The Point by Buyers Meeting Point
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Webinar Notes: Combating Supply Chain Risks – Key Strategies for the Year 2012
This week’s Zycus sponsored webinar featured main speaker Robert Handfield, the Bank of America University Distinguished Professor of Supply Chain Management at NC State. My notes from the event are below. As of these notes being posted, the webinar is not yet available on demand but if it becomes available we will link to it so you can listen for yourself.
Key issues in today’s supply chain:
- Unemployment, banking instability and regulation
- Uncertainty resulting in decreased demand and discomfort with holding inventory
- Commodity prices are up (pushing margins down)
- Slow economic recovery, new estimates look hopefully towards 2013
By far my favorite part of the presentation was where Rob spoke about natural selection – the way it creates order from chaotic variation and forces evolution. In the animal kingdom, some species evolve in response to changing conditions or advantageous ‘mutations’ and others go the way of the Dodo bird. The world of business is not so different.
Here is the visual that was used in the presentation: when you consider an antelope and an elephant and how they will face a risk, it is difficult to know which is better equipped until you understand the specifics of the risk. Assume in this case that the risk is a lion. An antelope may be fast, but not too fast to be food. In this case, the huge plodding elephant is better positioned for survival because the lion will not bother with it.
The application of this idea to supply management is to focus on outcomes rather than events. If you are the elephant, putting careful plans in place about avoiding being eaten by a predator is ultimately a wasted effort. Losing your habitat on the other hand, now that’s a problem. Again, the key is to focus on the outcome not the cause, which is likely to be too unforeseeable and unpredictable to manage effectively. Does it matter if you lose your habitat because condos are going up or because of a natural disaster? Not to the elephant; gone is gone. Best to spend your planning time scoping out new places to live.
If you are running a facility (or sourcing from one for that matter) flooding may be a concern. What damage will it do to the components in question? What are your alternate sources of supply? How quickly can they take over so you can resume production? It doesn’t matter if the flood is caused by an earthquake or a sprinkler system malfunction. Your components are lost either way. But identifying flood as a risk and having a plan in place will help you cope if the worst comes to pass.
Although the antelope lost out in our earlier example, agility is a key trait for supply management groups to have in order to weather uncertainty successfully. Agility should be played out through category management strategies, high levels of stakeholder involvement, and the types of contracts put in place.
Market intelligence becomes a key asset as well, and even a dedicated function for organizations to have in place. The information needs to be handled by a well-structured center of excellence, and may require global, regional and centralized groups or individuals.
Knowing what your risks are is the first step towards preparedness. Suggestion: start by making a matrix of outcomes and likelihood. Many companies recognize that they have a need but haven’t done enough to protect themselves from it. Whether you realize it or not, inactivity is a decision – perhaps the most costly decision of all.
- If you are interested in reading more from Rob Handfield, you can check out his blog here: Supply Chain View from the Field.
- Rob also mentioned research from the Hackett group on procurement's evolution as a competitive advantage "a la Darwin" and you can read more about it in an article by Pierre Mitchell on IACCM's site.