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| Are There Weak Links in Your Supply Chain? For over 20 years software companies have developed sophisticated technology tools to improve the coordination and control of material moving through the supply chain. Companies have purchased an enormous amount of technology promising end-to-end supply chain visibility; however, there remain a significant number of weak or broken links in the supply chain where shipments simply drop out of sight for considerable amounts of time. Most often organizations either ignore or deny the existence of these information gaps, however, inevitably these weak supply chain links results in excess inventory or poor customer service. Over the past two decades North American companies have significantly increased their outsourced manufacturing to Chinese vendors. This trend has amplified the number of partners in the supply chain, the interdependencies of subcontractors and raw material suppliers, and the distance that material and information must travel to close this gap. The information gaps in the form of weak supply chain links are most often found at the outer edges of the supply chain. Any time that raw materials, production parts or finished goods change hands is a potential for communication breakdown which have traditionally been addressed through expense internal enterprise resource planning system (ERP) rather than addressing them through collaboration with their trading partners. Of course, physical goods are not the only thing getting temporarily lost in the supply chain; financial flows and critical supply-chain data also contribute to organizations inability to manage their inventories. Organizations need an information system that links disparate applications across multiple partners, languages, geographies and cultures. The emergence of the software-as-a-service (SaaS) model in the form of project management and collaboration tools is a positive step in the right direction because it gives everyone in the supply chain and opportunity to identify these weak links and take action to mitigate their impact. However, today there is a plethora should note these tools all with different capabilities and degrees of difficulty in terms of implementation. If you or your organization would like some help identifying weak links in your supply chain and identifying the appropriate collaboration tools necessary to fill those gaps contact a Supply Chain Expert, their motto is “you are only as good as your weakest link”. They can help you design a program that delivers both immediate and long term benefits to your organization. The program will be designed to shift your organizations thinking, improve innovation, and implement a program that will optimize operational performance and satisfy the requirements of your customers. Dr. Edward F. Knab
Productivity Constructs, Inc.
800 660 8718 office
949 413 7333 mobile
ed@edwardknab.com
www.productivityconstructs.com
Free Supply Chain Intelligence Reports Dr. Knab is an academic practitioner and seasoned supply chain expert whose company, Productivity Constructs, Inc., is focused improving global leadership and thereby creating more effective organizations and higher levels of job satisfaction. Dr. Knab can be contacted for speaking engagements, coaching, or consultation at efk@productivityconstructs.com, mailto:ed@ewardknab.com or www.edwardknab.com. Tags: Chain, EMS, ERP, Software, Supply, efficiency, information
For the past 25 years, American businesses have been focused on fine tuning their global supply chains, they have lowered inventory and decreased process time and eliminate cost. All of these efficiencies, and lean production methodologies have been built upon the principles of W. Edwards Deming utilizing sophisticated information technology. Today, more recent events such as political instability in Third World countries, terrorist strikes, piracy, and the shutdown of West Coast shipping docks have awakened managers as never before to supply chain risks, some of which had been introduced or heightened by the very actions companies had taken to drive costs out of their supply chains.
The inverse relationship between risk and efficiency has been cast as supply chain managers realize that they can no longer focus solely on cost reduction any calculation of a supply chain's return on investment must also take risk as related to customer satisfaction into account. Balancing these competing priorities means that it's impossible to eliminate risk entirely. There are steps you can take to mitigate risk while keeping your supply chain costs as low as possible.
First, however, a little background on the nature of risk and how companies seek to deal with it. Risks is an integral part of all supply chains, and are as pervasive as political instability, currency valuation and exchange rates, carriage capacity, fuel cost, and customer demand. Such risks aren't new. In fact, they have existed for over 20 years. There's no small irony in this reawakening to long-standing risks being caused by high-profile events such as the attacks of 9/11. Based on statistical probabilities, risk managers view 9/11 as an "outlier" or exceptional event; but even so, it has spurred a host of defensive reactions. That means a high-frequency but low-consequence event, such as the regular fluctuation of currency exchange rates, can be viewed as similar to a low-frequency but high-consequence event, such as the sinking of a cargo ship laden with critical parts. Depending on the particular company's risk tolerance, such apparently similar risks can have vastly different qualitative effects. At some level, severe events can lead to insolvency, whereas low-severity events seldom do. Hence the need for insurance or other methods for transferring or mitigating catastrophic risks.
Consequently risks that are more pervasive, but also more likely, may receive far less attention. Outlier events have much more influence than they should. A consequence of 911 was that consumer spending suddenly stopped causing inventories to balloon. The potential frequency of any hazard raises the risk manager's dilemma. You can't guarantee we'll have an earthquake, so what do you do about it?" The appropriate response when a critical supplier may be put out of commission by such an event is to identify an alternate supplier. But such steps double back on the very measures implemented to remove supply chain costs. Every company operates in a lean environment today, the cost of supply chain disruption is more significant because there is not much of an inventory cushion as there once was.
Traditionally, the standard way of managing supply chain risk has been through maintaining higher inventory levels, however, today for numerous reasons, inventory became very expensive. Shorter product life cycles contribute to higher expenses, for example, in the personal computer market, where the cost of carrying inventory can run as much as 1 percent of the product's price per week. The cost of obsolescence has gone up.
Although obsolescence is a risk inherent in maintaining inventory, many potential causes of supply chain disruption are risks inherent in minimizing inventory. Trying to cover your risks through insurance is no longer as feasible as it once was. Insurance carriers, which made huge payouts to cover losses related to the 9/11 attacks, have reexamined the risks implicit in today's leaner supply chains. As a result, "what was insured in the past may not be insured as much or at all today.
Also contributing to the difficulty of addressing supply chain risk is supply chain complexity. Increased product differentiation has increased the dependency on third parties in the supply chain. Wherever dependencies outside of the corporation exist, risks are introduced. Technology can help you cope with this complexity, but the high hopes some companies placed in supply chain management software have been diluted by limited improvements. Fortunately, none of the complexities of dealing with supply chain risks preclude measures that can reduce the risks.
If you would like some strategies that can help your company reduce the risks associated with your supply chain environment, contact a Supply Chain Expert. They will help your team streamline operations while mitigating the associated supply chain risks. The program will be designed to shift your organizations thinking, improve innovation, and implement a program that will optimize operational performance and satisfy the requirements of your customers.
Dr. Edward F. Knab
Productivity Constructs, Inc
800 660 8718 office
949 413 7333 mobile
ed@edwardknab.com
www.productivityconstructs.com
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Dr. Knab is an academic practitioner and seasoned supply chain expert whose company, Productivity Constructs, Inc., is focused improving global leadership and thereby creating more effective organizations and higher levels of job satisfaction. Dr. Knab can be contacted for speaking engagements, coaching, or consultation at efk@productivityconstructs.com, ed@ewardknab.com or www.edwardknab.com.
Tags: Chain, SCM, Supply, consequence, demand, global, inventory, outlier, risk
Top Global Supply Chain Risks for 2010
By: Dr. Edward F. Knab
We have already experienced major challenges in the global supply chain resulting from the downturn in the global economy. We are facing a number of significant issues that have impact sourcing strategies and the flow of working capital. Several issues are hangovers from 2008's economic turbulence and some are just starting to develop. The inability to properly addressed these critical issues may result in significant unexpected costs and increased disruptions in importers and exporters supply chains. We will examine in detail the seven trends that will add complexity to global business over the next few years. Lack of Working Capital The instability and lack of liquidity in the traditional banking sector will cause capital to dry up or become more expensive. Businesses will look for non-traditional sources of working capital, often these will be found in internal operations. Businesses will be force to reduce inventory, rationalize product lines and lower operating costs. Buyers will attempt to extend payment terms, while suppliers will focus on collecting receivable, these actions will result in a need for supply chain financing as a liquidity buffer and neutralize this conflict. The current credit environment is pushing buyer and supplier partnerships to look at their trade flows to drive the creation of additional liquidity. Economic Downturn Risks The global economic downturn will create significant risks and opportunity for most businesses. This will translate into major restructuring of supply chain operations in an attempt to better position themselves for additional market share and profits as economies around the world begin to recover. These efforts will focus on driving out inefficiencies out of the supply chain while minimizing risk. Supply chain risk mitigation will receive increased focus due to the following factors: Instability in energy cost resulting in fluctuating commodity, labor and operating expense. Businesses must plans for variable energy and commodity prices, as well as labor and currency exchange rates. Business categories such as industrial goods and construction, are likely to see robust price increases as major economies around the world announce economic stimulus packages focusing on major infrastructure programs resulting in another run of sharp increases in some commodities and energy prices. These dynamics will be difficult to manage and will impact their global supply chain. Financial risk. Due to financial risk in the market we are seeing a rise in supplier bankruptcies. Companies will need to reevaluate their supply chains to identify and support their key partners and reduce the number of potential "weak link" suppliers. At the same time multiple suppliers for a single product or part must be secured to ensure supply chains keep running. Recovery Predictions. Economic recoveries will likely be unpredictable; the ability to quickly react to global shifts in demand will be critical for success. Redundant manufacturing capability should be established across multiple geographies in order to improve time-to-market for end customers and to be able to balance and buffer demand globally. Redundant manufacturing also can serve as a hedge against currency swings and future inflationary pressures in different economies. Supply Chain Compression U.S. manufacturers are reconfiguring their supply chains by moving plant operations and sourcing vendors closer to home and away from Asia. Limited free trade agreements, high energy costs, and rising labor and production costs in Asia all contribute to companies reevaluating extended supply chains. Mexico has become an increasingly popular source for manufactured goods as companies compete on time-to-market strategies, seek financial advantages found in Mexico's multiple free trade agreements and capitalize on Mexico's investment incentives. Letters of Credit The downturn in global markets will reduce demand for commodities and associated goods and services. However, the reduction in available credit for trade financing will result in a resurgence in Letters of Credit as a means of risk mitigation. J.P. Morgan has seen resurgence in the use of letters of credit to facilitate the financing of international trade. In these uncertain times, letters of credit are a traditional, secure way of doing business and of financing the underlying trade between buyers and suppliers. Recently, fewer banks have been willing to extend and guarantee credit, so the supply has been declining, and in some cases, the cost has risen dramatically. Searching for Working Capital As traditional sources of capital — such as bank lending — dry up or become more expensive, companies will look for alternative sourcing of working capital — and looking at internal operations is a logical direction. This trend will bring increased scrutiny to the supply chain as companies look to reduce inventory and lower operating or carrying costs. In addition, buyers will look to extend payment terms, while suppliers will drive to collect receivables more quickly, creating the need for a liquidity buffer — such as supply chain financing — to mitigate this brewing payables/receivables conflict. The current credit environment is pushing buyer/supplier partnerships to look to their trade flows to drive the creation of additional liquidity. Improved Speed and Savings in Mexico Mexican customs officials have been piloting a new customs regime that seeks to attract more foreign investment by improving importers' supply chain speed and mitigating the delays frequently associated with time-intensive processes and procedures at the port of entry. A customs regime is a country's specific set of trade regulations, processes and practices that regulate the actions of importers and exporters. The government believes that this new customs regime, known as Regimen de Recinto Fiscalizado Estratégico (RFE), will decrease logistics cost in terms of dollars per container and numbers of days in transit which, in turn, will help attract additional production to Mexico. Other highlights: goods can remain in a Mexican warehouse for up to two years on a tax-free and duty-free basis; the elimination of customs inspection at the port of entry, resulting in cost reductions and reduced time-to-market; no secondary customs inspections required; a simplified customs clearance process resulting in reduced Customs Brokers fees; and a three-day grace period for importers within which to correct import declarations. More Free Trade Agreements More than 200 bilateral and multilateral Free Trade Agreements (FTAs) exist around the world today. In 2009, more growth and duty savings opportunities will arise for manufacturers, but with a new administration soon in power in the United States, will FTAs continue to prosper? The United States is expected to finalize three new FTAs in 2009 with Colombia, Panama and South Korea. Whether or not the existing FTAs on the table will be a priority for the new US. administration, many companies still risk leaving millions of dollars worth of duty savings unclaimed with the FTAs already in force. In addition, US. Customs and Border Protection is expected to increase scrutiny of FTA claims and the ability of importers to substantiate their claims. The complexity associated with understanding and leveraging FTAs is beyond the scope of many companies because they either lack the expertise, resources, technology, or all of the above to do it efficiently and cost-effectively. Many companies eventually come to a decision point: either invest internally or outsource to a global trade expert. Consumer Product Safety In August, the United States signed into law the Consumer Product Safety Improvement Act (CPSIA), presenting certain manufacturers and importers with a new set of regulations to manage. Considered to be the most sweeping consumer product safety law enacted in decades, the new law is expected to usher in similar regulation around the world to addresses safety standards and requirements for childcare products, such as mandatory testing, the reduction in the use of lead paint, and more visible cautionary statements related to choking hazards. In November, representatives from China , the European Union and the United States met in Brussels for the first high-level trilateral summit on product safety to discuss key developments and further joint activities to improve cooperation and the exchange of information relating to consumer product safety. Upon import, products must be accompanied by certification that they comply with all applicable consumer product safety rules and similar rules, bans, standards and regulations under any other laws administered by the importing nation. If your company is attempting to cope with turbulence in your supply chain the Supply Chain Experts can help you design a program that satisfies the requirements of your customers while insuring the optimal data flows to accurately control your global supply chain. Dr. Edward F. Knab
Productivity Constructs, Inc.
800 660 8718 office
949 413 7333 mobile
ed@edwardknab.com
Productivity Constructs, Inc
D r. Edward Knab Web Page
Dr. Edward F. Knab Blog Dr. Knab is an academic practitioner and seasoned Global Supply Chain expert whose company, Productivity Constructs, is focused on driving cost and inefficiency out of the Global Supply Chain. Dr. Knab can be contacted for speaking engagements, executive coaching, or consultation at efk@productivityconstructs.com, ed@ewardknab.com or www.edwardknab.com. What Risks are in Your Supply Chain? By: Dr. Edward F. Knab
Many organizations have spent years streamlining operations, re-engineering processes, integrating with partners, implementing enterprise systems, and moving production to low-cost, offshore locations. They have done all of this in an attempt to improve the service they provide to customers at a more competitive cost. However, creating a global supply chain has brought new risks that you may not have encountered before.
More recent events such as terrorism, strikes, piracy, political instability in Third World countries, and last year's shutdown of West Coast shipping docks—have awakened managers as never before to supply chain risks, some of which had been introduced or heightened by the very actions companies had taken to drive costs out of their supply chains. Currently there are a number of significant well-documented challenges facing international and domestic transportation markets such as rising freight rates, infrastructure disrepair, and the new cost of security in both time and money.
The simple fact is that in today's longer, more global supply chains, product moves over greater distances and across more borders than in the more localized supply chains of the past. The coordination and execution required for international shipments has always been a challenge, but now we find that market conditions, security considerations, and regulatory pressures are converging in such a way that increase risk significantly. But "Many risk factors have developed from a universal pressure to enhance productivity, eliminate waste, remove supply chain redundancies, and drive for cost improvement," says Dr. Edward Knab, of Productivity Constructs of Palm Springs, California.
Today an inverse relationship between risk and efficiency supply chains has been established; supply chain managers can no longer focus solely on cost reduction—any calculation of a supply chain's return on investment must also take customer satisfaction into account. "We're trying to make sure we operate the supply chain more efficiently and decrease costs as we increase service levels to customers," says Roy Strauss of Strauss Consulting.
Risks exist across the entire length of supply chains, and are as diverse as political instability, exchange rates, carriage capacity, shelf life, and customer demand. The risks will be the subject of future Supply Chain Experts blogs but include:
Terrorism Piracy Currency Fluctuation Government Instability Strikes Quality Considerations Energy Cost Transportation Problems Natural Disasters Rework Costs Supply Chain Complexity Global Interdependence
Balancing these competing priorities means that it's impossible to eliminate risk entirely. But there are steps you can take to mitigate risk while keeping your supply chain costs as low as possible. First, however, a little background on the nature of risk and how companies seek to deal with it. It may be time for you to rethink your global supply chain strategy in a manner that mitigates some of these risks and optimizes your ability to consistently deliver product to your customer at the lowest possible cost.
So, what can you do to mitigate these risks while insuring low cost leadership? You can call Supply Chain Experts who will help you assess the risks in your supply chain;
they will help you think strategically about risk versus cost, they will help you broaden the cooperation with the trading partners in your supply chain, help your organization understand the trade-offs and make better decisions that will insure your ability to take care of your customers and help your organization understand that you cannot ignore risk solely because it is difficult to quantify.
Your organization should be concerned about supply chain risks and Supply Chain Experts can help your organization design an effective system that creates a balanced cost/risk relationship that will protect your organization and your customers today and into the future.
November 10 Leadership is action, not position. ~Donald H. McGannon
You can't lead anyone else further than you have gone yourself. ~Gene Mauch
The leadership instinct you are born with is the backbone. You develop the funny bone and the wishbone that go with it. ~Elaine Agather
You don't have to hold a position in order to be a leader. ~Anthony J. D'Angelo, The College Blue Book
Example is not the main thing in influencing others. It is the only thing. ~Albert Schweitzer
Leaders are visionaries with a poorly developed sense of fear and no concept of the odds against them. ~Robert Jarvik
You do not lead by hitting people over the head. That's assault, not leadership. ~Dwight D. Eisenhower
Nothing so conclusively proves a man's ability to lead others as what he does from day to day to lead himself. ~Thomas J. Watson
If two or three persons should come with a high spiritual aim and with great powers, the world would fall into their hands like a ripe peach. ~Ralph Waldo Emerson
A leader is a dealer in hope. ~Napoleon Bonaparte, attributed
Leaders don't create followers, they create more leaders. ~Tom Peters
One measure of leadership is the caliber of people who choose to follow you. ~Dennis A. Peer
A good leader is a person who takes a little more than his share of the blame and a little less than his share of the credit. ~John C. Maxwell
A leader is best
When people barely know that he exists.
~Witter Bynner, The Way of Life According to Laotzu
The real leader has no need to lead - he is content to point the way. ~Henry Miller, The Wisdom of the Heart
If you wish a general to be beaten, send him a ream full of instructions; if you wish him to succeed, give him a destination, and bid him conquer. ~Augustus William Hare and Julius Charles Hare, Guesses at Truth, by Two Brothers, 1827
I am more afraid of an army of one hundred sheep led by a lion than an army of one hundred lions led by a sheep. ~Charles Maurice, Prince de Talleyrand-Périgord
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