Are you being proactive in managing risks to your business from the coronavirus?
The death toll from the coronavirus has reached more than 2,800 and the number of confirmed cases has exceeded 80,000.
Beyond the enormous human toll, the effects of the coronavirus and the efforts to control its spread are being felt throughout the world’s supply chains.
Factories in China are facing staff shortages. Or they are electing to remain closed to protect their workforce. Airlines have suspended flights to China.
However, there is an indirect result of the necessary steps being taken to contain the outbreak. Restrictions and regulations designed to control the spread of the virus could have an adverse impact on cargo leaving and entering ports all over the world.
And while some of the impacts have been immediate, other latent effects will not be felt for months.
This will hit:
manufacturers and retailers who rely on affected products and labour
logistics haulers expecting to transport the material
and, ultimately, the end consumers.
This crisis demonstrates the increasing complexity – and global nature – of supply chains and the imperative need to manage risk within this complex supply chain.
Compare the current outbreak with that of SARS in 2003. It is striking to see how quickly coronavirus has eclipsed SARS in the number of infections. It took the coronavirus only 2 months to infect 75 per cent of the total number infected by SARS over a 9-month period.
The crisis also shows how much China has developed in terms of population and establishing itself as a key cog in the world’s economy.
There is a danger of coronavirus becoming a major global issue if not controlled closely. So, what can organisations do to prepare themselves for these impacts?
Many leading organisations have developed programmes to manage and deal with supply chain disruption. But this situation is a unique challenge for even those organisations with advanced risk management programmes.
Regardless of the level of sophistication in an organisation’s risk programme, all organisations can take steps to monitor their supply chain. This will help them to for the impacts of the epidemic.
3 Key Steps to Manage Risk
1. Know where your supply chain is located
Identify those countries that are currently at high risk and map your supply chain against these affected areas. This mapping should include evaluating key tier 2 and tier 3 suppliers as well as key logistics hubs that could be impacted.
2. Continuously monitor changes
Understand that the crisis is still unfolding and the true impacts from a supply chain disruption perspective may not reveal themselves for months. Establish a process to monitor other regions outside the infected areas that could be impacted.
Are ports outside the infected areas being impacted through disruption or through new regulations to protect against transmission of the virus? Are suppliers struggling financially without access to the Chinese markets, jeopardizing their viability?
3. Diversify the supply base
Like a financial portfolio, look for opportunities to rebalance and diversify the supply base to minimize the risk and take actions to qualify these suppliers in the event they are needed.
Need for Proactive Risk Management
This crisis underscores the need for organizations to establish and maintain effective proactive risk management programmes for their supply chain.
It is impossible for organisations to anticipate these types of outbreaks. But an effective risk management programme, complete with processes, tools and data can lessen the impact. And the time it takes an organisation to recover.
Despite the general consensus that risk management is important, recent studies have found that many companies still have a long way to go and a lot of work to do…
“The Supply Chain stuff is tricky!” – Elon Musk at Code Conference in 2016.
When someone like Elon Musk says that something is tricky, it means something! The examples that Musk mentions in the video show that modern supply chains are becoming more global and more complex. This complexity also leaves organisations exposed to more risks because the current business environment is characterised by VUCA (Volatility, Uncertainty, Complexity, and Ambiguity).
The uncertainty surrounding Brexit aside, other recent events, like growing tensions with China and Iran, are daily reminders that today’s global business ecosystems are precarious. And it’s not just the potential for international conflict and instability that is making business riskier. Many countries have also introduced new regulations on sustainability (modern slavery, conflict minerals), or diversity, which add new risk factors in terms of compliance.
Make Risk Management Part of DNA
Between business continuity aspects, legal or normative aspects, and protection against a public backlash whenever malpractice is discovered in an organisation’s supply chain, there are more than enough reasons to make risk-management part of a company’s DNA.
Despite the general consensus that risk management is important, recent studies have found that many companies still have a long way to go and a lot of work to do.
Some of this work should include building better relationships with suppliers and colleagues. As I mentioned in a previous article, these relationships can play an important role in helping companies identify and mitigate certain types of risk — but not all. In addition to being on good terms with suppliers, companies will need to cover many other aspects to manage risk effectively and protect themselves.
These days, procurement organisations cannot afford to ignore leave risk management off their list of top priorities. There are many reasons for this. Here are three of the most important ones.
Reason #1: Risk is everywhere
I don’t want to sound alarmist, but we live in a troubled and complex world. There is no shortage of events that could jeopardise and/or disrupt a business, potentially impacting their profitability, business continuity, image, and reputation.
Protecting your business from these disruptions is challenging, because they can originate from so many different sources. Natural disasters, accidents, social events, changes in regulations, intellectual property infringement, quality issues, and attacks on cybersecurity are just a few examples.
“Governments are also taking action by engaging in an escalating global competition to maintain and improve national competitiveness in the 21st-century digital economy. […]. While such cross-border competition is by no means new, the geopolitical undertones in this battle for dominance raise the risk that the digital economy will continue to fragment, complicating global supply chains and the operations of international companies, and acting as a drag on economic growth.”
Another key factor is that our world is changing faster than ever. Just look at the political, technological, and societal changes that have taken place in the past few years; many of them fuelled directly or indirectly by the impact of digitalisation.
Despite this reality,
risk management has been a relatively passive domain for a long time, and it
has frequently (and problematically) been equated with crisis/incident
management. People were looking into risk management after an event had already
happened; i.e., too late!
This was because the world of yesteryear was more stable and pretty predictable. In today’s world and in the future, the accelerating pace of change and the expanding globalisation of the economy mean that anticipation is crucial.
The risk management of today and tomorrow is about survival and making the right procurement decisions, which requires procurement to think about what “comes after” and how certain choices can make a company more or less safe in the long run. Prevention is better than cure!
“[An] enterprise is facing increasing danger that key sourcing decisions will prove uneconomic sooner, and with more damaging consequences than would normally have been anticipated by risk equations that presumed the older supply chain model. Starkly put, the odds of supply chain disruption are growing and will grow even greater in the future.”
CSCMP’s Supply Chain Quarterly
Obviously, what represents a risk depends on many factors and varies from one company to another:
in B2C may be more vulnerable to risk related to their image and their reputation. If
something happens that jeopardizes either of these, their brand could suffer.
or organizations from the public sector and/or selling to administrations may
be more vulnerable to regulation changes.
regarding fraud and ethics may also vary from one sector to another.
Reason #2: Black swans are not an excuse to ignore risks
“Everybody has plans until they get hit.” -Mike Tyson
Anything can happen, even a shootout at the Mexican border, as told by Musk in his interview. Such “black swans” exist, and planning for the seemingly impossible is another lesson learned from “Best in Class” organisations regarding risk management: being prepared for problems enables companies to react faster to unforeseen events. They become anti-fragile!
It’s true that, by definition, risks reflect potential future disruptions. The goal is to foresee them and define ways to reduce the probability that such events ever happen and/or to reduce their impact if they do happen. Unfortunately, there is no crystal ball for Procurement; no one knows for sure what the future holds.
The only solution is to imagine different scenarios for potential problems. These scenarios can either be based on experience (problems that already happened to other organisations) and based on brainstorming (a.k.a. risk identification).
This may sound like daunting work, but it’s worth it. Organisations that have invested time and energy into identifying risks, assessing them, and defining ways to mitigate them are better at managing incidents they did not anticipate.
Reason #3: Supply chain issues are costly
There is no universal “best practice” recipe per se; only best practices in a certain context. But, what is certain is that not taking care of risk can be costly.
So, in the war against risk, being prepared, defining various scenarios and recovery plans/actions, having the right skills, and the proper technology makes an organisation more resilient and more agile when something unexpected happens because:
they can re-use a predefined recovery plan
they have the processes and governance in place to act and decide fast
the people in the organisation have risk management in their DNA
Spend all your time at work fighting fires? Proactive risk management can help douse the flames and get you ahead of the game.
For as long as procurement has been a profession, risk management has largely been seen as a data collection exercise, undertaken at alarmingly infrequent intervals. Often, it was nothing more than a checked box to indicate assumed compliance, with no deeper insight or follow-up.
But as the reach of procurement extends beyond savings, compliance and performance. The profession touches almost every facet of a company, and mitigating risk is increasingly being seen as the fourth pillar of the profession. To be truly successful, risk management requires robust insight into all links of a supply chain – a task that has often been insurmountable.
How can you properly manage your company’s risk as supply chains go global? And who should be responsible for ensuring you’re ahead of issues before they arise?
Procurement teams have the potential to drive big changes on a global scale. If you’re not successfully navigating your risks then you’ll struggle to join the ranks of the world leaders.
Proactive vs Reactive
Whether caused by bankruptcy, politics or even severe weather events, risks to your supply chain come in all shapes and sizes, so it’s not completely unreasonable to be overwhelmed. Preparing for every single eventuality is a daunting task that seems to stop procurement professionals in their tracks.
As such, many people start on the back foot, considering the risks only when their bottom line has already been affected. However, if you understand your risk profile – the types of threats that will have the biggest impact on your business, whether they’re physical, logistical or reputational – then you’ll be able to develop proactive risk mitigation plans that can keep your business flowing seamlessly through strikes, shut downs and storms.
Successful risk management in action
At riskmethods, we combine advanced AI technology with human support to offer comprehensive risk management solutions for our customers. We train our AI using over 5 million articles relevant to their unique risk profiles, to allow us to give our clients the visibility into what the current and future risks are for their business and offer insight into the underlying threats in their supply chain – so they can take action before it hits.
For example, when Hurricane Harvey hit Texas in 2017, it made landfall three times in six days, causing $125 billion in damages and sending a third of Houston underwater. As the storm began making news, we were able to use our technology to create storm projections for our customers that narrowed down the affected location as the storm approached. This alerted them to the risk of damage or delays, and allowed them to contact any suppliers or manufacturers within the impact zone before the storm arrived.
As a result, they were able to take action to create proactive mediation plans for their impacted suppliers with outstanding orders before the storm even hit the ground, successfully navigating potential shutdowns that could have impacted their supply chain for weeks to come.
In an elite enterprise, this active monitoring of new and emerging threats means that while it may not be financially possible for all enterprises to have crisis management teams on hand, ready to pounce at the first hint of trouble, they will have contingency plans in place. This increases your ability to react faster and could potentially give you the leg up on your competition.
Where is risk management going in the future?
The next procurement transformation is taking the profession from a singular discipline to a cross-organisational centre for increased collaboration and supplier transparency.
Risk management is set to go hand-in-hand with this transformation to alleviate the risks within an enterprise, bringing another tool to the table for CPOs to leverage and creating a competitive differentiation for enterprises. While this direction may seem like common sense going forward, the reality is that it’s only in recent years that its importance has really been acknowledged.
Those who continue to think of risk as someone else’s problem will soon find themselves falling behind.
riskmethods was one of the sponsors for the Big Ideas Summit Chicago 2019, with Bradley Paster delivering an ace keynote too. Don’t worry if you missed out, you can still sign up to access all the great content. Register now by clicking here.
Traditionally, when organisations have discussed supply chain visibility, the focus has very much been on the downstream. Why? Because common thinking is that the customer is king. And, as downstream visibility focuses on the customer, it is the first, and sometimes only, priority.
This has in turn given credence to the biggest myth about supply chain visibility, which is that downstream visibility is more important than upstream visibility. It’s high time this myth was busted, because this belief has a very narrow focus, and is not truly reflective of modern supply chain thinking. The truth is that upstream visibility is just as important as downstream visibility. Why? Because a lack of upstream visibility is just as likely to impact your customer.
Supply Chain Visibility – Upstream vs. Downstream
Before we get any further, let’s make sure to clarify some basic definitions.
Downstream visibility is a clear understanding of exactly how your products are moving down to your customer. Basically, it covers all the processes and actions that are involved in getting your finished product from your warehouse into the hands of the end user.
Upstream visibility, on the other hand, is a clear understanding of exactly how all the parts required to make your product are moving down through to your organisation. From a supply chain perspective, this covers all the processes and actions involved in getting what you need to create the finished product.
You might also occasionally hear the term “midstream visibility” to refer to what’s happening in production. From a supply chain perspective, these processes are often amalgamated into the category of downstream visibility.
Together, upstream visibility and downstream visibility combine to create end-to-end supply chain visibility.
Too Much Downstream Focus?
Let’s say, for example, that your company manufactures cameras. You need to make sure that you have full visibility of what’s happening when a camera is moving from your warehouse to your customer. Right from final testing right through to delivery to the store.
There are several processes that are available to organisations in order to track and improve downstream visibility. Depending on the complexity of the product in question, this can range from optimization of transportation and warehouse logistics and unifying ERP systems, to creating digital twins of their production, and more.
If your organisation is already looking at these kinds of projects, well done. But if downstream visibility is your only focus, you’re only doing half the job.
Without upstream visibility, you run the risk of not getting the parts you need to build your product. How are you going to get your cameras into the hands of your customers if you can’t build them in the first place? This is why upstream visibility is just as crucial as downstream visibility.
Upstream – Just around the Riverbend
So how do you get upstream visibility? A supply chain risk management programme is a crucial first step. If you’re not monitoring your suppliers (not to mention your supply paths, your own sites and your second and third tier suppliers too) for events that are going to impact them, then you have virtually no upstream visibility.
Here’s where you should start:
• In procurement: Your procurement department owns the relationship with suppliers. The department needs to have access to data allowing for all the necessary insight into any type of risk affecting your supply chain, both upstream and downstream.
• In your supplier sub-tiers: According to the Business Continuity Institute, most supply chain disruptions occur below tier one, where visibility can be even harder. You need visibility into not just your tier-one suppliers, but of all your sub-tiers. This is where good tier-one supplier relationships are key.
• With your major logistics hubs: What major logistics hubs are your supplies and your products going through? Do any of these areas represent bottlenecks? And are you aware of events there that might impact your supply paths? If not, you’re not going to be able to effectively mitigate threats.
• Your own warehouses and distribution centres: You need to monitor your own sites as much as you need to monitor your suppliers. Creating good communication lines and relationships with internal stakeholders is going to help here. The people on the ground will know best if issues are on the horizon, and then you can collectively work to implement actions and processes to prevent, or at least mitigate, them.
The supply chain visibility conversation is an important one to have in any organisation that has a supply chain. But if you’re focused on just downstream visibility, you’re missing half of the equation. And this could ultimately be the difference between success and failure.
Myth = Busted!
Find out more about upstream and downstream visibility, as well as Supply Chain Risk Management software, with Big Ideas Summit sponsor, riskmethods, here.
In a digital future, relationships will continue to matter when it comes to risk management…
I recently attended a procurement event, and, over lunch, I had an interesting discussion with other procurement practitioners about supply chain risk management (SCRM). One of the people at the table stated that his organisation was not looking into increasing its SCRM capabilities because technology cannot help in preventing issues to happen. To reinforce his theory, he told us what had recently happened to his company. The factory of one of his key suppliers was reduced to ashes by a fire. That incident led to disruptions that, according to him, technology could not have helped preventing or mitigating the impact.
Even if it is true that SCRM technology cannot have a direct impact on the cause of incidents, it is not a reason to ignore potential threats and behave like an ostrich, sticking its head in the sand. The story above is one of the many examples demonstrating that organisations don’t learn and reproduce the same mistakes, again and again.
“Insanity Is Doing the Same Thing Over and Over Again and Expecting Different Results.”
SCRM technology together with SRM and Category Management
can have an impact on reducing exposure by, for example, highlighting sensitive
areas (single sourcing of critical components, suppliers in dangerous zones…).
They also can help in reacting faster than the competition when problems occur.
And there are many examples of that. However, there is more to it…
Being the customer of choice helps
During that same conversation, I mentioned another story I
had read about as it was to some extent similar but with a very different
A buying organisation using a SCRM solution had received a notification that an incident had happened at one of their supplier’s factory. Therefore, the buyer in charge was able to
immediately contact the supplier to discuss with him
build a business continuity plan.
The immediate action was to have the supplier produce the
component in one of his other factory that had some free capacity.
In addition to the speed advantage that technology provided, the buying organisation benefited from the good relationship he had built with the supplier. Because they were considered as a customer of choice, the supplier gave them access to possibilities that less preferential customers probably would never have had.
Get help from bigger than you
The story above reminded me of another one, with a different twist. I heard it a few months ago at a procurement conference in Czech Republic. A buyer (I will call him John) had in his portfolio a certain raw material. He was buying modest quantities of it but the material was nevertheless critical. Also, only a handful of suppliers were selling it. John knew that, in case of peak in demand, he would never be the one served first. In order to prevent shortages, he developed a clever alliance strategy.
John attended a fair where he knew that the major sellers
and buyers of that raw material would be. Using the research he had done before
the event and his observation skills, he connected with the big players on the
buy-side of the market because he knew they would have better contracts and
conditions that his. Conditions that would most probably integrate capacity
Months later, when demand peaked John did not contact his
supplier to try to convince him to deliver to him; he knew it would be a vain
effort. Instead, John reached out to a buyer (Bill) who he had met at the fair
and with whom he had built a good relationship. He explained his situation to Bill.
After listening, Bill explained that he could help because he had a contract
that stipulates that the supplier must cover his needs as long as they vary
within a certain range. As John’s needs were small in comparison to his, adding
them to his would remain in the contract’s terms. After agreeing on the
condition of this deal, Bill called his supplier to inform him that he would
need larger deliveries. The supplier agreed and delivered the requested
quantities to Bill who then forwarded what John needed.
In a digital future, relationships will continue to matter
John’s story has a particular resonance for me as I had
lived a relatively similar situation when I was a buyer. But, I hadn’t done my
homework like John, so I could not seek the help of a larger customer to help
me. It took months and lots of efforts to recover.
These stories illustrate that Procurement professionals have
to prepare for the worst and hope for the best. The fact that black swans exist is no
excuse for not being ready! It also means that having the people, process,
technology, and data to:
weaknesses and risks
contingency and mitigation plans
monitor risk sources
These are the conditions for being proactive and not passive with regards to risks. Also, they should not forget the importance of nurturing relationships as business is human-to-human, H2H, (and no more B2B or B2C). At the end of the day, organisations having a competitive advantage are the ones that get the best out of their relationships with technology AND people; augmenting/enhancing each other.
Are you responsible for sending your people into danger? In a new Procurious blog series, The World’s Deadliest Supply Chains, we investigate the most high-risk supply chains out there…
The intrepid truckers on the temporary ice roads spanning hundreds of kilometres of frozen lakes in Canada and Alaska keep their hands on the door handle for good reason: should the ice crack, they have a split second to leap from the vehicle before it falls into the icy, watery abyss.
For a decade, viewers of the History
Channel were given a first-hand view of what motivates these drivers and the
perils they face, which include not just a frigid sinkhole but avalanches,
whiteouts and hypothermia, even earthquakes and volcanic activity.
Set in Canada’s Northern Territories
and Alaska, Ice Road Truckers lasted 11
series between 2007 and 2017.
The truckers’ mission was to supply
remote gold and diamond mines and entire small towns with goods in the winter
months, when road access is only possible because the lakes have frozen over.
Items included anything from fresh
food to mining equipment that would be tricky to transport even on well-laid bitumen.
Featuring nicknames such as “Chains”,
“Bear Swensen”, “Polar Bear” and “Hammer Down”, the rough-hewn drivers were
often depicted in mishaps such as when they ran off the road or got bogged.
In one episode, viewer favourite Lisa
Kelly – one of three female drivers – leaps from her truck amid ominous cracking
sounds and a disconcerting build-up of water under her rig’s 18 wheels.
As is the norm for ‘reality’ programs, the series was criticised for overdramatising and promoting reckless behaviour among the truckers – one of them, for example, exclaims “yee-haw!” after driving too fast over a rough patch of road.
The opening sequence showing a truck
sinking through the ice was staged at a Hollywood studio in sunny California,
using sugar and shaved ice. However, the set-up was based on a real accident at
Mackenzie Crossing in Alberta, with the driver apparently not recognising a
warning sign that the road was suitable for light loads only.
Some viewers were less than impressed
with the skills of the Ice Road Truckers
cast. “Who the heck tries to pull out another truck using a chain that has
slack in it and then drops the gas [accelerates] and takes off?” asked one
Ventures West Transportation president
Glenn Bauer reckons the televised truckers come across as a “bunch of cowboys”
(the Alberta-based company hauls fuel to some of the Canadian diamond mines
featured early in the series).
He says the only incident he knows
about involved road-building equipment falling though the ice. “In reality, it’s very, very controlled,” he told
Despite the series’ bent towards entertainment, there’s little doubt that navigating a 70 tonne load over hundreds of kilometres of icy wilderness is inherently dangerous and there have been some fatalities over the years.
Fatalities are rare, though. As a guide, the 27 truckers in the Ice Road Truckers series all lived to tell their war stories, save for Montanan Darrell Ward who died in 2002 aged 52 – in a light plane accident. He was, ironically, on his way to film the pilot for a documentary-style show involving the recovery of plane wrecks.)
One reason for the low fatality rate
is that, as with inherently risky aviation, operators are required to follow
strict safety protocols.
For instance, trucks travel in convoy
(although not too close together) with the most experienced drivers leading,
and trucks are limited to speeds as low as 10 kmh. In parts where slush is
forming, drivers are advised not to stop altogether lest they get stuck.
The ice roads are not random trails,
but can be engineering wonders. One example is the Tibbitt to Contwoyto Winter
Road, which spans 595 kilometres from north of Yellowknife into the neighbouring
territory of Nanavut.
The width of an eight-lane highway,
the road takes 140 workers to build each year and can support 70 tonne, eight-axle
The famed Dalton Highway in Alaska –
spanning 414 miles from Fairbanks to the oilfields of Prudhoe Bay – was the
subject of an innovative repair job that itself presented a huge logistics feat.
The massive task involved underlaying 80
kilometres of a vulnerable section of the highway with 1.2 million metres of polystyrene
foam strips, to keep the permafrost frosty and to raise the road above flood level.
Apart from a crazy streak, the only
formal prerequisites to become an ice-road trucker are completing high school
and possessing a heavy commercial truck licence. The truck companies provide
the training – not that there is any real substitute for experience.
With no pit stops along the way, the
truckers need to be proficient drivers as well as proficient mechanics.
The lure of the lucre is a key
motivation, although pay levels vary markedly. Typical remuneration for a
season varies between $US20,000 and $US80,000, but harder working truckers can
earn up to $US250,000.
The pay levels depend on the distances
driven, the type of cargo and the hazard levels.
Despite high competition for relatively
few jobs, driver turnover reportedly is very high, with many not returning
after their first trip after realising how dangerous the game can be.
A paradox of the ice-trucking game is
that while the frigid conditions make for treacherous conditions, warmer-than-expected
weather is even worse because the highways are more prone to crack and develop
In the next few years, climate change, rather than ice blizzards and crevasses, may defeat the hardened people of the ice roads.
If you’d like to read additional related content or get involved with thought provoking discussions check out the Supply Chain Pros group – a one stop shop for all your supply chain need
What does digital transformation mean for the procurement and supply chain profession? How will it help CPOs to mange risk in their supply chains?
The concept of digital transformation has been around for quite a while, ISM CEO Tom Derry argues. “In the late 90s we started doing reverse auctions and e-auctions. Not too long after that dynamic discounting began to enter the equation and FinTech platforms have also been around for a while. We’ve been embracing it but recently we’ve hit a pause in that innovation wave. And it seems like we’re on the brink of this next wave.”
How will digital transformation transform procurement and supply chain?
Digital transformation is the full impact or outcome of using data on elevated platforms to really reinvent what procurement and supply chain professionals are doing.
“In the source-to-settle process we typically identify 37 discreet steps” explains Tom. “And we think four technologies – procure-to-pay platforms, RPA, machine learning and IoT – will mean that all but eight or nine of those discreet tasks will be automated.” This, of course frees up time for humans carry out only the most important things like stakeholder management and supplier relationship management, the things that can only happen as a result of conversations between people.
Indeed, it is these soft skills that will galvanise the procurement and supply chain professions and make them step out into the future. When data is pointing you in different directions and the computers don’t know what to do, that’s when you step in.
Is supply management ready for change?
A recent survey revealed that only 6 per cent of CPOs possess the strategic leadership traits to lead digital and analytical transformations.
“I’d say there is a lot of discomfort. People don’t really understand the technologies we’re talking about and they don’t necessarily have the in-house skills,” says Tom.
“An interesting example is the technology that is currently being piloted in 30-40 per cent of large companies – RPA.” And yet most people don’t even understand what this technology is. “They think it means a robot from ‘lost in space’ when we’re actually talking about software code. The code fits into the gap between systems so imagine your ERP system, your spend analytics tool and any other systems you’re using. We’re typically trying to build reports by extracting data from these disparate sets of data, putting them in a data warehouse or a data lake, doing some analysis and running reports.
“RPA can automate most of that work so a human doesn’t have to go in and identify the data. RPA is good at doing routine, highly-defined processes.” This frees up the time of professionals so that, instead of spending half the day obtaining and cleansing the data, time can be spent on activities where there is real value-add. “The insights and the applications, for me, is the real opportunity.”
Selling the benefits of digital transformation
How does Tom advise managing those risk averse CPOs, who are reluctant to take the plunge with new technologies? Can you overcome that and sell the benefits to them?
“One of the biggest pay-offs for even the most risk averse CPOs is using digital tech to visualise the risk in your supply chain.
“I heard about a publicly traded pharmaceutical company in the states who did a risk analysis and claimed that anything less than $1M in spend is so small it’s immaterial. They wouldn’t even look at it. But it turned out they had $200,000 in spend on a coating for a consumer medication, which supported $2B in annual sales.
“[The plant in Japan that produced this coating] had a fire and they were at risk of losing all of these sales. If that doesn’t get the board’s attention, I don’t know what will. So when it comes to risk, that’s where the immediate benefits will be!”
When it comes to digital transformation, people know they need to be educated. “you have to get as smart as you can on what’s coming!” says Tom.
In our 10-part “Tuesdays With Tom” podcast series, Tom Derry discusses a broad range of critically important topics that every supply management professional should be across.
Where supply chains are already complex, increased visibility throughout the supply chain and closer monitoring of risk are becoming more common…
In 1992, Yoshihiro Francis Fukuyama, the American political scientist and author, published the much-praised The End of History and the Last Man, which suggested that the spread of liberal democracy and free-market capitalism meant that the final and ideal form of human government was now clear and established. He foresaw “the end of history as such.”
It’s clear that 25 years on,
life has not quite worked out like that.
The world continues to be as
unpredictable as ever, with the rise of unexpected leaders such as President
Trump, the emergence of China as a global superpower, Brexit, wars in the
Middle East, and many other developments. All we can say about the future is
there is still plenty of history left to be written, and anyone who tells you
they know what is
going to happen is a genius, crazy, or simply a liar.
Look for opportunities
But of course, times of
change bring huge opportunities, too. The digital revolution has turned
industries upside down, with disruptive market entrants seizing market share.
Some incumbents adapt well and others don’t. Emerging markets hold great
potential, too, which many western firms have been slow to pick up on. For
instance, by 2050, Nigeria will be the third-most-populated country in the
world, with more citizens than the United States.
It is also amazing how
rapidly the politico-economic situation appears to change today; a few weeks
ago, the press was reporting that the United States and Europe were about to
enter a trade war. One meeting later, all seems well again, and the “U.S. and
EU reach deal to calm trade war fears,” as The Guardian reported.
Where does this apparently
ever-increasing pace of change leave the procurement professional and the
organisations in which they work?
I’ve previously compared
Brexit to the over-hyped “millennium bug” (Y2K) and related challenges stating
that unlike Y2K, where there was a defined risk and problem to solve, Brexit
poses significantly more uncertainty and therefore perhaps a wider range of
risks to review.
That uncertainty is central
to the challenge for organisations. We know there will be issues to be faced;
tax, customs, and trade complexities, for example. But it is impossible to
know yet exactly how Brexit will affect the business environment at the
national, sector, or individual company level. So although it might seem
tempting, this is not the time for procurement executives (or indeed anyone in
business) to pull the blankets over our heads and ignore the situation – the
“wake me up when it’s all over” approach, we might call it. The UK was, after
all, an independent nation for many, many years before it joined the EU.
We know life will go on
after March 31, 2019!
Indeed, fortune favors the
prepared. Scenario planning, looking at the “what if” questions, is essential
for organisations that can see their business being potentially impacted by
Brexit. And whatever happens, procurement or supply chain leaders, with their
focus on the external world, have a particularly important role to play.
Where supply chains are
already complex, increased visibility throughout the supply chain and closer
monitoring of risk are becoming more common with the help of leading edge
technology including blockchain and “cobots”. Increased deployment of blockchain solutions,
for example, enhances frictionless, secure transactions and smart contracts,
minimising paperwork and effort to manage compliance with increased
regulations. While it’s early days for blockchain adoption outside of financial
services, almost all major manufacturing organisations have ongoing work in
But let’s finish with two
key takeaways for procurement leaders based very much on currently available
technology. Both relate to areas where digitalisation should continue or
even be accelerated to position the organisation well for Brexit and a period
sure your procurement “fundamentals” are in good shape.Digital technology provides the
means to do this more effectively than ever: robust vendor master data;
visibility on spend and suppliers; and accurate, relevant, timely data about
spend and spending plans, suppliers, and contracts. Understanding the supply
situation in its widest sense is essential if the organisation wants to be well
positioned to handle future change, shocks, and opportunities.
Second, consider the
specific need for supply chain risk management to be robust,
effective, and dynamic. That covers not just political risks,
of course, but also financial risk, reputational risk, “man-made” risk (e.g.,
labor disputes at supplier plants), or natural disasters. It also needs to
consider multi-tier supply chain risk, not just immediate suppliers. Technology
is a key enabler here, as well, but organisations need to consider skills and
mindset too when it comes to effective risk
To sum up, while no one
would pretend that there won’t be issues, problems, and costs associated with
Brexit, for the UK and indeed other countries, there will be opportunities,
Ariba are sponsoring Big Ideas Summit London on March
up now as a digital delegate to follow the day’s action wherever
you are in the world.
If you can’t take the heat get out of the resolution room! Or invite Watson!
We’ve all been there. Something’s gone terribly wrong with a major customer delivery. Emails are flying around and there are rumours from HQ that “heads are going to roll”. Everyone concerned has been summoned to “THE meeting” in order to resolve the supply chain issue.
We know what happens next; fists slamming, red faces, an embarrassing lack of data and a lot of verbal ping, pong. Eventually, a resolution is found.
But what happens when Watson is in the resolution room? Could this take the heat out of your supply chain disputes?
What is a Resolution Room?
A Resolution Room provides the organisation the ability to collaborate quickly to resolve supply disruptions. Users can discuss and resolve issues with other colleagues, business partners, or their suppliers. What distinguishes Resolution Rooms from all other collaboration platforms is Watson.
What does it mean to have Watson in the resolution room?
The big benefit of Watson being in the resolution room is that it recommends experts, provides insight from all data and actionable advice based on learned best practices. Over time, it leverages Watson’s capability to develop a body of knowledge by learning how issues were best addressed in the past. This enables greater speed and accuracy in responding to future events.
“Watson provides the opportunity to deliver business value and insights from all of these data insights – structured and unstructured, data from weather patterns, news, D&B and supplier IQ,” explains Joanne Wright, Chief Supply Chain Officer, IBM.
“It does this with speed and accuracy. No more are we saying ‘OK…let’s get the data and meet again tomorrow’ because Watson takes my team’s input and incorporates that into the next iteration as we go.”
Watson In The Resolution Room: A Case Study
IBM Watson is always a room participant, so you can draw on Watson’s expertise using natural language to ask a question, for example: @Watson what is the status of order ABC123?
Imagine the following scenario; A Late Shipment alert in the Ops Center reveals that orders of your most popular drone are in jeopardy because the shortage of the entire supply of a critical part, a lithium battery, has been delayed. You create a Resolution Room to manage the incident collectively.
Watson is in the room.
Whilst your team discusses how best to manage the problem you have the ease of asking Watson questions such as:
Which customer has the most sales dollars that will be late?
What are the financial impacts of any late orders?
Have we experienced this problem before? Who are the experts who have worked on these similar issues in the past?
Are there any alternate suppliers for part number 46001?
Why is there a shortage of lithium batteries?
Watson can provide answers to questions such as these based on the data available in the data model and in other Resolution Rooms. Learning over time, it becomes smarter and able to provide better insights about your supply chain.
U.S. sanctions are being applied more vigorously than ever to perceived foreign foes. What risks do these sanctions pose to our supply chains and what Mitigation Strategies Can be Used?
The United States (U.S.) had $2.21 trillion Dollars in exports in 2016 according to the U.S. Department of Commerce (D.O.C)i, and an estimated 10.7 million U.S. jobs supported by exports ii. Yet U.S. unilateral sanctions are being applied more vigorously than ever to perceived foreign foes, negatively affecting trade balances.
One of the most important and sensitive supply chain risks for private and public organisations is how to manage U.S. unilateral sanctions. The U.S. Treasury Department Office of Foreign Assets Control (OFAC) is responsible for administering U.S. sanctions. OFAC also distinguishes between primary and secondary sanctions, with the former prohibiting U.S. persons from engaging with sanctioned entities, and the latter targeting non-U.S. persons, outside U.S. jurisdiction, engaged in activities with the sanctioned entity either directly or in an ancillary fashion. Potentially affected businesses and individuals, therefore, must regularly consult the Department of Treasury’s online resources, or engage lawyers with OFAC compliance experience, to ensure they are not exposing themselves to significant penalties (or jail time) from U.S. authorities. For international or multi-lateral organisations, unilateral sanctions risks are particularly tricky because both the U.S. and the sanctioned country, or countries, may be among their members. This article will focus on U.S. unilateral sanctions risks affecting International Organisation deals.
Why Is This A Problem?
Nearly all international organisations have clauses prohibiting contracts, transfers of goods, or even technical cooperation engagements with vendors or countries subject to sanctions imposed by the United Nations Security Council. However, these organisations are not required by international law to adhere to unilateral sanctions of any one member country against another, due to the privileges and immunities conveyed upon them by international conventions.iii In theory this means that if the U.S. imposes sanctions on Iran for example (both member countries of the U.N. since 1945), but the United Nations itself does not impose sanctions on Iran, then U.N. agencies and similarly, non-U.N. multi-lateral organisations, could continue doing business with Iran and not have to abide by the U.S.’s unilateral action. In practice however, multi-lateral agencies may find it difficult to ignore the U.S.’s persuasive sanctions arguments, despite the detriment unilateral sanctions may cause another member. Why? The United States is a major actor on the world stage, and it has considerable influence. It can wield its tremendous political and economic clout as a powerful member of nearly every international organisation in the world, to ensure its objectives are met, and that any transgressions by suppliers or international agencies, are swiftly discouraged.
What Are The Supply Chain Risks?
Supply interruption – U.S. unilateral sanctions can be applied overnight because the surprise element is very powerful in coercing the sanctioned party to comply with U.S. demands iv. Because sanctions may be implemented quickly and unexpectedly, their enactment can trigger immediate supply interruption of goods and services. All members of the supply chain can become subject to rigorous product or service inquiry to determine continued eligibility, and re-negotiation of terms is a real possibility. Suppliers may find themselves scrambling to ensure their contract doesn’t involve activities or persons that expose them to secondary sanctions.
Payment restrictions – Cash flow can also become a problem, especially if suppliers negotiate special payment terms in certain currencies. If an international agency engages a supplier to provide goods or services, and that supplier is somehow involved with a sanctioned entity, directly or indirectly, payments or advance cash transfers may get tied up by banks who suspect the transfer may reach an entity subject to U.S. unilateral sanctions. This can lead suppliers to struggle to meet contract targets or cease delivery altogether. It can also make repatriation of payments back to a payer more difficult.
Reputational Impact – Although the U.N., other multi-laterals, and their staff enjoy immunity from legal processv, suppliers do not enjoy the same protections. Sanctions can bring additional costs they hadn’t expected and they may attempt to secure compensation when things go awry. Even when the relevant law and jurisdiction for disputes is determined by the international agency, suppliers may still aggressively pursue disputes and the reputational risk for the agency if it does not comply or compensate for a presumed breach, is high. Diplomatic and political resources often prevail in settling such disputes away from the prying eyes of the press and public, however, coming to a satisfactory resolution involves time, money, and uncertainty.
What Mitigation Strategies Can be Used?
The answer is…. “It depends.” First, it’s important to understand that navigating unilateral sanctions can be a political minefield for an international organisation! Unlike private entities, there is no clear system in place to manage unilateral foreign policy objectives of one sovereign member state against another. Second, although international agencies monitor political developments of member countries, and no doubt try to avoid dealings that would disturb the delicate balance within these structures, it is not within their purview to implement unilateral sanctions against a member, unless there is consensus among all members to do so. Third, supply chain risks are inherently unpredictable. Supplier audits and screenings only show a snapshot of current relationships, not entanglements with sub-contractors or third party beneficiaries. Although parties can attempt strong due diligence and even stronger government compliance, knowing the rules to follow when caught in the web of unilateral sanctions actions is challenging.
i U.S. International Trade Administration, Department of Commerce 2016 Exports Fact Sheet, https://ibc- static.broad.msu.edu/sites/DEC/images/resources/1159b5b1-8a59-47a1-b988-4bb1836c9904us-exports- factsheet.pdf
ii U.S. Office of Trade and Economic Analysis, Department of Commerce Jobs Supported by Exports 2016 https://www.trade.gov/mas/ian/build/groups/public/@tg_ian/documents/webcontent/tg_ian_005543.pdf
iii Convention on the Privileges and Immunities of the United Nations (the “Convention”), adopted by the General Assembly of the United Nations February 13, 1946, and which set out specific privileges and immunities for the UN and its staff subject to waiver only by the Secretary General in certain situations.
iv U.S. implemented changes to Cuba sanctions rules announced officially November 8, 2017 and taking effect on November 9, 2017, see U.S. Treasury Press Release https://www.treasury.gov/press-center/press- releases/Pages/sm0209.aspx