Managing supply chain risks in a changing world 

Managing supply chain risks in a changing world 

The past 20 years have seen significant changes in global and local supply chains. With those changes has come considerable investment in both successful initiatives to improve operations and efficiency but also lost investment through failed ventures or supply chain disruption.

Some refer to these changes in business as evolution. Take for example the traditional concept of the perfectly linked supply chain as a linear representation of sequential handling steps -- from raw material of an upstream supplier to product flowing through a distributor to a retail shelf. Nothing could be further from reality in today's harsh and volatile trading environment. Supply chains have mutated into levels of complexity and risk that could not have been imagined 10 years ago.

Today the main focus of many professional supply chain and logistics executives is to keep end-to-end logistics costs as low as possible while balancing against the risk of supply chain disruption and lost sales. There has been significant consolidation through acquisitions of technology providers -- warehouse management systems, enterprise resource planning and other planning tools -- resulting in investor losses on many of the original stand-alone solutions.

Many suppliers have also been required to make big investments in product-based radio-frequency identification for use at various handling points in the supply chain and at the checkout. This huge project was mandated to suppliers of Walmart but has all but collapsed. Who took responsibility for that risk?

Looking back in time, another risk to the supply chains of larger companies was the stability of large IT solutions with their associated bugs and limited functionality. Now that the quality of these large solutions has stabilised, that risk has been transferred to the way new systems are implemented and configured. Most of that risk is found on the customer side rather than the vendor.

The bigger risk factors involved in implementing these systems are executive engagement, preimplementation process improvement, business rule compliance and master data integrity and not the software functionality.

One memorable wake-up call to risk in past years was the mania associated with Y2K compliance. This related to software originally coded with two-digit date fields -- programmers had not considered the impact of a year date going from (19)99 to (20)00. Consultants issued doomsday predictions about everything from nuclear weapons accidentally firing to bank systems collapsing. The greater risk was the disproportionate amount of money spent on trying to prevent problems, enriching suppliers that touted Y2K-compliant solutions.

At the time, I was the group chief information officer of a large retail supermarket chain operating across five Asian countries. Our chief information officer (also the Y2K compliance manager) sent out a self-directed celebratory email to the entire business on achieving a successful New Year's Eve rollover. "All systems go" into the year. He had just undertaken a huge review of all conceivable operations only to have all the units in our IBM point-of-sale system (which had been certified Y2K compliant but not tested) in all stores simultaneously overflow their transaction memories and stop functioning at midnight on Jan 31, 2000. Groan!

It is fair to say that over the last 20 years, supply chain risk has come of age. We have seen ongoing global supply chain disruptions, global financial crises, energy supply manipulation, regional wars, epidemics, terrorism, volcanic ash, tsunamis and floods (in Thailand) and even the recent automobile industry's emissions scandal -- all harsh lessons for the corporate world that supply chain integrity cannot be taken for granted.

Most recently, the focus on supply chain risk has shifted from a corporate responsibility to a personal one. Both directors and senior executives are now held responsible for not controlling their supply chains diligently. In Australia, directors of companies can be prosecuted (and even jailed) under legislation called Chain of Responsibility, relating to a failure to ensure safe operations, particularly in transport. Anyone up or down the supply chain can be held liable if they knowingly engage logistics services that do not intervene to prevent an accident or exercise appropriate controls.

This means if a company engages a transport delivery service with poor work practices such as overloading, inadequate maintenance or even driver fatigue, resulting in or likely to result in an accident, that company and its executives can be held liable for breaches of regulations or omissions in compliance committed by its service provider.

Even now at a global level, executives face multiple and varied risks associated with the precarious balancing act of keeping costs as low as possible while avoiding the possibility of supply chain disruption. It's a tough world out there.

(Inspired by the article "A Decade of Supply Chain Mega-Changes" by Don Gilmore, editor of Supply Chain Digest)

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