There’s a Reason Your Supply Chain is Making You Nauseous: You Don’t Know all of the Risks that Dwell Within It

Syda Productions/Adobe Stock

Something about your supply chain is making you feel like your lunch is about to come back up, and you don’t know why.

Sure, you’ve heeded the commodity forecasts and hedged your purchases for the rest of the year. Maybe you even dual sourced a critical component of your product to ensure the first tier of your supply chain is always reliable.

But then you start to wonder about the suppliers of the suppliers to those suppliers and how exactly they extracted those raw materials. Or you remember the most recent ransomeware attack and how it shut down that auto manufacturer’s supply chain for several days. And then the nausea sets in.

What is this lurking anxiety you’ve been feeling?

The answer is obvious: You don’t know about all of the risks across your whole supply chain, so you’re not prepared to mitigate or even prevent them.

Instead of spending your lunch break crouched over a toilet bowl, you need to take some preventative medicine. Here are three causes for supply chain risk-induced nausea — and how to set yourself on the path to full health.

You Can’t See Enough of Your Supply Chain

When supply chain anxiety starts to make you feel dizzy, you should consider an eye exam. Much like testing your vision, getting a handle on risk is about how clearly and how much of your total supply chain you can see critical details about.

If your organization has an embryonic supply chain risk program, you can probably see the big E on an eye chart — your tier-1 suppliers — without issue. But when you shoot for the sixth line, the letters start to get hazy — or, in the worst-case scenario, they’re unintelligible.

Your inability to see below the first lines raises several issues. What’s going on with the tiny letters — your tier 2, tier 3 or lower suppliers? And if you’re squinting so hard to read this chart, what else besides your supplier are you not seeing?

First off, you need some vision correction in the form of better subtier visibility. The basis for this concept is gathering and verifying any relevant information about tier-2 (or even n-tier) suppliers and turning that data into clear intelligence that enables your organization to reduce, mitigate or manage risk better than your competitors.

That sounds simple, but much like learning to put in contact lenses, it takes some work.

As just one example, the sheer size of the project can be daunting. A large manufacturer may have hundreds of suppliers of direct materials. That’s already quite a lot of information to manage. But then those suppliers have potentially hundreds more tier-2 suppliers that, were they to disappear, could disrupt your supply chain.

Gaining greater subtier visibility becomes exponentially more difficult as you descend deeper into the risk abyss.

But that’s not all. Even with corrected vision, you should really return to the first tier of your supply chain and consider what your myopia could have caused you to neglect.

Your logistics system likely needs reviewing. As the 2015 west coast port strike made clear, the tenor of labor negotiations can sour quickly, and resolving such dispute can drag on far longer than expected. Closely monitoring logistics hubs and warehouses can alert you to potential issues early so you can form contingency plans.

In addition to risk at specific logistical locations, you should also more thoroughly examine the potential impact of location-based risk.

Qatar’s diplomatic crisis in June 2017 is a case in point. When Saudi Arabia, Egypt, Bahrain, the United Arab Emirates, Libya and Yemen all abruptly severed relations with the peninsular nation over its alleged support of terrorism, companies temporarily lost access to 25% of the world’s helium supply, which traveled over land through Saudi Arabia to a port in the UAE before heading to Singapore and other final destinations.

You Have No Idea What the Next Big Risk Could Be

Now that you’re seeing a little more clearly, your nausea seems to have subsided. But maybe the biggest risk to your health — and your supply chain — is that you don’t know what risk and which body part will send you back to the doctor next month.

Gaining a better understanding about your suppliers helps, but it’s only part of the battle. That’s because supplier risk is only one aspect of supply chain risk.

Procurement groups tend to focus on supplier risk because it’s easier to conceptualize. Why? Because getting a handle on all of the broader supply risks inherited through the nature of items being sourced, the countries they originate from or flow through, the modes of transport and handling and so on can be daunting.

Much like when monitoring your own health, the best place to start is by taking an inventory of your current and potential problem areas. Consider the following parallel: Your total health is the all-encompassing area of supply risk, which can be split into two subareas: physical and mental health, or in this case supply chain risk management and supplier risk management. In addition, there are external risk that can harm your body, such as falling icicles and runaway trains.

While the lists below are by no means comprehensive, think of it as a holistic checklist to start examining. Most people know how much they weigh, what their blood pressure range is and how much they sleep every night. Having these risk areas on your radar can be a great start:

Supplier/Company Risks:

  • Financial stability (e.g., bankruptcy)
  • Innovation potential
  • Operational capabilities
  • Disasters at supplier site
  • Material and services availability
  • Price increases
  • Environmental stability
  • Quality
  • Delivery
  • Regulatory/   legal
  • Brand/reputa-tion (e.g., a PR meltdown)
Location Risks:

  • Local events
  • Civil Unrest
  • Terrorism
  • Strikes
  • Natural hazards

 

Country Risks:

  • Financial stability (e.g., country rating, GDP, unemployment rate)
  • Pandemic outbreaks
  • Political events/situation
  • Corruption, bribery
  • Labor costs
  • Currency fluctuations

 

Other:

  • Freight status (e.g., temperature, pressure, shocks)

·      Industry-specific risks


There’s Too Much Information Out There and You’re Getting Overwhelmed
 

So you’ve got a grip on what health areas you need to keep a tab on, and now you start looking for different diets, workouts and lifestyle tweaks to incorporate into your health plan. And immediately you feel overwhelmed.

Similarly with risk, the sheer amount of information available to inform your overall risk strategy is too much for any one person to parse.

Taking into account all of the risk areas in the above chart, there are many information sources you’ll need to track to stay on top of all of this information.

News Media

If you’re worried about a tsunami knocking out a contract manufacturer or catch word of an upcoming labor strike at the port near your factory, you’ll need to keep track of the latest local, national and world news.

One of the biggest challenges with managing your news intake, however, is that the way we consume media has changed dramatically in the last decade.

Compact news cycles have been replaced with constant, 24-hour streams of information. And as the internet increasingly becomes the primary medium for news, the reliability of information from non-traditional (but still potentially valid) news sources is also becoming an issue — the last thing you want to do is redesign your supply chain based on “fake news.”

Furthermore, you need to monitor news at all possible levels — not just the national headlines. Sure, a Fukushima-level disaster will take over your phone notifications and dominate cable news for weeks. But a moderate flood blocking road access to a component manufacturer in China likely won’t make the international section of any American newspaper, even though it could delay your production schedule for weeks.

Social Media

Beyond the sheer volume and reliability of news, mobile devices and social media have disrupted the way people find and seek out information. These days, news about a serious brand reputation mishap that jeopardizes your supplier could breaks on Twitter long before it shows up on TV.

But social media can be a vital information source beyond news. Consider how sites like LinkedIn and Glassdoor can be used as vital intelligence sources for monitoring your suppliers. If a large number of employees at a critical component provider start changing their status to unemployed, there may be some issues you want to start looking into.

Research Organizations

In addition to the non-traditional, you’ll still have the usual data sources to monitor for potential problems. Services like Dun & Bradstreet are typical first stops for assessing supplier financial risks and data giants like Bloomberg have all of the basic information on currency and commodity price changes that inform your external risk picture — if you can keep track of it all, that is. Plus, the majority of these information sources provide historical data, meaning any action taken is a crisis response. Using tools that alert you to signs of supplier financial problems before a bankruptcy occurs — for example, news of a major debt restructuring — gives you time to craft a contingency plan before you lose access to supply.

Corporate Reports

Finally, suppliers near and far down the chain produce pages of information that may be relevant to your risk management efforts. Some firms have made public commitments to improving their corporate social responsibility and sustainability efforts, and their published reports on such transparency initiatives can inform you on exactly what’s flowing into your supply chain at the OEM level.

Similarly, annual reports for publicly traded companies provide a plethora of data points about the financial, operational and legal/IP-related health of a supplier at that point in time, something you should probably be mining for hints about potential risks.

Calming Your Stomach

Between gaining a clearer view of your complete supply chain and determining the types of risk and sources of information you need to monitor, it’s clear that procurement organization have a lot to keep track of to adequately mitigate or manage risk. Handling all of it alone with just spreadsheets and email is enough to make you want to, well, puke.

While addressing these three areas should help you alleviate your nausea for now, you haven’t found the cure yet. For that, be sure to check out Part 2 of this series, in which we’ll discuss the essential approaches and technologies you need to handle all of your organization’s supply risk.

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *