Risk centers and connectors

This year’s risk map is rather different from the map presented in 2011. Last year, the map was presented in a likelihood-impact risk matrix fashion, and not that easy to read, since there were simply too many risks and too many connections. Economic disparity and global governance failures were at the center, with other risk scattered around:

This year the map has changed. Based on a survey of 469 experts and industry leaders, the report identifies 5 centers of gravity (top 5 risks), and 4 critical connectors, hence the diamond shape of the diagram:

To me, this makes the report and its conclusion much easier to understand.

A new methodology

The seventh edition of the Global Risks report is based on a revamped methodology combining surveys, workshops and interviews that engage various stakeholders of the World Economic Forum. The starting point is a set of 50 global risks – which are defined as having global geographic scope, cross-industry relevance, uncertainty as to how and when they may occur, and high levels of economic and/or social impact requiring a multi-stakeholder approach to response. They are divided into five categories: economic, environmental, geopolitical, societal and technological risks. In each category there is a center of gravity and four connectors between the category, with additional weak signals at the outer edge.

Centers of gravity

- Chronic fiscal imbalances (economic)
- Greenhouse gas emissions (environmental)
- Global governance failure (geopolitical)
- Unsustainable population growth (societal)
- Critical systems failure (technological)

Connectors

- Severe income disparity (economic)
- Major systemic financial failure (economic)
- Unforeseen negative consequences of regulation (economic)
- Extreme volatility in energy and agriculture prices (economic)

Weak signals

- Vulnerability to geomagnetic storms (environmental)
- Proliferation of orbital debris (technological)
- Unintended consequences of nanotechnology (technological)
- Ineffective drug policies (societal)
- Militarization of space (geopolitical)

Three constellations of risks

Three distinct constellations of risks that present a very serious threat to our future prosperity and security emerged from this year’s set of risks:

- The seeds of dystopia

Dystopia, the opposite of a utopia, describes a place where life is full of hardship and devoid of hope. Many countries are currently heading towards dystopia, where the failure to manage ageing populations, youth unemployment, rising inequalities and fiscal imbalances may lead to greater social unrest and instability in the years to come.

- How safe  are the safeguards?

Safeguards and regulations are necessary and needed in a world that depends on technology, but as the systems on which the global economy relies become increasingly interdependent and complex, what is meant as a mainly national regulation can capable of having unintended repercussions globally. What one country does, can affect many.

- The dark side of connectivity

The critical infrastructure15 that underpins our daily lives increasingly depends on hyperconnected online systems. The security of these systems are no longer just a matter of private concern, they have become a public good and new mechanisms are urgently required to secure private investment in exploring existing system vulnerabilities before they can be exploited.

Conclusion

Now in its seventh edition, the Global Risk Report is perhaps the most comprehensive report on the most important global risks that have the potential to shape our shape, change and disrupt if not destroy our future. It is a report that should be read and acted upon, it is not a mere whitepaper, it is a tool for a less worrysom future.

Related link

• weforum.org: Global Risks 2012 (interactive)
• weforum.org: Global Risks 2012 (pdf)

Related posts

• husdal.com: Global risks and global supply chains
• husdal.com: Transportation risks in global supply chains

Chokepoints

One major issue in supply chain security is the vulnerability of so-called “chokepoints”. Using AON’s risk map, the report features a map of important global supply chain links, hubs and associated threats, showing how chokepoints constitute vulnerability hotspots that supply chain managers need to be aware of and take precautions against.

According to the report “chokepoints” are geographic features where there is only one narrow way across a strait, valley or bridge, are another potential weak point. Admittedly, they are right, because disrupting traffic through the Panama Canal, Suez Canal or the Strait of Malacca, for example, would slow down freight flows significantly.

Highlights

The report is focussed around three major topics:

Ensuring secure passage
Where are global supply chains most at risk? Countries that are less stable, either politically or economically are often hot spots. Gateway regions where there are very large flows of cargo are particularly important for global supply chains, and are therefore also of special interest to those looking to disrupt them. We believe that transportation and logistics companies will need to take security concerns into account when choosing transport routes. They’ll need to take a close look at how dependent their business is on particular logistics hubs or chokepoints, and then assess how they can reduce the impact of threats to particular locations. Transportation and logistics companies will also need to be prepared to respond quickly if risk levels change.

Keeping cyber space safe
IT systems are becoming more interdependent, as companies connect across their supply chains. While this increases information flow and efficiency, it also means that one successful cyber attack could have disruptive, unpredictable, devastating effects on other systems and companies and cause long-lasting consequences to economies. Consequently, cyber attacks inducing physical damage are an increasing threat for the transportation and logistics industry. The transportation and logistics industry already relies heavily on Information and Communication Technology (ICT), and virtual threats need to be taken just as seriously as physical ones. Indeed, we believe that cyber attacks designed to induce physical damage will be an increasing threat for the transportation and logistics industry.

Investing in a more secure future
Enhanced security measures mean higher costs. Does all this emphasis on improving security measures mean profits will decline? Not necessarily. Well-planned security investments provide a payback not only in terms of loss prevention, but also by enhancing supply chain performance. Mind you, additional safety measures also create a range of opportunity costs that might not always be immediately apparent for transportation and logistics companies, i.e. costs incurred through longer transport times, longer dwell times and increased turnaround times.

The report also stresses the importance of industry and government cooperation:

Stricter standards and the need to take the lead
And while they won’t need to go it completely alone, transportation and logistics companies shouldn’t expect government to pick up the slack. We believe that governments won’t take a leading role in executing supply chain security, although they will continue to regulate security measures. Transportation and logistics companies will need to work together with governmental institutions to develop new security standards that are not only effective, but also efficient.

Obviously, there could be other threats, but I believe PwC has hit the nail on proverbial head here.

Wildcards

The report also introduces the notion of “wildcards”, arguing that any look into the future should not be limited to the most probable scenarios though. Unlikely events do sometimes happen – and can have a huge impact on both society and the economy. Such low-probability, high-impact events can be termed “wildcards”:

What if terrorist attacks shut down logistics networks?
Logistics networks are the backbone of the global supply chain. That means disruptions could slow down national economies, making them potentially a preferred target for terrorist attacks. Important hubs, such as seaports and airports, could be shut down by physical aggression.

What if insurance companies stop covering major risks?
In the future, insurance companies might refuse to underwrite some types of large risks – for example damage resulting from natural catastrophes, or from terrorist actions. If transportation and logistics companies are no longer able to offset risk through insurance, logistics costs might soar.

What if key transit points are blocked?
A large portion of total world trade passes through important transit points such as the Panama Canal, the Suez Canal and the Strait of Malacca. Today the access to such transit points is almost unrestricted. If access to important trade routes were limited or made prohibitively expensive by operators, it could have severe consequences for global trade.

What if a super-virus paralyses large ICT systems?
Computer viruses are becoming more sophisticated and are causing greater damage to ICT systems. If a new and more powerful virus was able to infect large ICT systems, it could result in massive system breakdowns. That could potentially shut down a whole range of automated processes, paralysing entire supply chains.

What if cryptography doesn’t work anymore?
Imagine what happens if new super computers are powerful enough to crack any cryptography system or password within seconds? Communications in the transportation and logistics industry, customer data, transport routes, freight content and further confidential data would be accessible to competitors, criminals, and other unauthorised parties.

That is certainly more than enough to be worried about.

Critique

I’ve read and reviewed a number of whitepapers and reports for this blog, and honestly, some are better (or worse) researched than others, some seem to be mere infomercials, while others even hold some academic value. This report definitely falls into the latter category: well-researched, well-founded and well-written…and it contains a long list of references well worth further investigation.

Reference

Ruske, K D; Kauschke, P and von der Gracht, H (2011) Transportation & Logistics 2030 Volume 4: Securing the supply chain. PwC/EBS Whitepaper.

Author links

• pwc.com: Klaus-Dieter Ruske
• linkedin.com: Heiko von der Gracht

Related links

• pwc.com: Securing the supply chain

The Transportation and Logistics 2030 series is a foresight publication series that anlayzes future scenarios within the transportation and logistics domain. If you found the above interesting, you may also want to have a look at the other reports:

• pwc.com: How will supply chains evolve in an energy-constrained, low-carbon world? 
• pwc.com: Transport infrastructure—Engine or hand brake for global supply chains?
• pwc.com: Emerging Markets – New hubs, new spokes, new industry leaders?

Related posts

• husdal.com: From vulnerable to valuable (another PwC whitepaper)

My point of view

The reason why I came across this initiative is that I was invited to contribute to it, by sharing my thoughts and insights about what I think are most pressing issues in supply chain risk management. In particular I was asked regarding systemic exogenous supply chain risks, their distribution (whether they are acute and concentrated or dispersed and pervasive) and their current state (whether these are emerging or constant risks).

One of the most pressing issues that I see is the consolidation of third party logistics providers (3PLs). As more and more supply chains span the globe, many of them are operated by the same 3PL, using the same equipment or carrier for many supply chains.

If there is a disruption it will only affect one supply chain, but many, and the affected companies will all scramble to find alternative sources, and whoever is the fastest will win, as Nokia did over Ericsson in 2000. The 3PL may also have to prioritize which affected customer that should receive the most help, and probably whoever pays the most will receive the most help here.

The point is that 3PLs have become increasingly important in not only “orchestrating supply chains“, as Zacharia et al. write, they are also orchestrating the risk management of supply chains.

The Supply Chain and Transport Risk Initiative

The reason for establishing the initiative is best explained in their one-page flier:

In our physically and virtually interconnected world, the risk of systemic supply chain and transport disruptions is becoming ever more acute, affecting economic, security and geopolitical interests. The global economy has been built on the free movement and circulation of goods, components and labour.

Vast transportation networks have developed, spanning the globe, while inefficiencies, delays and slack have been eliminated in pursuit of lower cost margins and ever-more efficient supply networks.

But where do we draw the line? In our quest for greater efficiency and greater choice, are we developing robust global transport networks or building a house of cards?

The aim of the initiative is to bring together a range of leading experts from across WEF’s diverse communities to explore the most critical threats facing supply chain and transport networks and to apply new risk response tools that can promote efficient risk management, security and resiliency in our complex global trading environment.

I feel honored and privileged that I was given the opportunity to contribute, although not in a direct meeting with said experts (that would have been something), and only by phone interview with some of the key staff of the project, but nonetheless, I see it as a stamp of quality to the work I have laid down in creating this blog, and for that I am thankful.

Global Risks Meeting

The World Economic Forum’s Risk Response Network (RRN) was launched in Davos in January 2011 to bring together the world’s experts in managing risk from all sectors of society. Just three months later, the inaugural Global Risks Meeting in New York on 6 and 7 April gathered over 80 decision-makers and experts to figure out ways to better manage, respond to, prepare for and capture opportunities associated to global risks.

When reading the online report from the meeting, in particular the chapter on supply chains, my attention was immediately drawn to a figure on page 43 that looked oddly familiar:

Yes, if you are an observant reader of this blog, it is the figure I used in my post on Sheffi’s disruption profile that he used in his book on The Resilient Enterprise. Actually, from the way it is set up, I can see that the figure in the report is taken from a slide in my 2008 lecture on supply chain risk. Well, I cannot claim to be the owner of the figure, as it was drawn by Sheffi originally, but it is nice to see that my adaptation was used. This makes me wonder…did they perhaps use more of my slides at that meeting? I guess I will never know…

Supply Chain Dependencies

The chapter on supply chains is highly recommended reading for anyone interested in supply chain risk. These are the issues that the world’s leading decision-makers and experts are concerned about:

The tendency is to underpredict how vulnerable systems are, especially when they are functioning well or taken by surprise, such as when volcanic ash closed much of the European air space in 2010, almost causing an international supply chain breakdown.

Whether in transportation or cybersystems, weaknesses exist in how to communicate to the public that risk is a shared responsibility. A massive paradigm shift that takes into account a robust bottom-up approach is needed, especially with regard to first responders to a disaster.

Another vulnerability to global systems are the obstacles presented when countries have different laws and regulations governing supply chains and trade; regulators often think nationally, not globally. The challenge is to ensure that governments and regions apply consistent standards so that supply chains run more smoothly and industries can invest without too much cost to customers.

While larger companies have the capacity to monitor an entire supply chain or network, often SMEs have no control, especially when there is a disruption.

Other risks that can undermine supply chains are not just catastrophic events but also non-state actors such as terrorists and organized crime.

I think they are on the right track, and this is indeed a highly commendable follow-up of the Global Risk Report 2008, where supply chain vulnerability was highlighted as an important and perhaps invisible global risk that should no go unattended.

Supply Chain and Transport Risk Issues

What I found most delightful was that the report from the Global Risks Meeting  features “scribes” of the discussions from the meeting session. I think the supply chain and transport scribe is very illustrative, don’t you?

Perhaps not the easiest scribe to follow if you weren’t there, but it works, and brings together all the issues mentioned above. Maybe I should use this figure in my supply chain risk lecture for 2011 and spend the whole three hours dissecting all its details? Unfortunately my students will probably have a lot less to say about the figure than the experts at the meeting, but you never know…

Recommended reading

In conclusion, the website of the Supply Chain and Transport Risk Initiative, along with the Risk Response Network, and especially the report from Global Risks Meeting should absolutely be on your reading list, without any doubt. That said, what do you think supply chain experts and decision-makers should focus on in terms of risk?

Related links

• weforum.org: Supply Chain and Transport Risk Initiative
• weforum.org: Risk Response Network
• weforum.org: Global Risks Meeting Report 2011
• weforum.org: Global Risks

Related posts

• husdal.com: Future Value Chain Trends 2020
• husdal.com: Supply chain risk – an invisible global risk?

Another WTG webinar

I like the WTG webinars, since they usually are presented by knowledgeable industry professional, who know field and know how to get the message across. This is not the first trade compliance webinar from WTG to make it onto this blog. A month ago I blogged about  a German webinar on Management von Trade Compliance und Exportkontrollrisiken, so apparently this is a hot issue. If you don’t have the time for the webinar, I suggest you get hold of a copy of the Gower Short Guide to Customs Risk, perhaps one of the best handbooks on how to make supply chains cross borders effortlessly (almost). For more on the challenges in global supply chains, this post on the drivers of change in cross-border supply chains may also be of interest.

WTG on Demand

The good thing about WTG is that most of their webinars are made available on demand after they have been broadcast, so even if you’ve missed one, you can still watch it later, when you have the time: WTG On Demand.

Key learnings of this session

• Risks and consequences of trade compliance and export control for globally active companies
• Impact on the strategic and operational processes within the supply chain
• System support of global operational control processes
• Key characteristics of an effective export control process
• How to efficiently implement a global restricted party screening solution

Link

• wtgwebinar.com: Global Risk and Compliance

Related post

• husdal.com: Customs risks
• husdal.com: Cross-border supply chains

An array of issues

The call for papers start by listing some of the  problems associated with global supply chains, such as lack of visibility in supplier reliability, cost and product quality, and uncertainties associated with rapid changes in technology and product life cycle, frequent natural and human disasters, and unstable market and exchange rates, and that is only part of the picture.

Past research has well documented the impact of supply chain disruptions on operational performance that has caused serious damage to profitability of firms leading to loss of shareholder wealth and reputation.

Definitely so. One good paper on this matter is Hendricks and Singhal (2005), looking at the effect of supply chain glitches on shareholder value.

Global chains and local issues having global effects

Global supply chains must work in different countries, under different cultures, business ethics and customs, and different political and regulatory regimes.

At the same time, the unstoppable globalization of economies continues to expand the spectrum of risks that industry supply chains have to bear, in particular, the type of risks associated with operating in emerging markets and in the global arena filled with governmental and economic players with different regulatory and tax regimes, disparate business cultures, varying level of economic development, and different sense of social and environmental responsibilities.

Many of these issues have been dealt upon in previous papers, such as the late Ghoshal’s seminal paper that was published as early as 1987: Global Strategy: An Organizing Framework, and two papers from 2008 by Manuj and Mentzer: Global Supply Chain Risk Management and Global Supply Chain Risk Management Strategies. These are justy some of the papers that belong in your literature review if you plan to submit an article for the special issue.

Topics of interest for the special issue

Although this is a special issue, there is a wide range of topics to choose from and the topics of interest include, but are not limited to:

• Supply chain strategies to deal with overall economic risk (recessions or recoveries)
• Risks and benefits of operating in emerging markets
• Risk assessment and operational approaches to manage risk in global supply chains
• Decision models with supply side quality and/or capacity risk
• Case studies of effective supply chain risk management
• Collaborative risk management mechanisms to strengthen ties with supply chain partners
• Risk management across lifecycle of supply chain activities
• Risks brought forth by lack of informational visibility across the supply chain
• Supply chain data and process security, IP risk and remediation policies
• Regulatory compliance risk

According to the call, papers that capture the economics that govern the interaction among the firms in a supply chain are of particular interest.

Submission Deadline

Don forget to submit your paper before 1 November 2011.

More information – where and how to submit

• poms.org: Call for papers – Global Supply Chain Risk Management

Related posts

• husdal.com: Global Supply Chain Risk Management

So much to read, so little time…

I became aware of the article on supply chain risk in the Wall Street Journal when I read Jim Fulcher’s blog post on Natural disasters, extreme weather and risk mitigation strategies in the Kinaxis Supply Chain Expert community, a community in which I participate, but which I have sadly neglected in the last couple of months, busy as I am with my own things.  In his post, Jim uses the article to bring in his own point of view and to bring a sobering reminder of some the things that went wrong in 2010:

While natural disasters and extreme weather have always been business challenges, their potential becomes more significant as supply chains grow in complexity. More often than not, supply chains now reach around the world, and consequently, businesses are most likely dependent on suppliers and partners located thousands of miles away. The problem is that these distances introduce a higher degree of risk. Consider, for instance, that automotive manufacturer Nissan Motor was forced to shut down three auto assembly lines in Japan because the factories ran out of tire-pressure sensors when a plane carrying a shipment from a supplier in Ireland was grounded due to the cloud of volcanic ash covering Europe after the volcanic eruption in Iceland.

Interestingly, Jim cites some recent research by Vinod Singhal, who found that companies  experiencing a supply chain disruption suffer a decline in stock prices  that ranges between a 33 percent and 40 percent decline compared with  industry peers mover the last three years. Mind you, in a 2003 article on The impact of supply chain glitches on shareholder value, he found that the decline after a glitch was some 11% on average during 1989-2000, so it’s a bit confounding to see that it now is so much more.  Does this mean that supply chain disasters have gotten worse in the last 10 years, or is it that the impact has gotten worse now that supply chains are far more globalized than 10 years ago, or is it simply that the shareholders’ trust in the company is more easily shaken now than before?

Corporate Risk – as seen by the Wall Street Journal

Back to the section on Corporate Risk in the wall Street Journal. Not everything is supply chain risk related, but it is certainly worth reading. Owning a vineyard is perhaps a dream that many have, but it is a dream that is wrought with perils. Looking at risk of another kind, there is a thoughtful piece on why successful businessmen continue to make the seemingly financially insane decision to buy struggling sports clubs. Yes, why do they? Another article in the section looks at how some companies have recognized the matter of  brand value and how important reputation is in the face of crisis. Finally, there’s a look at what may look like just an expensive hobby on the outside, but what is actually passion investments in fine art or fine goods. Not only can they be an inflation hedge, but they can also diversify exposure away from the movements in traditional fixed income and equities.

And that’s basically what I have been up to this Sunday. What have you been reading today?

Links

• community.kinaxis.com: Jim Fulcher’s Blog
• wsj.com: Corporate Risk

Related posts

• husdal.com: The impact of disasters on supply chains
• husdal.com: The impact of supply chain glitches on shareholder value

What are people risks?

According to AON, every organization is subject to people risk at every stage of the employment cycle – recruitment, employment, or retirement. More importantly, people risk often has a significant impact on the success or failure of a venture. Some risks are created by a company’s policies and practices, while others are due to the location in which a company operates. Global corporate HR policies and practices need to take into account the local conditions and risks prevailing in each location where a company operates:

Risks associated with recruitment

• The risk of not finding qualified candidates
• The risk of hiring people that do not fit the organization culture
• The risk of hiring people who do not have relevant experience or capabilities

Risks associated with employment

• The risk of losing people the company wants to keep
• The risk of paying too much, too little or for the wrong things
• The risk of increasing employment costs that later cannot be reduced

Risks associated with restructuring, retirement, and retrenchment

• The risk of moving people into new jobs, new organizations or new locations
• The risk of people retiring or letting people go
• The risks of incurring costs after people are gone

Understanding risks associated with both operations and locations is critical to business success, and while this is well understood by globally experienced HR practitioners, assessing the risks associated with people is often ad hoc, subjective and nonquantifiable, say AON. The result can be a poor understanding of the underlying and full business risks of operating in any given location.

25 factors

The AON People Risk Map identifies 25 critical factors impacting People Risk by location. These 25 factors are clustered into five areas of People Risk:

• Demographic risks are those associated with labor supply, the economy and the society.
• People risks associated with Government Support are those where government policies and practices either help or hinder the management of people in that location.
• Education risk factors seek to measure risks associated with finding qualified professionals in a location.
• Talent Development risk factors look at the quality and availability of recruiting and training resources.
• Employment Practices risk factors seek to measure the risks associated with employing people in a given location.

The individual factors are listed below:

Used on a world map, people risk displays like this:

Interestingly, my own country, Norway, has not been ranked. As there is no explanation given to why some countries have been ranked and why some have not, I’m not going to guess. Except for the obvious “not important enough”. It certainly cannot be for the lack of available data. After all, last year they did manage to fit Norway into their Commodity Crunch Exposure Matrix.

Top 3 and Bottom 3

The report lists these cities as the top 3 (lowest risk) and bottom 3 (highest risk) among the 90 cities that are ranked:

1. Toronto, Canada

2. New York, USA

3. Singapore, Singapore

…

88. Lagos, Nigeria

89. Phnom Penh, Cambodia

90. Dhaka, Bangladesh

Regional insights

The report is well worth reading and does provide some valuable regional insights, where the results are discussed and broken down in more detail for Europe, the Americas, Asia Pacific, the Middle East and Africa. While the map and the report on one hand are an obvious and clever marketing tool for AON’s consulting services, I also believe that they can provide some firsthand information for a company seeking to globalize its operations. In my opinion the AON map and report perfectly complements the Global Risk Reports from the World Economic Forum as a risk management primer for busy executives as well as academics seeking in-depth analysis.

As global economic growth continues to shift from the developed markets to the emerging markets, companies are seeking more localization in their people strategy to capitalize on the faster growth opportunities in these markets. This means companies will want to increase their presence by hiring talents from, and deploying talents to, these emerging markets. The better a company understands the people risks related to each local market, the better equipped they will be to realize the business opportunities.

So says AON. For more information on the map and the report, use the download link below.

Download

• aon.com: People Risk map

Related

• husdal.com: AON Political Risk Map

A wake-up call

This short, succinct, two-page piece is the introduction to a special issue on Logistics and the supply chain risk and uncertainty in IJPDLM, the International Journal of Physical Distribution & Logistics Management. In the article, Barry raises some fundamental concerns about the current trend towards global outsourcing and its consequences. Yes, it may be cutting the costs, but it is not cutting the risks. And risk is one thing a company cannot outsource. As Martin Christopher notes in his book chapter on managing  risk in the supply chain:

The trend towards just in time and lean practices
>>> efficiency rather than effectiveness

The trend towards reducing costs
>>> globalization, more complex and longer supply chains

The trend towards economies of scale
>>> centralized distribution and manufacturing
>>> lower costs, but also less flexibility

The trend towards outsourcing of non-core business activities
>>> loss of control when it is most needed

The trend towards consolidation of suppliers
>>> increased potential for disruptions

Globalization, for all its benefits, does come at a cost, and Barry’s message is that it is about time that we acknowledge and consider this cost.

An enterprise may have lowest over-all costs in a stable world environment, but may also have the highest level of risk – if any one of the multiple gating factors kink up an elongated global supply chain!

The Nokia-Ericsson plant fire is the classic textbook example of a gating factor kinking up a supply chain.

Food for thought

Barry raises some important questions in his article, questions every manager and CEO should ponder on a regular basis. Below are some of them.

Who are the specific suppliers, materials, and services that are at risk, especially those global sources of supply?

Barry is spot on when he says that effective supply risk management requires identifying an monetizing risk events, establishing the probability of occurrence, and developing contingencies for alternative sources of supply.

What is the impact of the compromise of intellectual properties from global sourcing?

Another important message by Barry. What do you do when subcontractors become suppliers, then partners, and, finally, competitors – all fostered by the transfer of technology for short-term cost advantage. Is it really worth it in the long run? Remember: The wrong people can ruin a right supply chain.

What are the consequences of the lack of seamless global e-commerce?

Current technology applications, so Barry says, are islands of digital standards surrounded by seas of non-compatibility. I guess he’s right. Each supply chain consultancy firm appears to have their own proprietary software solutions, which of course are promoted as being better than their competitor’s. But do we need them all? How long can the supply chain afford the buffers of excesses required by just-in-case technology and sold by mischievous ERP consultants?

Further reading required

The article is very short and Barry does not elaborate much around his key points, besides simply posing the questions. Fortunately, I did find a presentation he made at the Institute for Supply Management Services Group Conference in 2004, titled Global Risk: Outsourcing Services, A New Aesop’s Fable of the Ant and the Termite. Here he presented his article and his thoughts behind it. The slides I liked best are:

The benefits of globalisation:
India develops my software
Ireland manages my customer service
Taiwan does my testing
Mexico performs piece labor
Germany balances my finances
Israel does my clinical research
… my supply sources are global.
>>> I have the lowest overall cost of services

The risks of globalization:
India owns my IT process and innovation
Ireland is between me and my customers
Taiwan controls my quality control
Mexico dominates my capacity curve
Germany leverages my finances
Israel has first views of my innovation
… my supply sources may be beyond my laws and conventions.
>>> I have the highest level of risk to continued operations

The full presentation can be downloaded here: Global Risk: Outsourcing Services, A New Aesop’s Fable of the Ant and the Termite.

Another slide I found particularly intriguing is this one:

This figure perfectly combines contingency and mitigation strategies for dealing with risk, and links them with supply chain variables like capacity and inventory.

Critique

For all its brevity, the articles does raise some important issues. It would fit well as a column in the Wall Street Journal, Harvard Business Review or MIT Sloan Management Review. It is perhaps not so well-suited alongside the other articles in this special issue of IJPDLM. That said, it serves its function well. After all, I did spend an entire day writing this post and discovered that there was more to this article than the mere two pages it is written on.

Reference

Barry, J. (2004). Supply chain risk in an uncertain global supply chain environment International Journal of Physical Distribution & Logistics Management, 34 (9), 695-697 DOI: 10.1108/09600030410567469

Related

• husdal.com: Can you outsource risk?
• husdal.com: Supply chain vulnerability – a global risk?

Uncertainty, uncertainty, uncertainty

According to Jean V Murphy of SupplyChainBrain, the title alludes to “choke points” that can jeopardize an organization’s ability to provide value

The root cause is the way that supply chains have been redesigned and reconfigured over the last decade in response to outsourcing, off-shoring and customer/vendor empowerment.

While some good has come from globalization, the downside is that it significantly increases the organization’s exposure to uncertainty, but not all managers are aware of this, let alone the 1o “laws” that govern any business venture.

Globalization: the hidden culprit

Gary Lynch picks up on a notion that I highlighted on this blog last year, namely the 2008 Global Report by the World Economic Forum, where the hyperoptimization of supply chains and the resulting supply chain risk was put forward as a major contributor towards the global risk scenario.

All for one, one for all

In supply chains, everyone is connected. It is impossible to separate the supplier from the company or the company from the customer. The only way the supply chain can work is one for all, all for one.

Click image for larger version

This book shows you how everyone is involved in the supply chain itself, often on several levels at the same time, how the chain is exposed to an infinite number of constantly changing threats; how weak links in the chain represent threats and vulnerabilities, to profitability, continuity, safety and health; and how these threats can be mananged, reduces and eliminated.

The Ten Laws

According to Lynch, these are the ten basic laws of SCM:

• If you don’t manage and lead change you have to surrender to it.
• The paradigm should destroy the parasite. Begin by defining the paradigm, not by fighting the parasite.
• Manage you business DNA in a petri dish of evolving risk.
• In supply chain risk management, demand trumps supply.
• Never set up your supplier for failure
• Managing production risk is a dirty job. Focus on managing the endless risk of manufactured weakest links.
• The logistics risk management rule. Managing the sum of parts does not equal managing the whole.
• Mitigation: If supply chain risk management isn’t the solution, it will soon become the problem.
• Financing: The best policy is knowing what’s in your policy.
• Manage the risk as you manage your own: Your supply chains are all interdependent but unique.

Much of what it comes down to in risk management is just common sense. But in the day-to-day business of managing operations and logistics, the oversight and wider implications of one’s actions are often lost.

Four key points

Again, back to Jean V Murphy, four key points pervade Lynch’s thinking:

• Everyone, without exception, is part of a supply chain.
• No risk strategy is a substitute for bad decisions and a lack of risk consciousness.
• Get the details right but see the whole picture.
• People always operate from their own self interest.

Lynch certainly manages to hammer inn this message, but gently. A longer interview with Gary Lynch can be found on the Kinaxis Blog, where he explains some of his views and ideas.

Conclusion

This book is full of universally applicable real-life examples, obviously written for the practitioner and supply chain professional, and perhaps not so much for the scholar or researcher.  Nonetheless, considering the highly affordable price, this is a book that definitely should be in you bookshelf.

Reference

Lynch, G (2009) Single Point of Failure. Hoboken: John Wiley & Sons

Author link

• marshriskconsulting.com: Gary Lynch
• blog.kinaxis.com: Getting Supply Chain Risk Management right

Publisher link

Visit our partner Wiley.com to save 15% on your entire online order. To save, enter discount code AFF15 in the Promotion Code field as you’re checking out. Click the Apply Discount button so your savings are calculated.

• wiley.com: Single Point of Failure

amazon.com

• Buy this book from amazon.com: Single Point of Failure
  (It’s cheaper, and also available as Kindle)

Related

• husdal.com: The new global risk: Hyperoptimization of supply chains
• husdal.com: Are you the weakest link in your supply chain?

Deja vu

Unfortunately, the chapter doesn’t say much more than what has already been said in the above articles. This book chapter follows more or less the same structure as the Global Supply Chain Risk Management article, it even uses the same figure, but it is better written and more geared towards the practitioner, with examples of how to put the model into use. Personally I find the book chapter preferable to the article.

Copyright note: The figure above is taken from the book chapter.

But -  there is a very good reason to look closer at that chapter, it’s the figure above, illustrating how a risk matrix can be put to use when assessing supply chain risk.

Comprehensive

As to the rest of the book, it is to say the least, comprehensive, filled with 600 pages of intensely condensed knowledge, covering everything about Global Supply Chain Management from A to Z:

• Understanding Global Supply Chains
  • Global Supply Chain Management Strategy
  • Assessing the Global Environment
  • Value and Customer Service Management
  • Demand Management
  • Knowledge Management
  • Process Orientation
• Managing the Functions
  • Marketing and Sales Management
  • Product Management
  • Operations Management
  • Integrated Logistics Management
  • Inventory Management
  • Transportation Management
  • Warehouse Management
  • Supply Management
  • Personnel
• Managing the Resources
  • The Lean Supply Chain
  • Financial Management
  • Risk Management
  • Interpretation Systems: Knowledge, Strategy, Performance
• Managing Relations
  • Relationship Management
  • Logistics Outsourcing
  • International Sourcing
  • Negotiating Throughout the Supply Chain
  • Interfunctional Coordination
  • Intercorporate Coordination
  • Global Supply Chain Control
• Making It Happen
  • Supply Chain Innovation
  • Global Supply Chain Security
  • Diagnosing the Supply Chain
  • Change Management

More detailed information on the chapters can be found using the amazon.com “Look inside” preview.

Conclusion

The book comes with a hefty price tag, but reasonably priced used ones are usually available. Although I have focused solely on the chapter on risks,  I did browse the other chapters, and I must say they are equally solidly written. It is  handbook indeed, allowing the reader to focus on one area of investigation at the time, while never leaving the whole chain out of sight.

Reference

Manuj, I., Dittmann, P. J., & Gaudenzi, B. (2007). Risk Management. In J.T. Mentzer, M. B. Myers & T. P. Stank (Eds.), Global Supply Chain Management (pp. 319-336). Thousand Oaks: Sage Publications.

Author links

• utk.edu: John T Mentzer (Died on 26 February 2010)
• dcvelocity.com: J Paul Dittmann
• unt.edu: Ila Manuj
• univr.it: Barbara Gaudenzi

Buy this book

• amazon.com: Handbook of Global Supply Chain Management

Related posts

• husdal.com: The risks of global sourcing

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