Supply Chain Management Blog : Risk management

RFID looking at the same problem with a different set of eyes

guillaumeoget — Wed, 04 Feb 2009 23:06:00 GMT

We would easily think by reading about RFID trials in the Airline Industry that price , lack of global agreements even when IATA is moving forward , are making short term deployments hard to come by. Well, let’s look at the latest United Airline effort...(read more)

HP Supply Chain - Procurement Risk Management

christianverstraete — Thu, 08 Jan 2009 20:33:00 GMT

I had promised last year to focus some time on describing best practices in the HP Supply Chain and how they helped making the company more responsive. Today I want to focus on one, called Procurement Risk Management (PRM) that has been widely publicized...(read more)

Generate Value while going Green

christianverstraete — Mon, 01 Dec 2008 16:59:00 GMT

Up till a couple months ago, green was on the agenda of most enterprises. Since the financial meltdown has come with its economical difficulties and recession fears. It looks like green is disappearing from the agenda quickly, despite the fact going green can reduce costs, as illustrated by Reuters.. If this is the case, I believe it is a tremendous mistake. Working on their environmental impact helps companies reduce costs and mitigate risks. I also believe it may allow them to increase revenues by taking market share away from their competition. Let me try to illustrate my point here.

One of the key environmental measurements today is CO2 emissions. This is NOT the only element, but it is an important one as glasshouse gasses seem to impact our planet rather drastically. CO2 emissions have a lot to do with the burning of fossil energy. Again, there is more to it than that, but it is an important contributor. Reducing energy consumption is a way to reduce CO2 emissions, which in turn reduces the importance of a element of large variance in the supply chain. Even if the price of the barrel of oil is back around 50 $, the fact it went all the way to 147$ has been a wakeup call for many companies. If the economy picks up again, it could be back at such levels by the summer. So, the energy cost factor is a volatile one. Reducing its important in the product cost is more than welcome. So, by reducing cost and variance in the cost we have addressed an environmental concern. Green and costs are not mutually exclusive, as many people believe.

The other element to take into account is that, independently of reducing costs, it remains important to avoid being on the first page of the newspapers due to an environmental issue. This is probably more the case for companies owning a brand, as the brand is typically what suffers of such issues. And this is where risk mitigation comes in. Risk mitigation may cost money, indeed, and in difficult economical times, companies may be tempted not to focus on it. That is like not paying your insurance premiums when things get somewhat tougher. You might be able to get away with it, but there is the remote possibility of an issue that actually may leave you in a desperate financial situation. Aren't insurances there to avoid that?

The last element I want to bring up is the fact that focusing on the environment may increase your business, and I would like to illustrate this approach using a simple case study. Wal-Mart, the US retailer, initiated an "Eco-Challenge" some months ago, pushing their suppliers to submit ideas for the development of products with low amounts of packaging material. Our packaging engineers got working on this and one of them, based in Grenoble - France, came up with a brilliant and simple idea for our notebooks. Often when you buy a notebook, you also buy a carrying case, isn't it? You want to be able to safely transport your notebook. Well, what if HP provides you a notebook with it carrying case. Oh and by the way, let's manufacture that case from 100% recycled material. Rather than putting the notebook in specific packaging for its transport from Asia, we can now use the carrying case to do this. If it protects your notebook when you take it around, it can also do the same when HP's logistics partners transport it, isn't it? The advantage is 97% packaging material reduction. The only packaging left is the cardboard box in which a five notebooks are grouped to facilitate the stacking on the pallet. The consumer goes home with his/her new product in a nice bag and does not need to get rid of packaging material either. Everybody wins in the game. Not only did we win our category during the challenge, we are now also selling the product in the Wal-Mart stores. If you are interested in more details, you may want to look here.

The energy costs associated with running some of our products (eg. PC's) over their lifecycle are two to three times the price of the product itself. How many of us are looking at the actual consumption of a product prior to making a decision. In looking at total cost of ownership, buying the cheapest product may not always be the best solution. Making a product using less energy also benefits the customer. And we hope it increasingly becomes a sale criterion as consumers and businesses alike become more environmental conscious.

During the design of a product many decisions are taken that will affect both the cost and the eco-friendliness of the final product and its supply chain. Having development engineers that understand how to make products "greener", is a tremendous asset to reduce both the cost and environmental impact of the product throughout its whole lifecycle. We call this "Design for the Environment".

The downturn, source of new opportunities

christianverstraete — Sat, 15 Nov 2008 15:41:00 GMT

I am not forgetting my promise to continue discussing HP's Supply Chain Initiatives, and I am actually working on the next post, but as I had the opportunity to speak at two conferences this week, I want to share with you some of my observations.

Thursday, I spoke at JDA Connect 2008, JDA Software's yearly European conference. The topic given to me was about making the Supply Chain more responsive. Obviously with the current volatility in the financial and commodity markets, how to adapt in the downturn was central to my talk. Actually it was central to many of the presentations.

Friday I spoke at IBF's Supply Chain Forecasting & Planning conference, addressing more thoroughly what is required to approach a downturn.

In both cases, I started with a diagram showing the evolution of the volatility of the Dow Jones industrial Average over the last couple months. The central question is how to improve the supply chain responsiveness at an acceptable cost level. The economical evolution being difficult to predict at this point in time, production quantities need to grow or shrink quickly, while safety buffers should be kept to a minimum due to their intrinsic cost. Four elements are required to achieve this:

Understanding what is happening in the Supply Chain is a prerequisite. Knowing the available inventories of components, ingredients and finished products, the production capacities available, alternative sources of supply, etc. allows understanding the upwards potential of the Supply Chain, while understanding variability (highest and lowest limit) at all nodes provide precious information on the flexibility, adaptability and responsiveness.
To achieve this visibility, all key partners in the Supply Chain need to share essential data. This requires a collaborative attitude, which can only be achieved if all parties understand the benefits they will gain from sharing that information. The role of procurement is essential here. In many companies it is the traditional and adversarial approach taken by procurement that limits the sharing of vital information.
The current downturn is quick and deep. It will affect many companies in the marketplace. Could some of your partners be affected? Rothstein Associates highlight in their Business Survival blog, a message from Marsh warning that the economic slowdown will increase companies' supply chain exposures. They advise companies to assess their supply chains and identify ways to mitigate risk. Combining visibility (to understand what happens) with risk mitigation and response planning (using methodologies such as scenario planning), helps companies assess their exposure an plan how to reduce it.
We already spoke about the need for increased flexibility and responsiveness. This does not only require an understanding of what happens in the Supply Chain in real time, which is what visibility gives you, but also the identification of how the Supply Chain interacts. Through the analysis of the behavior of the system over longer periods of time (using the data collected over multiple months), one can identify the key parameters of the eco-system and establish a model. Using simulation tools, it is then possible to submit the supply chain to a number of scenarios and identify how exposure can be reduced on the one hand, and where flexibility can be increased on the other.

By including the above elements in the supply chain, its responsiveness can truly be improved. And this provides opportunities. Indeed, by being able to respond faster to customer demand that market shares can be increased. And this can even be done in a downturn.

In my presentations I used an analogy. Let me share it with you here. Two people are walking in the savannah and one of them spots a tiger in the distance. He warns the other, but to his astonishment, sees him kneeling down to put his running shoes on. He tells him, "You know these shoes will not allow you to run faster than the tiger". The other one answer: "I do not need to run faster than the tiger, I only need to run faster than you."

Well similarly, your eco-system does not need to run faster than the tiger, it needs to run faster than its competition. Several conference attendees actually came back to me telling me they really liked this mindset and some even pointed out their management was thinking in the same way. Hope they are not your competitors.

If you liked this post and can spare five minutes, please answer the following survey on "The Supply Chain in the Downturn". I will use the results for a future blog post. Many thanks in advance.

Lean and Risk Management, Compatible or Antagonistic?

christianverstraete — Mon, 29 Sep 2008 14:43:00 GMT

I'm currently preparing a presentation to be given at the European Supply Chain Council conference in Budapest in early October. The subject will be how to balance efforts to establish a lean supply chain with risk management. Indeed, in the process of making the supply chain truly lean, there is a danger to diminish the responsiveness of the value chain and as such reduce its capability to respond to an unexpected event.

So, the question really is how "lean efforts" can be balanced with risk mitigation while assessing the implications of the decision that has been taken. To do so, a clear understanding of how the supply chain operates is required. Gaining insight in what happens at suppliers sites is part of that, so they need to share information. And here is where the partnership, discussed in the previous blog, actually comes in.

Building Supply Chain Visibility consists in gathering data from the players in the supply chain for two purposes. First, detailed information allows a clear understanding of what happens at the moment itself. It provides data on inventory levels, material availability/shortage, cycle times, delays in production or transportation etc. This allows spotting potential problems, and initiating the appropriate response to the event, as established in the risk mitigation plan.

Consolidating the gathered data and maintain it over longer periods of time allows to gain understanding of the variances in the system and spot trends. This is really the basis for gaining a better understanding of how the supply chain operates and what its vulnerabilities are. It's those that risk management will have to address.

Mastering the capability to manage variance at the lowest costs is really the Holy Grail these days. It requires the deep understanding of the supply chain I discussed above, and a series of simulation tools to establish how the system reacts to changes. Nothing fancy is required, but a systematic review of the options open.

For example, when discussing with our supply chain team, we reviewed whether it was possible to address the fluctuation in demand by combining a stable, efficiency focused supply chain to deliver the bulk of the requirements with an agile one that would deliver the deltas. This requires the development of a flexible manufacturing facility that can build multiple models cost efficiently, recognizing that there is no way this supply chain will be as efficient as the base one.

Balancing lean and agility is increasingly becoming the focus of the most advanced supply chains, as it seems the only way to address the antagonistic requirements of customers, to have a large variety of products delivered very quickly. If you have any comments or ideas to share, don't hesitate.

Global Supply Chains and a Downturn

christianverstraete — Wed, 03 Sep 2008 08:40:00 GMT

Last week I was in Kuala Lumpur and Singapore and had the opportunity to present to several CIO's on the subject of how to manage a global Supply Chain through a downturn. I know, a number of you may start argue whether we are in a downturn or not, but that was not the objective of my talk. I started out by highlighting three objectives that most companies have today, reducing costs, increase revenues (which in a downturn means taking market share away from the competition) and mitigating risk.

As Martin Christopher from Cranfield pointed out a number of years ago, "Companies are no longer competing with companies, but supply chains with supply chains", it is important to look at the end-to-end supply chain to address those three objectives. Companies need four key elements to truly operate at a supply chain level; these are visibility, responsiveness, collaboration, and risk management. I'd like to address these points in a series of blogs I hope to post over the next couple weeks, but before that I'd like to emphasis the importance of operating as an integrated supply chain.

Let me take a practical example. The Japanese invented the concept of "lean", and worked a lot at making their factories and operations lean. But in their traditional, collaborative manner, they worked at the same time to help their suppliers and partners to also become lean. As a result of this, although each company was focused on its operations, the whole supply chain quickly became lean. This is one of the key reasons of the success of companies such as Toyota and others.

European and American companies have taken a different approach. Yes they have been working hard at making their factories and operations lean, but they often have done that by pushing the "waste" up and down the supply chain. Unfortunately, the end consumer has to pay for the waste, regardless of where that waste is along the supply chain. Unfortunately, because they neither have the close relationships with their suppliers, nor the visibility of what happens across the supply chain, they often do not spot the problem, while asking themselves why they cannot make a given product at the same price point as their Japanese counterparts.

I used this argument to open my presentation and was actually surprised how much agreement I got from the audience. To me this sounds obvious, but it seems many companies have not thought about it, nor have they looked at how they could address the issue and improve their competitiveness.

In the next post I will discuss the importance of a win-win collaboration for the success of the relationship.