Thursday, March 24, 2011

ERM-BC-COOP: Supply chain


With all the activity in Japan, many people are starting to realize their supply chain is a critical part of their business.

It is, in many ways.

The "Japan issue" is supply chain interruption.

There also is a "China issue" that focuses on dangerous products.

Finally, there is the "Just In Time issue."


Japan Issue

The "Japan issue" really is only incidentally about Japan and its current problems.

It can apply to all vendors, regardless of geographic location, product, or service.

The obvious concern is that something will prevent a vendor from delivering whatever the vendor is contracted to deliver - product, service, casual staff.

Less obvious is a concern that while the vendor may show up on demand, the vendor will be unable to meet its contract because the vendor lacks a part or a skill.

Example 1: The hard drive fails and a replacement is needed. Trouble is, the vendor lacks the part and the hard drive manufacturer is unable to ship a replacement due to any number of reasons - a strike, transportation shutdown (weather, strike, accident), temporarily out-of-stock. Unless the vendor who shows up on your doorstep has lots of call for your particular hard drive, don't expect him/her to have one handy. Still on the hard drive. You have a replacement drive in house. But you lack installation documentation and, even if it was available, you lack the tools to remove the old drive and install the replacement drive. (Yes, Virginia, I write from experience.)

Example 2: Local event damages multiple businesses in your area. You need a vendor to restore the facility (dry it out, patch the holes, paint the walls, etc.). You also need some casual or supplemental help to pull wires, hang tapes, catch up with correspondence and more. But there is an obstacle in the way: your organization has less "pull" than others in a similar situation. Your insurance adjuster is busy elsewhere; when the adjustor will show up on your doorstep is anyone's guess and as for cutting a check . . . The restoration people, as most business folks who want to stay in business, will respond to the bigger organizations (with more damage and more money) before they can get to your operation. Ditto staffing agencies, especially if the staffing agency has a long-standing relationship with others - such as your competitor. If your organization is less than the 800-pound gorilla, it would be well-served if functional unit managers (e.g., Facilities, HR, IT) were to become acquainted with agency staff.


China issue

The China issue boils down to too many vendors from one location selling less than quality products, be they tires or medicines or toys.

Like the "Japan issue," the China issue is not restricted to China. The problem might originate at your neighbor's if that neighbor supplies a product or service.

As a responsible organization, it is your responsibility to establish incoming quality control. Never depend on anyone else to inspect the product, not even - or perhaps especially - the government.

How many parts per 100 or 1,000,000 depends on a number of factors, but the most important is the vendor's history. If the product has "Made in China" labeled on it, a 100 percent inspection may be in order.

The bottom line is that one way or another, when your organization's name goes on a product, it is yours and your organization's reputation - and future - is on the line.


Just In Time issue

The Just-In-Time issue is kin to the "Japan issue" in that the buyer needs to know that the vendor will provide its product on time, in quantity, and in quality according to contract.

In both cases, the customer - your organization - needs to review the vendor's business continuity plan, or at least a sanitized version of it.

If the vendor depends on vendors, you need to see if your vendor has seen its vendors' plans. How far down the Vendor Road do you need to go? How critical is the vendor's product or service?

If there is a suspicion the vendor might falter or fail, your organization has several options: it can help the vendor shore up its weaknesses or it can look for alternate vendors.

If your vendor is the only vendor available, your organization just found itself in the warehouse business; it will need to stockpile sufficient product to weather a storm along the supply line.

The storm, by the way, need not come from your vendor. It could come along the way in the form of a transportation strike, weather event, or anything that prevents the product from moving from Point A to Point B. (By extension, that also means from your Point B to your customer's Point C.)


Weakest link

As with all "chains," the supply chain is only as strong as its weakest link. Finding that link is the job of the risk management practitioner with help from many sources, both internal and external.

Finding risks, rating risks, and finding ways to avoid or mitigate the risks is the fun part of the business. It takes a curious mind and a fair amount of imagination applied to playing the "What if?" game to be a successful practitioner.


John Glenn
Enterprise Risk Management consultant
Hollywood - Fort Lauderdale Florida

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