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Deloitte discusses supply chain risk

September 9, 2013 Leave a comment Go to comments

Earlier this year, Deloitte published The Ripple Effect: How manufacturing and retail executives view the growing challenge of supply chain risk.

This is an interesting report, the result of a survey of 600 executives at manufacturing and retail companies around the world, with the majority in North America, Europe, and China.

In a report that is based on a survey, the results are always going to be limited by the questions. So, when a particular area is missing (such as the reputation risk from a failure in the supply chain), I have to assume that it was left off the types of risk included in the survey rather than being of minor significance to the executives.

Deloitte covers the traditional and expected areas. It is a useful but not a ground-breaking report. It’s an easy read and I recommend it.

Deloitte draws excellent conclusions.

There are four key attributes, or pillars, that are critical to supply chain resilience:

Visibility: The ability to monitor supply chain events and patterns as they happen, which lets companies proactively—and even preemptively—address problems. Critical enablers include people capabilities and analytics capabilities.

Flexibility: Being able to adapt to problems quickly, without significantly increasing operational costs, and make rapid adjustments that limit the impact of disruptions. Critical enablers include people capabilities and governance processes.

Collaboration: Having trust-based relationships that allow companies to work closely with supply chain partners to identify risk and avoid disruptions. Critical enablers include people capabilities and analytics capabilities.

Control: Having policies, monitoring capabilities, and control mechanisms that help ensure that procedures and processes are actually followed. Critical enablers include governance processes and analytics capabilities.

To build resilience, companies can follow a continuous process that begins with assessing the current state of supply chain resilience and pinpointing critical vulnerabilities, and then defines a business case for improvements/mediation and creates a prioritized roadmap for improvement. Working from that foundation, companies can then implement improvements and establish processes for monitoring and managing risk over the long run.

But there are additional ways I think organizations can improve their ability to address supply chain risk, including:

  • Integrate risks from the extended enterprise, including supply chain, into the organizations’ risk management program. Don’t run supply chain risk management as a silo.
  • When designing the product to be manufactured, take into consideration how components will be sourced or assembled. When there are options, consider the risk inherent in each option – the level of reliance on third parties and the confidence level you have in each of them,
    • In other words, integrate the consideration of risk into product design as well as vendor selection and all other operational activities.
  • Actively and continuously monitor all your supply chain partners. Report related risk levels to management on a regular basis
    • This traditionally includes monitoring your company’s interactions with them, such as their ability to deliver quality products on time at the desired price.
    • New technology enables you to monitor their reputation in the marketplace, including posts from their own partners and employees, and anticipate potential problems.
    • Monitor macro-economic events (such as potential disruption from protests and political unrest) and their effect on your supply chain, on specific supply chain partners
    • Use indicators such as reports from Transparency International to understand corruption and bribery risks relating to your supply chain partners

I welcome your comments and observations.

  1. Norman Marks
  2. Kathryn M. Tominey
    September 9, 2013 at 2:35 PM

    This looks like a good start. I would add resilience of physical plant to natural disasters & extreme weather events. Firms impacted by flooding in SE Asia as well as the New Orleans area would be advised to have manufacturing & warehousing at least one story above the maximum flood level. Put the emergency power & vital services up there too. Put offices & other non-production sensitive people & their stuff below.

  3. Kathryn M. Tominey
    September 9, 2013 at 2:40 PM

    Another area would be to install actual QC oversite – source reps that can show up anytime and verify quality. As part of this have a policy and resources to conduct full QC upon receipt and return every shipment where sampling shows requirements not met at vendor expense.

  4. September 9, 2013 at 11:37 PM

    The elements above might well be covered by a framework such as SCOR?

    It surprises me that there seems to be limited activity to formalize supply chain relationships (but then I readily admit my limited mining and minerals perspective)

  5. September 14, 2013 at 5:43 AM

    One avenue I think is missed many times is the supplier’s own understanding of risk and what their personal risks are. As you move down the food chain, resources (cash & personnel) become harder to maintain and to manage all the risk they are exposed to.

    Because of just trying to manage the day-to-day operation of the business, metrics to base going forward action plans become weaker and weaker. And in many cases; they don’t foresee some of the risks that are flowed down to them; such as their own supplier approval/monitoring processes.

    It’s been my experience, the way sub-tiers qualify their own suppliers becomes weaker and weaker as you move down the food chain.

  6. February 27, 2014 at 12:58 AM

    Great article. Supply chain management is a complex area and efficient & skilled expertise is required in order to stay on top and manage risks in uncertain times. Companies like Global4PL offer supply chain management services helping businesses optimize their supply chain delivery models & demonstrate total supply chain costs lower than the competition.

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