Managing Supply Chain Vulnerability — Press Release

by: Matthew Potter
February 14, 2013

Category: Business Line, Companies, Events, Press Releases, Trade Shows and Events | RSS 2.0

“Supply chains are now more vulnerable than ever,” says Thom McLeod, Founder and Managing Director, Tenzing Consulting. “Being able to systematically manage supply chain risk is a very important issue today, because Boards of Directors are waking up to it. Audit Committees are now required to look at overall enterprise risk, and the supply chain is often an area where there is a tremendous amount of business risk to be managed,” he explains.
As a solution provider attending the marcus evans Chief Procurement Officer Summit 2013, in Atlanta, Georgia, April 22-23, McLeod takes the focus to supply chain risk management, and discusses why procurement is relevant to every function in an organization.

Why is supply chain vulnerability a big issue today? Where is this vulnerability coming from?

Companies are only now starting to understand where supply chain risk fits into overall enterprise risk. Many organizations look primarily at financial and market risks, without giving the supply chain the attention it needs. The first challenge for supply chain-dependent organizations is to make sure that supply chain risk is elevated to and visible at an executive or Board level.

The effort that procurement and supply chain organizations have invested to improve productivity, reduce cost, and become leaner have paid big dividends. But in many respects, these improvements have made supply chains more vulnerable than ever. Cost reduction has driven a lot of supply offshore, making the supply chain more vulnerable to geographic, weather, security, and political risks. Many companies have also leveraged the volume of their purchases, consolidating to fewer suppliers or even sole sourcing, resulting in more single points of failure in the supply chain.
Lean principles, rightly, emphasize keeping inventories low, but doing so without a full view of supply chain risk can deplete the inventories that act as a “shock absorber” for supply chain disruptions.

What should they look at first?

Really understanding how a supply chain is put together is the first critical step, because a supply chain is only as strong as its weakest link. Many organizations look at their first-tier suppliers and manage the largest of them vigorously, but a smaller second- or third-tier supplier can be a major single point of failure, leaving them extremely vulnerable. For example, one of our clients found that many of its first-tier suppliers were buying sub-components from the same manufacturing location of a single third-tier supplier. The entire supply chain could collapse if that single site were disrupted.

Once a company knows where it is vulnerable, becoming more resilient is the next step. This involves constantly monitoring events and conditions that may disrupt the supply chain, and taking proactive steps to address them, such as positioning inventories, informing customers, and switching to secondary suppliers. The best practice is that even these actions should not be improvised. Rather, they should be part of a “playbook” developed in advance and ready to put into action when disruptions occur or are imminent. This is what drives better resiliency.
How can procurement become relevant to every function in the organization?

The procurement as a service function has to successfully and effectively reach out to all key stakeholders in the organization. In other words, it must export the value of procurement to other functions in ways that clearly align with those stakeholders’ mission, objectives, and measurable business value. Marketing is a good example of a function that can be a challenge to partner with as a procurement team. Marketing sees its mission as driving revenues and sees itself as a high-ROI investment for the company. Rather than approaching marketing to help them “save” money, as many procurement professionals do, it is better to focus on procurement strategies that drive greater value from their investments and higher effectiveness from suppliers in supporting marketing’s mission. If they save money, too, who can complain?
Do you have any final words of advice?

Become completely invaluable as a partner to every functional executive and senior executive in the company. That means reaching out to those people, understanding their business and how they need to accomplish what they do, then figuring out how your procurement organization can deliver on that. The biggest challenge is making sure your procurement team has the skills and temperament for this mission – great communication, listening and problem solving skills are more important to accomplishing this than the technical knowledge we often emphasize in hiring.

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