain risk management. They are aware of  the consequences of not managing it, but often they don’t have the resources to focus on it as much as they’d like. Even when they do, managing supplier risk poses a challenge: Most often the best metric of procurement performance at risk is when nothing happens.

A new report, Is Your Luck Running Out? Managing Supply Risk in Uncertain Times, by A.T. Kearney and Rapid Ratings International, describes the current state of procurement involvement in supply chain risk management activities, potential risks that could affect the supply chain, and ways procurement can begin to better manage risk.

Report co-authors Carrie Ericson, Vice President at A.T. Kearney Procurement and Analytic Solutions, and Rose Kelly-Falls, Senior Vice President at Rapid Ratings, did a presentation on the study for procurement and supply managers at ISM2016 held recently in Indianapolis.

Describing the report in an interview with My Purchasing Center, Ericson says she and Kelly-Falls started with the hypothesis that there’s risk along the supply chain that procurement teams simply aren’t managing. “They’re taking a kick-the-can approach,” she says. Asked if managing supply chain risk is procurement’s responsibility, Ericson responded:

“Procurement plays a big role in terms of vetting and onboarding suppliers before they even enter the supply chain,” she says. “Then, typically it’s procurement’s responsibility to put in supplier performance management programs to monitor and track behavior of suppliers throughout the course of the relationship or contract.”

The Is Your Luck Running Out? Managing Risk in Uncertain Times report, referring to the A.T. Kearney Assessment of Excellence in Procurement, states that companies are not effectively managing supply risk and that their risk management approaches are ad hoc at best. What’s more, just 40% of companies report having key performance indicators (KPI) or metrics for supply continuity and supply chain risk mitigation.

Most cite lack of bandwidth and budget as the biggest roadblocks.

Overlooking risk management—or, rather, getting by with that “kick-the-can” approach—leaves procurement teams especially vulnerable in today’s tenuous geopolitical and economic environment, according to the report.

The report also cites A.T. Kearney’s Global Business Policy Council (GBPC)  study, Divergence, Disruption, and Innovation: Global Trends 2015–2025, which analyzes trends shaping the world today and in the decade ahead. It identifies macro trends that play a role in the current and future operating environment for businesses and global supply chains. Among the trends procurement teams are advised to watch are: geopolitical realignment, continued global violent extremism and accelerating global climate change.

Understanding these trends and how they could affect the supply chain is the first step in anticipating and planning for the future,” reads Is Your Luck Running Out? Managing Risk in Uncertain Times.

Supplier Risk: A Closer Look 

The report also demonstrates how procurement teams can use the Rapid Ratings proprietary FHR® (Financial Health Rating) to analyze the health of public and private companies globally, with comparison across industries and regions. 

According to Kelly-Falls at Rapid Ratings, this is the first time such a study shows how combining macro trends analysis with a micro bottom-up company and industry analysis provides procurement teams with relevant industry insights to make informed risk management decisions.

Is Your Luck Running Out? Managing Risk in Uncertain Times shows the financial health of U.S. public firms peaked three years after the beginning of the global financial crisis in 2008, with an average FHR of 61.0 in 2011. Since then, they have declined to an average of 59.2 in 2015, a drop of 3%.

The peak for non-U.S. public firms (61.9), on the other hand, came in 2008 as the global financial crisis was beginning, while the low point was 58.4 in 2009 and again in 2015, a decrease of 5.7%.

While a two- or three-point change might not seem like much, it represents a very significant change based on the algorithm used to determine FHRs, the report states.

Over the same period, the financial health of non-U.S. private firms peaked in 2010 at 63.6 and deteriorated by 6.8% through 2015. U.S. private firms exhibited a decidedly different pattern of behavior. Their rating peaked in 2014 after achieving a 9.6% improvement from 2008 to 2014 and demonstrates a resilience quite unlike the other three groups. U.S. private firms declined slightly in 2015 to 64.2 but still led the others by a wide margin, indicating U.S. private firms have had an edge in terms of minimizing sourcing risk since 2012.

The report also drills down into the health of individual supply markets (by industry). For example, it shows that deteriorating financial health is evident in non U.S. firms in the aerospace and defense industry and in U.S. firms in the chemicals and computer technologies and services industries.

What is Procurement to Do?

A.T. Kearney finds that 90% of procurement teams expect they will have more responsibility for managing risk in the next two years—and they see a growing need to implement a risk management strategy within the next three years. As a result, they are starting to invest in risk management practices that link procurement, category and supplier management strategies.

Is Your Luck Running Out? Managing Risk in Uncertain Times looks at research on developing supply risk management strategies at the category or supplier level and risk and supply base segmentation.

The report finds there are multiple points in the sourcing life cycle where procurement can use risk mitigation strategies—especially in the early phases. This is when supply or category managers conduct the most comprehensive analysis, evaluating alternative suppliers and supply scenarios.

“At no other time does a procurement team spend so many resources on developing suppliers than when it selects, negotiates with and screens potential new partners,” Ericson tells My Purchasing Center.

After that, the report states that procurement’s most important tool for identifying and mitigating ongoing risk is access to robust, relevant and current data.

Kelly-Falls adds that, “procurement teams should not be shy about starting to engage suppliers they’ve been doing business with for years in risk management. It’s going to have to happen. It’s inevitable procurement will need a monitoring system for the supplier. Maybe not every supplier, but we can’t let incumbents know they’re okay.”

As for tier-two and three suppliers, she says, “We know as we get deeper in the supplier chain, it’s possible to lose touch with some of the smaller suppliers. So, it’s a matter of having good practices and making sure to cascade them to tier-one suppliers then hopefully they will take them and cascade them down to their supply base.”

Big Ideas Summit 2016: Big Idea #15 – Thinking the Unthinkable

Modern leaders, in the C-suite and in Government, aren’t equipped to deal with unthinkable events due to a lack of skills, or sense of denial.

At the Big Ideas Summit 2016, we challenged our thought leaders to share their Big Ideas for the future of procurement.

From ideas that have the potential to change the very nature of the procurement profession, to ones that got the assembled minds thinking about the profession’s impact outside of the organisation, the response we received was amazing.

Managing Unthinkable Events

Nik Gowing, visiting professor at King’s College, London, says that we are seeing a very human sensation of feeling “overwhelmed”. This is happening to executive level leaders in both the public and corporate sectors.

Building on his ‘Thinking the Unthinkable’ study, Nik argues that leaders aren’t equipped to deal with ‘unthinkable’ events, either through a lack of appropriate skills, or through denial, or wilful blindness.

Catch up with all the delegates’ Big Ideas from the 2016 Summit at the Procurious Learning Hub.

Want to find out more about Big Ideas 2016? And maybe what we have planned for 2017? You can visit our dedicated website!

If you like this (and you haven’t done so already) join Procurious for free today. Get connected with over 16,000 like-minded procurement professionals from across the world.

Why Supplier Segmentation Can Aid Risk Mitigation

Supplier segmentation could prove a useful tool for procurement in aiding risk mitigation in the supply chain. Sandeep Singh of Genpact explains.

Supplier Segmentation

In the first part of this series, we looked at the role of procurement plays in risk mitigation. In this article, Sandeep Singh, Vice President – Procurement and Supply Chain Services at Genpact, offers further advice on risk mitigation strategies, as well as how to create effective supplier segmentation.

What are good mitigation strategies for global supply chains in light of high impact factors like natural disasters and political instability?

To anticipate, prevent, and manage adverse events throughout their operations, global enterprises need enhanced visibility of their third-party risks. They need more efficient risk assessments to support targeted mitigation strategies, and the ability to predict potential outcomes throughout their operations.

Some of the mitigation strategies could include:

  • Having access to a list of risk assessed, qualified suppliers, who can serve as an alternate source of supply in case of an adverse event.
  • As part of a supplier selection process, adopting a multi-supplier strategy, where suppliers are located in multiple geographies, or where one supplier may have an ability to ship from multiple locations.

These mitigation strategies can easily be created by analysis of past trends and through leveraging digital technologies.

To increase the likelihood of third-party risk management (TPRM) initiatives achieving expected outcomes, organisations can adopt a Lean Digital approach, combining digital technologies, design thinking methods to focus on the end customer, and Lean principles that offer greater agility.

This approach tightly aligns risk processes to business outcomes, and helps overcome the challenges from legacy operations. This is done by driving the right choices end to end, rather than focusing on the individual parts of the process.

What is a good process to follow when carrying out supplier segmentation for risk management?

Multiple product or services, complex data structure and taxonomies, large supplier base across the globe and changing regulations makes supplier segmentation by risk a complex process.

Leading companies are increasingly relying on data-driven digital solutions, powered by the right set of business rules to conduct risk segment. The Lean Digital approach can make risk segmentation more efficient and effective. Typically to arrive at risk segmentation of suppliers, organisations can follows two broad steps:

Step 1

Segmentation based on:

  • Category or type of product or services suppliers are delivering or will deliver – an office stationery supplier may pose no risk, as compared a supplier providing IT services, or a supplier providing raw material for the manufacturing of an end product.
  • Location of supplier – a supplier located in a developing country can be prioritised first, as compared to suppliers located in developed countries.
  • Nature of supplier relationship – how strategic or critical is a supplier to an organisation’s business. It may be more sensible to focus on suppliers with a long-term engagement, versus a one-time purchase.

Step 1 can also be taken to understand and manage inherent risk. It can help organisations prioritise their needs around risk, and can save lot of time, effort and investment into managing risk.

Step 2

Organisations can assess suppliers’ relevant risk dimensions leading to their segmentation as low, medium or high risk. Risk dimensions, such as anti-bribery and corruption, and data privacy, need to be mapped with the category, or type of product or services, that supplier is responsible for delivering.

Further, a scoring methodology should be created, taking into consideration category and location of supplier, and then connecting it to an applicable risk dimension.

This scoring methodology should also consider weightings across various risk dimensions, so that the final output is a comprehensive risk score which can then be used for supplier segmentation into low, medium and high risk brackets.

Are there examples of good practice in supplier segmentation by risk, where organisations have mitigated their risks?

There is a good example of this through some of the work that Genpact has done with clients in the past. One pharmaceutical company wanted to improve its ability to assess its thousands of vendors and partners, particularly as regulators were taking a greater interest in third-party risk management.

The firm lacked standard processes for supplier risk management, could not provide timely or accurate risk reports, and could not keep up with the volume of assessments required. Genpact transformed the pharmaceutical firm’s TPRM operating model by defining and executing a scalable, five-step process for assessing third parties against its standards of excellence.

The organisation also introduced metrics, data-driven process management and technology to industrialise the process. This enabled more accurate and timely reports, reduced assessment cycle times by up to 40 per cent, and increased coverage to assess close to 100 per cent of the company’s third parties over a certain level of spend.

Genpact offers a number of procurement services that can be tailored to specific client needs, including end-to-end Source to Pay (S2P) services for both direct and indirect materials. Find out more by visiting their website.

The Key Role of Procurement in Risk Mitigation

As average spend with suppliers increases, procurement must be more active with the management of risk mitigation in the supply chain.

Risk Mitigation

Increasingly companies have a higher percentage of their cost base with suppliers, frequently as much as 50-70 per cent. Typically half of this is indirect spend on functions such as Marketing and Human Resources.

It is clear that as the cost spend increases with these suppliers, procurement is playing a key role as a broker and helping to drive the revenue line. However, if the majority of cost base is outside of the company’s walls, this presents a major business risk.

This is particularly alarming in industries such as financial services and pharma, where the regulatory and reputational landscape is complex. How can procurement help with risk mitigation, and also help senior executives have greater confidence that their supply chain is in order?

Mitigation & Segmentation

According to Jon Kirby and Paul Birch, from Business Process Transformation consultancy Genpact, organisations must institute better and more sophisticated risk segmentation, dividing the procurement supplier base into distinct risk tiers.

This does not necessarily mean that the largest suppliers in terms of spend will pose the largest risk. Companies should also be continually re-assessing supplier risk and asking questions, such as:

  • Are any of your suppliers at risk of bankruptcy?
  • Are there any global or geopolitical issues in your supply chain that could disrupt it?
  • Do you have systems and processes in place to regularly evaluate and monitor your most important suppliers?
  • Have you embedded risk evaluation into the on-boarding of new suppliers?

Creating stronger links between the lines of business and the procurement function can also ensure that the risk profile is in line with business priorities.

Procurement’s Role

There are a number of factors procurement professionals can keep an eye on when tasked with supplier risk mitigation. Sandeep Singh, Vice President – Procurement and Supply Chain Services at Genpact, shares his experience across these factors.

  • What are the signs that procurement needs to watch out for when assessing suppliers’ bankruptcy risk?

Assessing the financial health of a supplier should be a critical part of selection, as well as the ongoing relationship management process. Financial failures in today’s economy are not uncommon and can cause disruption to companies business.

Procurement professionals should pay close attention to the following aspects of business when assessing a supplier’s financial condition or bankruptcy risk:

  • Financial information – including profitability or margins; revenue growth; liquidity; negative cash flow.
  • Law suits such as where supplier is being sued for collection matters.
  • Managerial and employee related events such as resignation of key members of management, or abnormal turnover of employees.
  • Poor quality of product or services, or long term order delinquencies.
  • Inability to produce timely and accurate financial information.
  • Delay and penalties due to outstanding tax and statutory issues.
  • Request for special payment arrangements, such as changing terms of shipment to Cash on Delivery, or request for advance payment
  • Declining relationship with their bank or frequent change in their banks.

However, applying various signs and parameters to assess a suppliers financial condition can be a huge challenge for procurement, for the following reasons:

  • Financial assessment needs to be a continuous process, and doing it only during selection process may not be sufficient.
  • How priorities are given (i.e. which supplier to cover and which supplier to exclude).
  • Large supplier base can run into the thousands.
  • Multiple early warning signs and financial parameters.

To overcome the above challenges, leading global companies are leveraging Lean Digital solutions, which combine digital technologies with design thinking. This results in procurement being able to segment their supplier base with minimal effort, and being able to prioritise multiple early warning signs and financial parameters.

The adoption of the Lean Digital approach also provides companies with the ability to conduct ongoing financial risk assessments on their suppliers as opposed to doing it only during the selection process.

So what else can procurement do to assist with risk mitigation in the supply chain? For this you’ll need to come back for the second article in this series.

Genpact offers a number of procurement services that can be tailored to specific client needs, including end-to-end Source to Pay (S2P) services for both direct and indirect materials. Find out more by visiting their website.

Don’t Risk It – Why Your Organisation Needs Supplier Pre-Qualification

Workplace accidents have other costs apart from the tragic loss of human life. They can damage your brand, cost your company millions and, if you’ve failed to mitigate a known risk, could put you behind bars.

Pre-qualification Risk
Cell tower climbing – One of the world’s deadliest jobs

It’s difficult to write about the business consequences of a workplace fatality. It can be hard to see beyond the immediate human tragedy – from shattered families to a saddening waste of life when someone is killed on the job.

But the business consequences do need to be talked about, not only due to the financial impacts, but also because it’s up to big businesses to drive the safety improvements that could one day make workplace fatalities a thing of the past.

Risk Management Expertise

Insurance companies understand this, as do the risk management experts who take a holistic view of the impacts of accidents and fatalities. Angelique Navarro, of supply chain risk management firm Avetta, gives the example of a major telecommunications organisation that suffered eleven fatalities amongst its cell tower climber contractors before it acted to pre-qualify suppliers.

“The human cost was horrific, but the business costs were high as well. There is always significant public anger when preventable deaths occur, and people generally vent their frustration at the provider at the top of the chain – even though the safety lapse may have occurred two or three tiers down the supply chain.

“Cell tower climbers potentially have the deadliest job in the United States, so it’s a prime example of an area where you need to be 100 per cent confident that your suppliers, and their suppliers, are doing the right thing. Since the telecommunications organisation has partnered with us to bring in rigorous pre-qualification, there have been zero fatalities to date.”

Highly Visible Organisations

Navarro’s point about the most visible corporation taking the blame for its suppliers’ errors is borne out by the example of the Deepwater Horizon oil spill in the Gulf of Mexico. Public anger – from placard-waving protesters to President Obama himself – was directed almost entirely at the highly-visible oil giant, BP.

We didn’t hear anywhere near as much about the operators actually responsible for the spill, namely oil-field service company Halliburton and offshore drilling contractor Transocean. Almost seven years on, BP is still suffering from the enormous brand damage that this environmental disaster incurred.

“Consumers lose trust and confidence in what your organisation can do for them”, says Navarro. “But brand and reputation damage aren’t the only negative effects. There are huge insurance payouts involved, and of course lost production time and revenue. Knowing that you work with suppliers who are completely qualified mitigates that risk.”

Avetta’s 300+ major clients, such as Coca-Cola, Shell, Verizon and John Deere, tend to come from some of the riskiest industries – oil and gas, chemicals, construction, utilities and energy, telecommunications, transport and manufacturing. This core group of more than 300 clients has approximately 50,000 suppliers over 100 countries – every one of which carriers a degree of risk.

“We vet suppliers and partner them with clients and industries across the globe”, says Navarro. “And the results speak for themselves. We’ve saved a global leader in oil and gas $6 million in one year by managing its health and safety program.

“We’ve reduced the incident rate at a chemical company by 74 per cent, saved lives at a major telecommunications company, conducted 14,000 performance reviews for a well-known construction company, and Avetta is an integral part of a major airline’s recognition as the safest airline in the world.”

Six Steps to Pre-Qualification

While every industry and business model is different, there are six key steps that can be taken to pre-qualify suppliers and reduce your risk profile. Ensure your suppliers have:

  • risk as a top agenda item for their board or senior team
  • the right employees: conduct background checks, ensure rules and regulations are being followed
  • the correct level of insurance protection with up-to-date insurance certificates
  • safety manuals in-hand and accredited training programs in place
  • prequalification for anyone coming on site
  • a consistent level of auditing multiple levels down the supply chain
  • rigorous tracking and data collection.

Navarro comments that risk-savvy procurement professionals work very closely with their organisation’s environmental health and safety teams, who have been in the risk-management space for a long time and can give some valuable advice. It’s important that we share safety learnings across industries as well. “You need to ensure your organisation is competitive”, she says, “but when it comes to safety we’re seeing major organisations come together to share best practice”.

Personal responsibility

There are executives behind bars for not acting to mitigate risks, with members of the C-level now being held personally responsible for fatalities and other accidents. “There’s little defence if you knew about a risk and didn’t act on it, or if you’ve been warned before yet let it happen again”, says Navarro. “When someone goes to work for a company, they have a reasonable expectation that they will come home safely to their family at the end of the day.”

To learn more about Avetta, visit their website. Avetta Founder John Moreland is President of Operation Underground Railroad, a non-profit organisation dedicated to rescuing children around the world who are victims of sex slavery. Click here to learn more.

How Walmart, Hanesbrands and Mattel Reduced Supply Chain Risk

It’s the million dollar question. How can corporates minimise supply chain risk, without significant disruption to their core business?

Supply Chain Risk

Global retail giants, headquartered in the US, have had to address their supply chain risk in a bid to forge ahead in the new world of corporate social responsibility. It hasn’t been an easy exercise, that’s for sure.

Retail giant Walmart, apparel brand Hanesbrands, and toy manufacturer Mattel, are among the countless others to bring about major changes within downstream manufacturing to ensure corporate risk is above board. Each turned to brand protection firm ICIX to implement a new way forward.

Management Wake-Up Call

Company founder Matt Smith explains that supply chain risk was starting to enter the corporate vocabulary in 1999.

“Companies were starting to get jittery about their corporate responsibility. Emails and back then, faxes, were being sent from management looking to address this issue, as they started to wake up to the fact that there were major risks within the supply chain that they had to actually take responsibility for. Before this time, it hadn’t really dawned on management that supply chain risk had anything to do with them,” Smith says.

Suddenly, the race was on to find a way to outsource the task of conducting factory audits and ask the hard questions. Fast forward more than a decade, and the events of 9/11 shone an even brighter spotlight on these issues and what it means for corporate entities.

Smith was at the coalface, watching the opportunity emerge. He set about creating a solution, and today ICIX remains the leading operator in this space. ICIX was born in 2004, initially to respond to the challenges faced by the food industry in securing the food supply chain, and addressing increased safety requirements of the Bioterrorism Act of 2002.

During this time, Smith worked with some of the world’s largest retailers to help them address issues of supply chain transparency and inefficient information sharing. ICIX worked to connect all trading partners into a single network to centralise collaboration, making it one of the earliest cloud-based SaaS companies.

Risk a “Complex Beast”

The company grew early food customers into other retail segments, including general merchandise and apparel and footwear. It also extended its solutions to include not just safety, but also quality, compliance and corporate social responsibility.

Today, ICIX helps companies understand where its products are coming from, streamline collaboration with trading partners, drive compliance and safety, and as a result, secure and maintain customer trust.

Smith says that those working on the risk side of a business are often frowned upon by those working on the business side, which makes it a complex beast to juggle. Frequently, the CIO within a business isn’t necessarily on the same page as someone in the CEO chair.

“I could see a really big opportunity opening up in the US, with several major retailers over here scrambling to find a solution.

“And today, businesses are spending more on managing risk than ever before. Those in procurement are battling for budget and attention, until something bad happens like people get sick or someone dies because of their product. That’s when the purse strings always open up. That’s what it often takes for people to want to solve the supply chain risk related issues.

“We realised that tackling this as a network was going to bring about far greater efficiencies, however retail is a complex industry in which to do this, which complicated the process,” Smith continues.

Role of Technology

For example, barcodes don’t match purchase orders or product numbers, and without that universal product identifier, it can be a complex process. Technology has played a huge part in bringing scale to the organisation, with cloud technology supporting a new way to assess and identify potential risk.

“Supply chain risk management is a huge area, and we were looking for ways to take that network architecture and make it accessible to everyone.”

ICIX does this by taking various feeds of information and assessing it. This could include shipping feeds, purchase feeds, ethical and responsible sourcing data and much more, and then cross-referencing all of these to determine supply chain risk.

The sheer size of retail giant Walmart put it under the consumer spotlight and forced it to look at improving supply chain transparency. Company management was eager to speak to Smith to bring about better efficiencies.

The catalyst for the changes at Walmart were the issues with Mattel matchbox cars in 2007, when consumers got wind of the fact that the children’s toys contained lead paint. New government regulations introduced as a result, required companies to act and take responsibility.

“Firstly, we see whether the vendor is meeting all their safety and testing requirements, then we can fast forward a few steps. And if they’re missing a test report, we can request that information on their behalf and rectify the situation and re-test,” Smith says.

Such solutions provide assurances that companies are ‘doing the right thing’ – that they are providing, safe, quality products that are ethically sourced and compliant. With ever increasing customer demands for transparency, information and responsibility, such programs are critical not only for companies to protect their brands and enhance their customer trust, but to survive.

Why Thinking the Unthinkable is a Wake Up Call for Leaders

The Great Wake Up – Nik Gowing, co-author of Thinking the Unthinkable, explains why these findings should keep us all awake at night. 

Thinking the Unthinkable

What if the very people we appoint – in business and government – to foresee, identify and handle the most unexpected, cataclysmic, and disruptive events, are shown to be perilously inadequate at the most critical of moments?

This is precisely the nightmare finding of research study: Thinking the Unthinkable – A New Imperative for Leadership in the Digital Age, co-authored by Visiting Professor at Kings College London, Nik Gowing.

The Great Wake Up

Setting the context for the Big Ideas Summit, and the C-Suite agenda more broadly, “Thinking the Unthinkable, is the ‘Great Wake Up’ for leaders – current and future.

Speaking ahead of his appearance at Big Ideas Summit, Gowing explains a proliferation of ‘unthinkable’ events has revealed dangerous fragility at the highest levels of corporate and public service leadership.

“From just the first weeks of 2014, a dramatic series of ‘strategic ruptures’ revealed the old assumptions for decision making and promotion to the top in public or corporate life were seriously wanting or worse, irrelevant,” explains Gowing.

The ‘unthinkable’ events Gowing refers to include critical moments such as: President Putin’s seizure of Crimea; the rise of the so-called Islamic state; the devastating outbreak of Ebola; the surge of refugees to Europe and the seemingly uncontrolled tumbling of the Chinese stock market.

None of these events had been seriously considered or tabled, let alone planned for by those at the highest levels of corporate or public leadership.

Failure in Leadership

And yet occur they did, one unthinkable event after another, sending shock waves reverberating around the globe and prompting concerns about the capabilities of those ‘in charge’ to foresee unthinkable events and handle their impact.

“The rate and scale of change is much faster than most are even prepared to concede or respond to. At the highest board and C-suite levels, leaders confess to often being overwhelmed,” says Gowing.

Recognising the strangeness of this new world, Gowing, alongside co-author, Chris Langdon, set out to understand why our leaders appeared to be in free fall at these most critical of moments. And finally, why it remains so difficult for leaders to think the ‘unthinkable’.

“The global pace of change is overcoming the capacity of national and international institutions”

– Chris Donnelly, Director, Institute for Statecraft

Gowing reflects: “What started as a modest research project 14 months ago has grown fast and exponentially into something far more substantive and deeply disturbing.”

Compiled through a series of over 60 one-to-one interviews with C-suite business leaders and top-level public servants, the findings of Thinking the Unthinkable reveal fragility at the uppermost levels of global leadership.

Thinking the Unthinkable confirms the current cohort of top leaders feel overwhelmed and under equipped to understand and work with the enormity of ‘unthinkable events’ that are unfolding.”

A terrifying level of wilful blindness, or ‘executive myopia’, to see and contemplate even the possibility that unthinkables might happen, let alone prepare to respond to them, is perhaps the most alarming finding of the research.

During their candid interviews, Gowing reveals the majority of leaders agreed that the decision-making norms and behaviours which got them to the top in the first place, no longer suffice.

Gowing emphasises: “Leaders need to be liberated from that conformity which guaranteed their career progression. The challenge is how to achieve that.”

Why TTU is Must-Read for Procurement Leaders

There are three key reasons why TTU is a must-read for all leaders – current and future:

First, relevance: Unthinkable events are happening with greater frequency and our leaders are less and less well equipped to handle them.

Second, rigor: Thinking the Unthinkable could not be more disturbing but do not mistake its alarmism for a mere piece of ‘click bait’. Serving as unprecedented database for the private, the research provides in-depth views of some of the world’s most influential corporate and public sector leaders.

Third, impact: Just as it sets the agenda for conversations at Board-level, Thinking the Unthinkable will help guide the conversations for Big Ideas Summit and will underpin our challenge to all delegates: What are the ‘unthinkable’ challenges we face next, and what do they mean for our models of leadership?

 To download the report and access additional content and context, visit the Thinking the Unthinkable website. 

At the Big Ideas Summit on the 21st of April, Nik Gowing will challenge current procurement leaders to consider what their ‘unthinkable’ events are, and how they are planning to tackle them.

If you’re interested in finding out more, visit www.bigideassummit.com, join our Procurious group, and Tweet your thoughts and Big Ideas to us using #BigIdeas2016.

Don’t miss out on this truly excellent event and the chance to participate in discussions that will shape the future of the procurement profession. Get Involved, register today.

Tackling Technology and Risk: The Blockchain

The rise of digital payment systems has brought the blockchain into the public consciousness. But can blockchain be used to aid supply chain transparency?

Blockchain Technology

Just shy of ten years ago, technological innovation and the supply chain might have been considered strange bedfellows. Now they go hand in hand. But as technology advances at an ever-increasing rate, it makes sense that supply chains the world-over are also becoming increasingly complex as a consequence.

However despite the numerous advantages brought about by this envelope-pushing, we must remain vigilant and alert to the increased risks such new avenues afford us.

Recent years have seen a rise in both the adoption and implementation of digital payment systems and so-called “crypto currencies”. Such innovations in payments have removed the need for traditional, physical currency, as well as the bricks and mortar institutions that process them.

Bitcoin – A New Way to Pay

Bitcoin is but one example that’s fast revolutionising the payment industry. Bitcoin is a digital currency that’s been heralded as both an innovator and disruptor in yearly tech trend reports.

Bitcoin is effectively a peer-to-peer system. Its users can carry out transactions without the need for a middleman, but all activity is recorded and verified by the blockchain. Think of blockchain as a ledger and you’re halfway there.

Bitcoin has given the blockchain an early success with its 15+ million bitcoins already in circulation. But with a limit of 300,000 transactions per day (a ceiling that’s fast-approaching), we have to wonder – is there a future for a digital distributed database format?

It’s worth noting that the blockchain isn’t owned or operated by a singular body – hereby distinguishing it from a conventional ledger system. Instead, each network node stores its own copy of the blockchain, so whenever a transaction is made it is first recorded in one place, before being transmitted to other nodes that make up the database.

The “block” comes from the name given to accepted transactions. The system checks approximately six times per hour for new ledger activity, and to determine if a bitcoin amount has been spent.

Bitcoin & Blockchain

Blockchain – Bigger than Bitcoin?

Putting bitcoin’s reliance on the blockchain aside for a moment, various figures have spoken out about its potential to transform not just payment systems, but improve the delivery of services and assure the supply chain of goods.

Nothing if not an encouraging sign, a report from Mark Walport, the UK Government’s Chief Scientific Advisor, made proposals that the Government itself should explore applications for the burgeoning technology.

Walport said: “Distributed ledger technologies have the potential to help governments to collect taxes, deliver benefits, issue passports, record land registries, assure the supply chain of goods and generally ensure the integrity of government records and services.”

Records ultimately lie at the crux of the blockchain. So a technology that serves as an incorruptible ledger, and one that can trace each and every interaction, could prove extremely valuable in areas where accountability is key.

Gordon Donovan, Procurement & Supply Chain Manager for Metro Trains, has previously been quoted on Procurious suggesting the development of a ‘supplier wiki’ in order to build knowledge of the entire supply chain.

Blockchain technology could indeed be used to increase transparency, but there would be considerable work required in advance of opening this up, thanks in no small part to the highly complex nature of organisational supply chains and the numerous suppliers involved.

Blockchain network

A Chain is Only as Strong as the Weakest Link

If this reliance on blockchain is going to come to pass, more work needs to be done around trust and security – a fact that hasn’t gone unnoticed by bitcoin’s most vocal critics.

With high visibility services like Twitter, the BBC, and both the global networks for Xbox and PlayStation, all being taken offline by distributed denial-of-service (DDoS) attacks, what crippling effect would such activities have on the blockchain?

Moreover it wouldn’t be too much of leap to suggest vulnerabilities could lead to ‘botnets’ taking control of nodes to reveal the identities of the parties involved in transactions.

But is all of this worry warranted? It would certainly seem so if the letter penned by bitcoin’s high priests is anything to by. The open letter informed the community at large of an action plan to reach a consensus on improving bitcoin security.

“We have worked on bitcoin scaling for years while safeguarding the network’s core features of decentralisation, security, and permissionless innovation” – it began.

“We’re committed to ensuring the largest possible number of users benefit from bitcoin, without eroding these fundamental values.”

In order to achieve these aims, 30-plus bitcoin developers organised two workshops (in Montreal and Hong Kong respectively) to try and carve out a scalable path for the cryptocurrency’s future.

If we’re not looking for a repeat of the Silk Road scandal, let’s just hope they came up with a solution…

Is it possible for blockchain and bitcoin technology to transform the future of digital payments and aid supply chain transparency? Let me know your thoughts.