Resilient operations require supply chain risk maturity
Map and monitor your supply chain so you’ll be ready to act when disaster strikes.
Pilots can be certified in two ways: Visual Flight Rules (VFR) and Instrument Flight Rules (IFR). VFR certified pilots can fly only when visibility is good. IFR pilots, however, can fly purely on instruments.
“If you’re a VFR pilot, you’re assuming the sky is always blue and you can fly visually. Most companies are VFR flying," says Bindiya Vakil, founder and CEO of Resilinc, a Milpitas, CA, provider of supply chain risk and resiliency solutions. “They never know when IFR conditions might appear. Just because you leveraged out of your last event doesn’t mean you’ll get the same thing next time. You have a supply chain operating, but then something happens. Without monitoring it, you think everything is normal.”
Normal can be shattered by what has become known as Black Swan events — something that comes as a surprise and has a major impact. To deal with them takes preparedness and a proactive approach, facilitated by mapping the supply chain.
4 stages to achieve risk maturity
Supply chain network mapping, Vakil explains, is a process to create an end-to-end map — from raw materials to customers — that yields the connections, relationships, and dependencies between internal manufacturing and partner supplier sites.
It is a critical factor in achieving supply chain visibility by identifying the multiple sub-tiers (your suppliers’ suppliers) of an end-to-end supply chain. With it, organizations can document and identify such things as single-source suppliers, upstream and downstream partners, labor suppliers and more.
Greg Schlegel, founder of The Supply Chain Risk Management Consortium, keeps his eye on Black Swan events, as well as all the other risks that are out there waiting to wreak havoc. As a professor, APICS-supported Risk Certificate workshop facilitator, and supply chain executive of 30 years, Schlegel tells his students to “always remember, never forget to ID risk, assess risk, mitigate risk (if you can) and manage that risk.”
His mantra is a four-stage journey to what he calls the “New 21st Century Risk Maturity Model:”
- Visibility. Make sure you know exactly where your suppliers, distribution centers, customers, etc., are.
- Predictability. Can you predict or do you understand how your company will react? Digitize your supply chain and map it on the computer. See how you will react to Black Swan incidents by simulating the model.
- Resiliency. After you’ve completed the first two, then build resiliency into the supply chain. How many single-source suppliers do you have? How many sole-source suppliers (with a patent)?
- Sustainability. This is about eight years out in the journey. Each stage takes about two years to complete.
Visibility: Actively monitor your supply chain
“The first thing to do is go out there and get some education,” Schlegel says. “There’s a huge body of knowledge out there, a huge, emerging body in supply chain risk management.”
Step two, Schlegel says, is building that always-hot supply chain buzzword: visibility. And that’s where mapping and monitoring come in. “Most of us don’t have it, whether upstream or downstream.” It’s not just about who suppliers are, or the price, but where they are located, he says. “You have to know where your suppliers, customers, DCs and contractors are. What you don’t know in the global supply chain will hurt you.”
A typical high-tech manufacturer might have 900 suppliers with 40,000 components and half of them can be single source.
Founder and CEO, Resilinc
Step three: Once the supply chain is mapped, it’s time for risk management. Schlegel advises incorporating risk management into regular monthly business meetings to identify the risks and apply them across the map. “Not all risks are the same,” he says. “Evaluate them. Assess them in dollars and cents in the supply chain and write them down in order, highest to lowest risk. After you do that, establish a risk response plan.”
Mapping will help you monitor your suppliers and vendors. By watching key performance indictors (KPIs), you’ll know which of your suppliers and vendors will be able to assist. If you’ve done your work properly, you’ll know the availability of additional inventory or a backup source. And you’ll know which of your suppliers has a response plan in place.
Predictability: Adjust operations according to risk
Sometimes you get a warning. In the case of weather-related disturbances, for example, there often is time to react prior to the storm striking.
If that’s the case, look at your distribution checklist and notify your suppliers. If one of your distribution centers is in the storm’s path, ensure that you can send product from another. If your only factory is endangered you’ll need to outsource or, if necessary, find another site and move. Ensure, also, that there is safety stock in your distribution centers or warehouses.
“A typical high-tech manufacturer might have 900 suppliers with 40,000 components and half of them can be single source,” Vakil says. “Where are the factories? Where are the supplier parts (which factories are they using)?” Areas like Vietnam, Thailand, South Korea, China and Japan are vital for high-tech manufacturers. By knowing this information, you can react immediately when disaster hits.
Resiliency: What if risk is uncertain?
Sometimes, however, disruption is unexpected or a mystery. In 2006 there was an outbreak of Escherichia coli O157:H7 (E. coli), caused by tainted lettuce and spinach in packaged salads. The bacteria caused illness and at least three deaths. No one even knew which grower produced the products.
“The government was trying to figure out whose product was tainted,” says Robert Allen, principal and operations practice lead at The Hackett Group. “Retailers took it all off the shelves. Mother Nature is still a supply chain. The stuff is in the ground, in plants; every company had to respond in a smart way.”
Allen’s client, one of the packagers, had a disaster plan, and reacted within a couple of hours. “It was really about clarity and quickly stopping production and product dispersal, cleaning the lines and talking to the growers,” Allen says. "The job became tactical: Stop the supply chain, then start it again.”
What you don’t know in the global supply chain will hurt you.
Founder, The Supply Chain Risk Management Consortium
“The client recognized that this has nothing to do with profit or business. It’s health. They were proactive with the retailers to pull product, even working with competitors to help. They took it on as leaders in the industry. It took communications and networking. Stakeholders were brought together frequently. They talked to retailers and authors to learn how to adjust,” he says.
Months later, the cause was found. One of the spinach fields was at a lower elevation than a dairy farm. “Imagine what happens when it rains,” Allen asks. “The stuff can’t be washed off because it gets right inside the leaves. It took weeks for the authorities to figure it out.”
Yet, expected or unexpected, a known cause or a mystery, operations disruptions usually do not wait for certain information or the resolution. A resilient supply chain hinges on built-in visibility, predictability and a manager’s willingness to make tough calls when information is lacking.
Editor's Note: This article is part of a series on supply chain risk management. Click on each function below to read how your department can help build resilience.
The Supply Chain ToolkitLogistics Operations Procurement
Follow Barry Hochfelder on Twitter