Seven key areas

The article divides the  supply chain domain into seven key areas where CEOs can exert a positive, or conversely, a negative influence:

Picking the right leaders – A CEO should never appoint  a person without the appropriate background for a senior position in supply chain management. Even if lateral job rotation is part of management training and the designated career path towards senior management positions, make sure that the supply chain management function is headed by someone who knows supply chain management.

Only a CEO who is up to date on supply-chain practices and trends can properly evaluate a supply-chain executive’s performance.

Initiating benchmarking and devising metrics –  A CEO ought to specify goals for improvement of inventory, transportation, and warehousing.  In order to do so he need to know benchmarking techniques and best practice metrics.

Ensure that any tool purporting to evaluate customer service assesses the company’s performance from the customer’s viewpoint.

Setting incentives for supportive behavior – A CEO ought to establish reward and incentive programmes to encourage employees to behave in ways that benefit the overall firm, not just their own functions.

Purchasing, logistics, and merchandising managers work in cross-functional teams and are measured — and rewarded — according to supply-chain metrics that assess purchasing costs, logistics costs of getting the product to the store, and the selling price in the store.

Keeping up with supply chain technologies and trends – A CEO should take the time to understand the sophisticated technologies that exist with supply chain management, among which RFID, machine readable codes  and bar codes.

A CEO who understands new technologies can play the important devil’s advocate role by challenging the business case for technology adoption.

Eliminating cross-functional crossed wires – A CEO should be aware of and avoid cross-functional sinkholes, where either part of the team has no understanding of the others’ role and function in the overall supply chain.

The CEO should thoroughly understand — so that he can help to harmonise — the interplay of cross-functional and supply chain priorities.

Adding supply chain insight to business planning – A CEO ought to make sure that no key information is missing from the planning stage. Supply-chain considerations should be core components of business planning, including sales and marketing promotions and of contract negotiations with customers and partners, because unforeseen disjunctions can undermine the best strategic intentions.

CEOs, if fully engaged, demand relevant business planning and negotiations anticipate and explicitly address important supply chain ramifications.

Resisting the tyranny of short-term thinking – A CEO should guard, in particular, against allowing quarterly pressures to dictate unprofitable long-term trends. Why? Because it results in

extreme costs and supply disruptions created by a quarterly cycle consisting of overcapacity and inventory build-up for two months, followed by rush production and delivery in the third month

Seven questions

These are the seven question a CEO should ask:

• Is supply chain leadership a valued career path in your company?
• Do you have a program of customer-focused metrics and best-practice benchmarking that drives cross-functional alignment?
• Do employee and customer behavior reflect your supply chain strategies?
• Do you understand important supply chain technology trends?
• Do you play a constructive role in resolving cross-functional disjunctions?
• Do you demand that supply chain expertise be factored into all or most business operations?
• Do you ensure that short-term thinking doesn’t sabotage supply chain strategies?

A scorecard for self assessment

The answer to the seven questions  can be assesed using a scorecard:

(Click image for larger version)

Conclusion

Although this article is more about suply chain management than supply chain risk, no supply chain is stronger than its weakest link, and weak links are a risk that can and should be avoided. This article is a step towards eliminating these weak links, at least the internal links.

Links

• Harvard Business  Review: Are you the weakest link in your company’s supply chain? (Login required)
• cio.co.nz: Are you  the weakest link in your company’s supply chain? (Full article, but no graphics)

Author links

• officemax.com: Reuben E Slone
• utk.edu: John T Mentzer
• dcvelocity.com: J Paul Dittmann

Related

• husdal.com: Barcodes – essential to supply chain management?

The biggest risk is inside

When designing continuity plans, most companies think of all those things that are out of their control…fire, flood, labour unrest, storm damage, flu pandemics and the like. However, the risk that is most often overlooked is lurking not externally, but internally. Gen Ford from Ithaca puts it this way in his post on DISASTER! Business Continuity Issues are Most Often Caused from Within…:

Risks … generally result from the natural way in which  organisations grow.  Ad hoc development of structure, process, new product and service creation often leads to gaps in competency, communication and function.

How can you make sure your organization is fit to the task, even in the face of disaster? You must hire according to plan.

The Talent Supply Chain

In his post People and Talent Supply Chain Management, Jeff Ashcroft from SupplyChainNetwork says:

Just as in supply chain management you begin with an inventory of your current human resources within the firm and the skills and attributes of those people. It’s then time to do some future planning relative to what your needs will be by location in three to five years. This will become your forecast for the talent supply chain in your firm but only represents the beginning of the full application of supply chain management principles to ensure the future health and stability of your workforce.

Nonetheless, even if you do apply the talent supply chain, one issue still remains, the loss of key personnel or key knowledge.

Knowledge management

Knowledge management is particularly important in today’s globalized supply chain, where teams work spread across the globe, perhaps only on a temporary or project basis, ready to move on when one project is completed. What happens then? You need to acquire the manpower and skills all over again. The figure below is one of the best illustrations I’ve seen on this subject: This is a figure I found somewhere on the Internet at some point in time, but I forgot where and I am unable to find it again, or I would point you to it.

Having the wrong (=incompetent) people can certainly ruin your supply chain. Having the right people can be disastrous, too, if you have no contingency plan on how to replace them.

Links

• SupplyChainNetwork: People and Talent Supply Chain Management
• Finding Better Ways: DISASTER! Business Continuity Issues are Most Often Caused from Within…

Related

• husdal.com: Trust, Control and Risk in Strategic Alliances

A new experience

Writing a chapter for a book has been a whole new experience to me.  Daunting at first…how do your come up at least 9000 words on a topic you don’t really know much about? Following the references in Ken Thompson’s The Networked Enterprise as a starting point, it wasn’t too hard in the end, reaching some 12.700 words. Besides investigating a new field of study hitherto utterly unknown to me, writing a book chapter is considerably different from writing a journal article or a research report (which I do a lot of in my day job), let alone reviewing books or literature or websites and thinking up some posts for this blog. My posts on  Virtual Enterprise Networks are actually partly taken from my chapter proposal. For the sake of copyright and other issues, the full chapter will not be published on this blog until it is finalized and sent to the printers. The preliminary chapter proposal can be seen in my post on Understanding Risks in Virtual Enterprise Networks.

Virtual Enterprise Networks

I must admit that I knew very little, if anything, about Virtual Enterprise Networks when I started this adventure some months back, but I can now say that I am fascinated by the concept, and I believe that much of the future of supply chains lies in virtual enterprise networks. Supply chains have evolved in so far four stages, from the mere optimization of flows to economies of scale and further to economies of scope. The current stage is economies of integration, integrating and involving customer requirements in a value-driven rather than value-pushed supply chain, which leads to the next stage: economies of relationships. The basis for any virtual enterprise network is are the relationships among its partners, and my hope is that my chapter can contribute to managing the risks in the relationships that make up a virtual enterprise network.

What if

What if my chapter submission is not accepted? Well, as we say in Norwegian, “nothing is so bad it’s not good for something else”. I’ve covered some solid research ground and discovered many new articles on topics related to supply chain risk (and re-discovered som old ones I deemed not useful at that time). This means that large parts of my chapter could be re-worked into a journal article, or, if nothing else, at least I will be able to produce a whole string of posts about Virtual Enterprise Networks here on this blog.

Related

• husdal.com:
  Understanding Risk in Virtual Enterprise Networks (chapter proposal)
• husdal.com:
  Is managing risks in Virtual Enterprise Networks different from managing risks in Supply Chains? (conference presentation)
• husdal.com:
  Finally, my book chapter is published

What is a VEN?

Thompson (2008) defines a VEN as “a voluntary and dynamic community of Small and Medium Enterprises that commit to working together for a set period of time, to collectively seek opportunities to participate in collaborative projects of mutual business interest”. A VEN is by definition a time-limited structure; it has a set life-cycle, i.e. the duration of a project in which the participating enterprises partake. This life cycle perspective poses certain challenges in how to manage VEN risks, as they may change from project to project.

Drivers of Supply Chain Vulnerability vis-à-vis Drivers of VEN Vulnerability

The view of a supply chain network that comes closest to a VEN is that of Peck (2005), where the “chain” is not a chain, but a complex web or network of interlinked businesses. Here, this network is seen as operating on four levels, where the links within one level may not match the links within the other levels:

At level 1, the supply chain is seen as a logistics pipeline, where the focus on lean and agile practices have made supply chain performance the overall goal but at the same time it also exposed the supply chain to many risks. At level 2 the focus is on the supply chain as a carrier of goods and information, and supply chain vulnerability is determined by production sites, distribution centers and warehouses, as well as IT and other communication facilities, and also the whole transportation network from supplier to end customer. At level 3 the view is further afield, looking at the supply chain from a strategic and management perspective, where organizational management, power-sharing, collaboration and competition become important factors in evaluating vulnerability. At level 4 the view is a broad macroeconomic perspective, political, economic, social, legal and technological factors, and disruptions or sudden changes in these factors are more often than not beyond the control of the company, but must be dealt with accordingly.

The 4-level model employed by Peck is easily transferable to a VEN environment and is an excellent tool for explaining the scope and dynamic nature of supply chain risk. It emphasizes that a resilient network involves much more than the design and management of robust supply chain processes. It is also important to recognize that by taking actions to reduce risk at one point within the four levels, at the same time the risk profile for the other levels is changed, including players and stakeholders not thought of in the initial risk assessment. Supply chains are dynamic and constantly evolving, and so is supply chain risk, and managing this risk is a constant battle and a never-ending process. A VEN is by definition a time-limited structure; it has a set life-cycle, i.e. the duration of a project in which the participating enterprises partake. In a VEN, where the players are constantly changing, the risk is constantly changing, too.

VEN risk management vis-à-vis Business Continuity Management

A VEN is a collaboration rather than a competition, a collective effort rather than a set of individual efforts, and hence, the underlying idea of a VEN is that it is a win-win undertaking. Nonetheless, in today’s global and interwoven business environment, where supply chain disruptions can occur more or less frequently, the subsequent failure of one contributing participant in the supply network (or chain) can potentially lead to the collapse of the whole network (or chain). In a VEN environment, win-win turns into loose-loose, and consequently, the term business continuity management should be explored and related to VEN continuity management.

Strategies for managing VEN risks

Robustness, flexibility, and resilience stand out as three strategies or approaches towards supply chain disruptions. These three terms are distinctively different and which strategy that works best would depend not only on the supply chain in question as a whole, but also which part of the supply chain that may be vulnerable. A best-practice supply chain is likely to encompass all three, making it robust, flexible and resilient at the same time. There is a distinct notion of severity in these definitions, and in a business setting, the ability to survive (resilience) is likely to be much more important than the ability to quickly regain stability (robustness) or the ability to divert (flexibility). While on the supply chain side resilience may be the right way forward, on the VEN side it is more likely to be agility,  that should take priority, since essentially VENs are agile by nature. Agility in supply chains is a concept that is explored by for instance Christopher and Peck (2004).

Resilience as a key ingredient for managing VEN risks

A good illustration of where the susceptibility to disruption (and hence, the resilience and ability to recover) is a determining variable in the strength of a supply chain can be seen in a report from the New Zealand research initiative “Resilient Organisations” (Mc Manus, 2007). Here, resilience is a 3-fold construct, depending on 1) keystone vulnerabilities, 2) situation awareness and 3) adaptive capacity. The adaptive capacity becomes particular important in recovering from a disruption. In a supply chain this could be viewed as the the inter- and intra-organizational “preparedness” (or worst case, “un-preparedness”). It is the preparedness then that determines the actual impact of supply chain disruptions.  However, supply chain resilience is not only a function of organizational preparedness; it is also a function of supply chain design, as in Craighead et al. (2007).

Supply chain vulnerability and VEN vulnerability

There is no one definition of supply chain vulnerability, and it is likewise difficult to make one definition of VEN vulnerability, but the closest definition is probably found in McManus (2007), where vulnerability is a function of the impact of a disruption and the organizational preparedness towards the disruption.

VEN characteristics as disruption impact parameters

The notion that both structural and organizational supply chain characteristics play a major role in supply chain disruptions is further underscored in Craighead et al. (2007), where the severity of supply chain disruptions is related to supply chain design characteristics (supply chain density, supply chain complexity and node criticality) and supply chain mitigation capabilities (recovery capability and warning capability). In brief: supply chain structure and supply chain organization.

These factors are presented in the form of 6 propositions: Firstly, proposition 1 to 3, an unplanned event that disrupts a supply chain is more likely have a severe impact if the supply chain structure is 1) dense or 2) complex or 3) contains critical nodes or bottlenecks.  Secondly, proposition 4 and 5, an unplanned event that disrupts a supply chain is less likely have a severe impact if the supply chain 4) has proactive or reactive recovery capabilities or 5) warning capabilities,  as in detection and dissemination of critical information. Thirdly, proposition 6, combining the previous 5 propositions, an unplanned event disrupting a supply chain that is dense, complex and with many critical nodes is less likely to be severe if there is a capability to quickly detect and disseminate information about the event and thus respond and correct in a proactive or reactive manner.

It appears then that propositions 4, 5 and 6 are inherent to VENs, due to their collective and collaborative structure, and VENs should fare better vis-à-vis disruptions compared to traditional supply chains.

Conclusion

Supply chains are competitive, VENs are collaborative. Approaching VENs from a supply chain perspective can assist in defining the risks and challenges a VEN faces and how to manage them, particularly since many of the traditional supply chain risks stem from a lack of collaboration and visibility, the hallmarks of VENs, making VENs the ideal setup for supply chains and making supply chain risk management a fertile ground for researching VEN risk management.

Selected Key References

Christopher, M. (2005) Managing risk in the supply chain. In: Christopher, M. (Ed.) Logistics and Supply Chain Management. 3rd ed., Prentice Hall, pp. 231-258.

Christopher, M. and Peck, H. (2004) Building the Resilient Supply Chain. The International Journal of Logistics Management. Vol. 15, No. 2, pp. 1 – 14.

Craighead, C. W., Blackhurst, J., Rungtusanatham, M. J. & Handfield, R. B. (2007) The Severity of Supply Chain Disruptions: Design Characteristics and Mitigation Capabilities. Decision Sciences, Vol. 38, No. 1, pp. 131-156.

Mc Manus, S. et al (2007) Resilience Management – A Framework for Assessing and Improving the Resilience of Organisations. Research Report 2007/01, Resilient Organisations, New Zealand. www.resorgs.org.nz

Peck, H. (2005) Drivers of supply chain vulnerability: an integrated framework. International Journal of Physical Distribution & Logistics Management, Vol. 35, No. 3/4, pp. 210-229.

Thompson, K. (2008) The Networked Enterprise. Meghan-Kiffer Press.

Related

• husdal.com: Risks in Virtual Enterprise Networks