Supply Chain risks are real.
Sustainability is too often used as a generic, catchall term (like innovation) that has little impact within an organisation. To put meaning around the term, identify and review the risks that may affect the future viability of your enterprise. For operational type businesses, the majority of risks are related to the supply chains and they may become real at any time.
For example, changes in the supply chains for materials, components and products into and out of China can have substantial impacts on affected businesses throughout the world. Recent announcements that will affect some supply chains are:
- US Department of Commerce applies a 183.6 percent anti-dumping duty on imported plywood products made from hardwood (current annual value of U$1.12b). As sales to the US fall, manufacturers in China are likely to sell the excess capacity into other countries, affecting the supply chains and viability of domestic suppliers in those countries
- From 2018 China, which imports more than 50 percent of the world’s waste for recycling, will ban the import of 24 categories of waste. As developed countries have been slow to implement compulsory domestic recycling, waste will be initially diverted to other developing countries. This is likely to affect supply chains in developed and developing countries. If developing countries reject the diversion, then supply chains in developed countries will be affected
- Rice grown in southern China is expected to fail once in 106 years due to climate stress. An increase in average temperature of 2 degrees C increases the risk to once in every 10 years. When this occurs, China is likely to buy rice from the world market at any price, thereby affecting supply chains for rice and rice products
Businesses with exposure to global supply chains are likely to have a few critical risks that could affect the organisation’s viability. However, when addressing these risks, my previous blog, noted “…the design and operation of supply chains is too often an issue…” To improve this situation requires more from supply chain professionals than an ability to re-organise the operational structure.
Without a culture that promotes a strong reason (besides money) for people to turn up each day, it will be difficult to develop an effective business vision and supply network strategies. A question of staff and colleagues is therefore ‘why are we here’? An example I recollect was while walking the production area at a client’s food canning factory; without prompting, the operator of the empty can races provided me with an overview of the business, its competitive edge and his role and value in the business – he believed in the company.
People must be able to tell their story about what they are doing and why; so encourage your people to think wider than their immediate job. With training, they can provide input concerning changes to products, processes and even the business model. This is the first step when taking a holistic (or whole system) approach to viability of supply chains. The core part of training is:
- employees (including middle managers and specialists) are made aware of the ‘big picture’ situation concerning current and future business objectives and scenarios
- provide the background required to understand ‘why’
- knowing ‘why’ provides middle managers with confidence to lead the implementation of change
- identify where power resides throughout the supply chains; where ownership, control or influence is exercised and by what organisation or individual
- identify the informal networks inside and outside the supply network. These should include non-government organisations (NGOs), that understand the broader environmental, social and cultural factors which are a part of each global supply chain
The task is then to identify, in teams and as individuals, the supply chain risks and possible effects on the business from them occurring.
A viable supply network
The core functions within your supply chain organisation are Procurement, Operations Planning and Logistics. It will be sub-optimal to implement change in only one part of your supply chain organisation; your supply chain group should be viewed as an integral entity within the organisation, To achieve this requires one approach – internally to people policies and recruitment process and externally to business relationships with suppliers and customers.
To identify the supply network risks, the senior managers of Procurement, Operations Planning and Logistics have the business objectives (including growth) as the base. Using the seven risk headings of: economic; environment; social; physical; technology; regulation and continuity (explained in the previous blog), show the likelihood of each supply chain risk and scale of the impact (or consequences).
Do not ignore potential risks with a low probability of occurring but a high impact; this includes reference to potential and possibly disruptive competitors. The impact of an event could have both negative and positive effects within your business and there could be trade-offs in minimising the risks, while ensuring a viable enterprise.
The output of this process is passed to teams within each group; they describe how each risk could affect them and possible actions to minimise the effects. Identify people to be a team ‘champion’ – they drive the action agenda, seek knowledge, scope possible implementations and propose relevant performance measures. To support this process, establish an on-line library of relevant information that group managers, teams and champions can update. Also, publicise achievements in reaching viability goals and performance targets.
What is proposed could require organisation, process and cultural changes that must be approved (at least) by the supply chain group management. Building a viable supply network and a supply chain group that can manage change takes time. However, the benefits are that identifying risks to supply chain viability and proposing action to minimise the effects can focus attention throughout the organisation on the ‘important few’. It also provides a competitive edge that cannot be easily duplicated by competitors, because it incorporates a specific mix of a culture, knowledge and business relationships.