In the supply chain, risks abound, impacting every facet of the business. From physically securing product throughout the supply chain to ensuring shipping accuracy, knowing the origin of your products (where your suppliers’ facilities are based) to gain a clearer risk profile, and more, there are countless risks that plague the supply chain. All of these risks must be carefully managed by supply chain leaders to preserve integrity and avoid passing risks on to customers, partners, and end consumers.
Managing and mitigating risk requires an in-depth understanding of the risks that exist throughout the entire supply chain and taking proactive measures to eliminate, or at least reduce, those threats. To gain some insight into the most effective supply chain risk management best practices and strategies, we reached out to a panel of supply chain and logistics experts and asked them to weigh in on this question:
“What’s the single most effective way that logistics and supply chain professionals can reduce or mitigate supply chain risks?”
Read on to find out what our experts had to say about the best ways to manage supply chain risks.
Meet Our Panel of Supply Chain and Logistics Pros:
Khizer currently serves as the CTO of RigBasket (A Throughput Company) and has backgrounds in mechanical engineering and economics with a graduate degree in Robotics from the University of Pennsylvania. He has professionally worked as a Production, Manufacturing, Design, and Mechanical Engineer for Schlumberger Oilfield Services and Toyota Motors North America. His passion lies at the intersection where technological advancement meets financial prosperity. His goal is to bridge the gap between technology and business to solve continuous business problems in the most effective way possible.
“The $26 trillion global supply chain industry touches every aspect of a business from HR to operations…”
The demand for supply chain personnel is expected to grow by 26% between 2010 and 2020 but the supply is unable to meet the demand. 25% to 33% of the supply chain workforce is either at or already passed the retirement age and there is currently a 61% talent gap in middle management supply chain. For every supply chain manager entering the work force two (or more) are retiring. To further add to this, there is currently a 15% turnover in supply chain personnel showing that not only is talent hard to find but retaining talent is not easy either. Only 14% of companies believe that they are doing better than their peer groups in managing supply chain talent, 43% actually believe they are doing a worse job. Most CEOs are aware of this talent shortage and know they’re not doing enough to fix this problem.
This shortage of talent causes loss of a tremendous amount of knowledge and experience. On average it costs companies close to $350,000 to train up a supply chain employee in order to make a significant impact on cost savings.. Let’s see how we might be able to solve this problem using technology.
Currently organizations try to preserve the knowledge base through training courses, design books, best practice books, mentoring sessions and standard work instructions. While these are great for the preservation of knowledge, it requires a substantial amount of time to go through these and understand the supply chain principles in detail. Modern technology, especially in the field of Artificial Intelligence, allows us to make better use of this knowledge by integrating it into a single platform that gives actionable insights to the end-user to highlight bottlenecks in supply chain processes. We live in an age where a ton of data is being generated every millisecond. Automating the data analysis process can not only accelerate decision making but also significantly reduce training costs while preserving knowledge. On average, 70% of the total time for a supply chain data analysis project is spent on data cleaning. Such a solution would not only reduce the talent gap problem but make it easier for people in supply chain to focus on implementing key strategies instead of wasting time on data cleaning and analysis.
This is exactly what RigBasket has done to reduce supply chain risk and address the talent gap problem. We have created an augmented supply chain analyst in the form of a software that has integrated the knowledge of supply chain concepts to provide actionable insights to organizations. Our vision is to create a virtual supply chain analyst, similar to Amazon’s Alex or Microsoft’s Cortana, that can accelerate the decision making process even further.
Ayman Omar is an Associate Professor of the Department of International Business at American University’s Kogod School of Business.
“Managing risks in global supply chains is an important topic…”
For researchers and practitioners due to several drivers such as the expansion of supply chains across national boundaries and regions. Issues such as supply or demand risks, fluctuation in transportation costs, delays in shipments, cyber risks, sabotage, counterfeit products, and other risks became more relevant issues with the expanding scope and scale of different supply chains. Such risks may have an impact ranging from an additional operational costs, loss in revenue, reduction in customer service, or in some extreme cases a complete breakdown of operations.
Managing global supply chain risks can be done effectively and efficiently only when those risks are measured or quantified properly. Unfortunately, this is an area where a lot of supply chain managers struggle. The two dimensions that are required to manage risks are identifying the chance of occurrence and the potential impact on operations or bottom line, etc. Both of those dimensions are rarely measured appropriately (if measured at all) and in many cases are labeled with a qualitative description such as low/medium/high etc. There is usually a myth within the C-suite that some risks cannot be measure or quantified, and that mindset is a fatal flaw for managing risks. If something cannot be measured or quantified, then how can we assess how much resources to allocate to manage those risks? How can we assess the potential damage or the chance of occurrence? Managing global supply chain risks starts with measuring and quantifying those risks, even if the measurement is not 100% accurate, but it is still much better than having no measurement at all.
Kerri is the Marketing Manager at BroadbandSearch.
“The single most effective way to reduce supply chain risk is to…”
Account for flexibility in your plan.
Issues arise when you are transporting goods and services and they are difficult to avoid. Make sure all of your partners are aware of your forecasts and customer demand so that if a fluctuation happens you are able to deal with it easily. Be proactive instead of reactive.
Gary Patterson, the FiscalDoctor®, is a business growth and enterprise risk management expert and author of Find the Million Dollar Blind Spot: Before it Finds You.
“Change your language to do a better job of…”
Communicating the dollar magnitude and likelihood or the potential risk so upper management better appreciates your insight. Then the Million Dollar Blind Spot you can see will be more likely to be addressed IN TIME, before that blind spot supply chain risk finds you.
Sacha Ferrandi is the Founder of Source Capital Funding, Inc.
“One of the best ways to mitigate supply chain risk is to ensure that…”
Everyone that works in or around the supply chain system knows the process and risks associated with their industry. Too often we see salespeople or delivery personal without a clue as to how their own supply chain works. By training all of the stakeholders in the operations and risks that come with a company’s supply chain, the system has far more eyes that can spot a problem before it gets out of control. The key is to have a streamlined reporting process, similar to a customer support role, that fields inquiries from workers and trains staff about the supply chain as a whole.
Finally, when your consumer-facing staff are educated about the supply chain, they are able to better work with the customer and provide insight to quell any issues. Companies love working with knowledgeable client-facing roles and this will help business overall.
Thom Campbell started out in the fulfillment sector in 1999, when he co-founded Capacity LLC. Prior to Capacity, Thom was with Morgan Stanley & Co. for seven years, where he managed mutual funds and investor relations. Thom holds a degree in English from Princeton University.
“The best way to reduce risk in your supply chain is…”
To develop strong relationships with key partners. In an era of big data, cloud computing, and high tech material handling equipment, that may sound strange. Those other factors do matter immensely, but nothing matters more than the relationships that bind them all together. These connections create a caring human chain of conveyance for your products and services, all the way from your manufacturer to your end customer.
Jake Rheude is the Director of Business Development for Red Stag Fulfillment, an ecommerce fulfillment warehouse. He has years of experience in ecommerce and business development. In his free time, Jake enjoys reading about business and sharing his own experience with others.
“The first step for company or supply chain professional looking for a single overarching solution to mitigate their supply chain risks, must be to first understand…”
The wide scope and variability of their business’ supply chain activities. This means any profit-seeking entity must understand the critical elements of their cost to serve for the various types of customers and the different types of products/services your company provides. As the variability suggests, it is paramount that your business first understands the dynamics of your customer base so that you can design your service offering (and the required supply chain processes) to meet their needs at a sensible cost. If you fail to identify customer needs correctly, you’ll risk supplying the wrong services at the wrong cost.
Cindie King is the President of Black Dog Logistics Inc., a small logistics company originally based in MD with an additional office in FL since Nov 2015. They primarily handle LTL shipments, full and partial truck load shipments across the U.S. and Canada, white glove deliveries and refrigerated and time sensitive shipments. The company prides itself on the exceptional personalized service they continually provide to their customers and they work hard to build long lasting relationships with their customers and carriers.
“As a small logistics company, this is a frequent topic of discussion…”
We regularly review our processes to see if we can improve and reduce risk of liability. The word liability encompasses more than just revenue or damages to a shipment. There are many ways that a negligent experience with a carrier or a driver can greatly have a negative effect on your customer’s experience. Sometimes valued trusted relationships can be destroyed.
The first thing to address in reducing liability is to absolutely know the value of what you are handling. We make it clear to our customers that each truck load is insured for $100,000 and that they must notify us if the value of their freight is higher so that we can increase the insurance. We also educate our LTL customers that the competitive rates we provide them usually come with a reduced liability per pound, and encourage them to buy extra insurance on their higher value shipments.
We continually review each and every bad experience we have with a shipment to see how we could avoid it from happening again. For some customers we have altered the rate confirmation that we present to the carrier to show special needs or to avoid the wrong type of equipment, for example no sprinter vans or must have driver’s cell number, no exceptions. This has been helpful.
We also work hard to build relationships with drivers and carriers that we use, and try to keep the same one on the same customer or lane. This greatly reduces our risk and also helps our relationship with our customers as they too prefer to see the same faces or carriers move their shipments.
It is not always possible or feasible to utilize the same carriers/drivers however, and there are always new lanes where we have to try out new companies. In these cases, we are diligent about utilizing all resources available to review the carrier and make the decision that they are a good representation of our company.
Daniel Feiman, MBA, CMC® is the Founder and Managing Director of Build It Backwards, a consulting and training firm based in Redondo Beach, CA. He consults in three areas: Strategy: Planning & Implementation; Finance: Modeling & Analysis; Process: Continuous Process Improvement & Certified Supplier Programs.
“The single most effective way that logistics and supply chain professionals can reduce or mitigate supply chain risks is…”
Risk is real. At the recent Procurement Success Summit, which I chaired, this was one of the key discussion topics. My experience (and most of the 150 senior executives in attendance tend to agree) indicates the best way to reduce/mitigate supply chain risk is to create a Certified Supplier Program CSP). The goal is to set objective standards designed to recognize and reduce, mitigate or eliminate as much risk as possible. A good CSP includes: 1) communicating the desire for a mutually beneficial (win-win) on-going program of 2) assessment, 3) discussion, 4) decision-making, 5) action-planning, 6) implementation, 7) evaluation and 8) repeat. Following this model, everyone in the supply chain works toward the same end result; risk reduction as the win-win.
Linda Rizk is the Founder of Counter Human Trafficking Compliance Solutions. Throughout her career, she has been engaged with corporate and philanthropic efforts that address social and humanitarian issues related to early education, injured service members, global poverty, and human trafficking.
“The single most effective way to mitigate supply chain risk is to…”
Take a proactive approach and work with both the corporation and supplier in question to identify and address any current or potential future issues that could arise within the supplier’s operations. It is important to take this step as a preventative step rather than a reactive step, since any findings of supply chain labor abuse or human rights abuse can immediately impact a corporation’s reputation and sales, even if that corporation was unaware of the abuse. Using logistics and analytics, supply chain professionals through due diligence can determine risks associated with certain suppliers and make educated choices on the suppliers they deem acceptable to work with and routinely audit them to ensure the agreed upon supplier conditions continue to last.
“There is no one-size-fits-all solution for minimizing supply chain risks…”
Due to the diverse nature of supply chains (cold chains for refrigerated pharmaceuticals, fresh produce supply chains in which major recalls are a constant threat, etc.). However, by improving traceability throughout the supply chain, logistics professionals can mitigate risks such as:
1. Faulty components in manufactured products
3. Lost inventory and orders that were never received
End-to-end traceability is thus the technological dream of logistics professionals, and is already being mandated in other countries (over here, the FDA is slowly implementing end-to-end traceability requirements in certain verticals). Generally, this means tracking inventory at the lot level through each link in the supply chain, from raw materials to retailers’ shelves. To achieve this dream right now, you’ll need an ERP system with sophisticated lot tracking capabilities, as well as partners who are willing to comply with your tracking requirements by sending back EDI data at the lot level.
End-to-end traceability promises to vastly reduce the scope of recalls, tighten the links in your supply chain, and allow you to understand the full journey that your products take from supplier to market. By taking your supply chain analytics down to the lot level, you’ll also be able to more effectively model and forecast risks.
Will Moffett, co-founder of UpFund.io, is an entrepreneur, and partner, building multi-million dollar businesses. Throughout his career, Will shares advice on how to achieve wealth through Amazon with thousands of people worldwide. He has built many private label products within the physical product industry and structured large teams from around the world selling millions of products imported internationally.
“The single most effective way that logistics and supply chain professionals can reduce or mitigate supply chain risks is by…”
Choosing the highest quality manufacturers, freight forwarders, shippers and distributors.
Manufacturers – Quality first. If quality is low, the defect rate rises causes a high level of returns and bad reviews.
Freight forwarders – Leverage today’s technology for faster and more efficient logistics. For example, Flexport is paperless versus UPS, which is not. UPS requires lots of manual paper work. You can spend one full day filling out paper work which causes the owner to lose money because they are pulled away from revenue generation.
Shippers – Timely guarantees and accurate tracking. Lost shipments, delays and mishandling merchandise causes a loss in revenue. If a product is one week late, and you earn $1,000 per day on that product, within a 7-day late shipment the business owner has lost $7,000. Delays, lost items and poor handling can kill your business.
Warehouse and distributors – Pay attention to detail. Distributing the correct products and correct quantity to customers or retail clients is crucial.
Bruce Twery is an associate partner with Clarkston Consulting and a leading contributor to the firm’s supply chain practice. His experiences span over 25 years, applying process and technology to drive performance in marketing, supply chain, and information technology. Bruce’s focus has been helping clients develop operational strategies which align resources to the broader company strategy for gaining advantage. In industry, he led a global manufacturer’s efforts to develop collaborative capabilities with large retailers.
“There is not one single thing that can, in isolation, reduce risk across the supply chain…”
Like baking a cake, all ingredients must be present to be effective. However, organizations that take an integrated planning approach – aligning across the organization and supply chain partners – are better prepared to identify and respond to risks when they occur. An integrated planning approach creates cross functional visibility and communication, provides greater pulse upstream and downstream of the supply chain, and provides move visibility to alerts of inevitable disruptions before they actually happen. As groups become aligned to plan for and respond to risks quickly, logistics and operations become smoother because they are able to more accurately buffer against risk.
Other aspects to a more comprehensive risk management program to consider are:
- Develop a formal risk management program, consider both likelihood and impact of risk, make accountability clear, and afford the program leadership visibility.
- Get visibility upstream to your suppliers and their suppliers. Purchasing organizations should understand the geographic and financial exposures across the value chain. Real partnerships and collaborative ways of working, enabled by real-time systems, make it work.
- Manage inventory across the supply network to buffer against risk. Companies typically develop inventory targets based on demand and supply variation, but variation measures are not likely to capture acts of nature, union strikes, etc.
- Build risk management into the operating model. Companies are increasingly likely to face supply chain disruption. Make it an ongoing discussion and part of the monthly cadence of integrated planning.
Joe Oliaro is the Vice President, Tenant & Corporate Services for Copaken Brooks Commercial Real Estate.
“From a 3PL provider’s perspective, the best way to reduce supply chain risk is…”
The duration of 3rd party logistics (3PL) customer contracts are almost always negotiated parallel to the lease term, if leasing. 3PLs will not typically pursue a build to suit opportunity or purchase real estate unless they have a longer term contract in place or existing space. Spec real estate without customer contracts in place is a great way to kill a company.
Labor is also a huge risk – going into markets where labor is scarce or sub-par can be a costly mistake.
Kathleen Hale is Co-Founder and CEO of Rebel Desk, a company that designs and sells treadmill desks to help people be more active while they work. Kathleen and her co-founder brought Rebel Desk from concept to launch in just seven months.Today Rebel Desk has helped thousands of people transform their workday into one filled with energy, productivity, and happiness. Now Kathleen has taken her crusade against chairs beyond the office with Chair Free Project, a resource to show people how changing their sitting habits can change their lives. Kathleen writes, speaks, and educates about the problem with chairs and the many benefits of living more actively.
“From a manufacturer perspective, people will advise to have…”
A few suppliers lined up for key components. See the example of the Coolest Cooler as a case of no supplier back up gone wrong. While this advice is great, it is almost entirely unrealistic for a new or young company. As a young company, you can’t necessarily have extra suppliers waiting in the wings.
Lisa Hennessy is the founder of Your Pet Chef, which makes personalized dog food and treats.
“I spent 25 years as a supply chain professional before embarking on my entrepreneurial journey. The best way I found to reduce risk was to…”
Dual source critical components, and by critical components I don’t just mean the most expensive or elaborate components – this can be a fastener or graphic. Having alternate sources for these components virtually eliminates risks. I implemented this strategy after a critical component manufacturer went bankrupt and closed their doors. Our production line was stopped for a couple of weeks. Yikes, those were a bad couple of weeks in my life, but I figured out how to never let that happen again. It didn’t and I now use the same strategy in my own business.
JD Woods is an experienced distribution executive. As Chief Experience Officer at Dotcom Distribution, JD oversees sales, marketing, and client relations initiatives. He works with clients and prospects to ensure that Dotcom’s full suite of products and services are leveraged to faithfully deliver the client’s perfect brand experience.
“The single most effective way that logistics and supply chain professionals can reduce or mitigate supply chain risks is by…”
Accepting that exceptions aren’t really exceptions at all, and designing processes and systems with that in mind. Build connectivity early in the value network that is sensitive to changes in partner activities so that supply chain variation becomes data to respond to, and not a series of individual calamities.
Lori Homsher, CEO of EchoData Fulfillment, has thirty years of experience helping businesses succeed. She co-founded and ran a successful consulting company in the 1980s, and served in executive IT roles for 20+ years. As CEO for EchoData, Lori is mapping out corporate strategy to meet growth goals that support the corporate vision.
“Supply chain risks can be minimized by…”
Building agility into processes so we can adapt quickly to changes and minimize negative impact on the business. We want to be able to flex based on changing conditions. For example, having more inventory vs. just-in-time is something we may adjust to minimize risks in the supply chain based on current events. In areas of greatest risk, we want more options – and flexibility within the supply chain provides additional possibilities that help when things don’t go as planned. In any supply chain, there are things outside of our control. Inevitably something will happen that wasn’t planned. Agility allows us to work around obstacles and still meet our objectives.
Jonathan Roberts, VP of Sales for EchoData, brings over 20 years’ experience in the fulfillment and logistics industry, developing strategic end to end solutions for eCommerce, B2B and Retail/Wholesale customers.
“Supply chain risks can be reduced by creating…”
An ongoing process for identifying the risks across key areas and applying a proactive strategy for each area. By understanding the vulnerabilities within the supply chain, we can then create a contingency plan to protect ourselves from the associated risks. Asking, “What if this happens?” allows us to identify an alternative. We can apply this approach to current events as a form of risk evaluation, even if those risks don’t directly impact us. For example, we weren’t impacted by Hurricane Matthew, but discussing the what if will ensure we have contingency plans in place to handle that risk.
Chris Nocella graduated from Drexel University in 1987 with a BS in Computer Science and Engineering. He joined EchoData in 1988 to work as an Apple consultant in a retail store once operated by the company. Over the years he has served a wide range of positions and responsibilities including; QA Manager, Director of IT, General Manager (DE) COO and CFO.
“We can mitigate supply chain risks by…”
Identifying and minimizing (or ideally eliminating) single-source points of failure. Building redundancy and fail-over processes at critical points within the supply chain ensures continuity of service even during failure events. Single points of failure, when present, can stop the entire process yet they can exist anywhere-in systems, suppliers, processes, and even people. Conducting a single point of failure audit will help identify opportunities for improved redundancy and provide direction for risk mitigation. For example, using multiple freight carriers, dual-coast suppliers, and cloud-based data centers can provide seamless failover for critical risk areas.
Joshua Uebergang is the owner of Digital Darts, where he helps Shopify stores increase profits through strategic marketing.
“The simplest principle companies can follow to reduce supply chain risk is…”
Having secondary manufacturer and supplier plans in place. It is a fallback option ready ahead of time for a disaster and can provide negotiating leverage with your principle relationships.
Melanie DiSalvo has lived and worked in Asia for the past 3 years sourcing and producing clothing for American retailers. She has spent this time first hand seeing how and where our clothing is made.This past year she decided to start her own clothing line of organic, sustainable, and ethically produced women’s clothing.
“My number one tip to control supply chain risk is to have…”
Strong relationships with your suppliers. For both my full-time consulting job as well as my personal startup, I have taken great care in selecting, working with, and visiting my entire supply chain from fiber to finished garment.
When you take the time to visit, get to know your suppliers, and form personal relationships with them they will start to look out for you. I have found that if they like you, they will be more reliable in letting you know about potential issues ahead of time. They will also work harder for you. Maybe you need something rushed? If the relationship is there they might bump your project to the front of the line. A lot of companies think that dollars are the best way to get suppliers to pay attention to them, but in my experience, it’s the personal relationship. Being human and not just an email address is crucial.
How can you build stronger relationships with your suppliers? I would recommend going out to a meal with them, and not talking about any business. Find common ground – kids, pets, family, hobbies, etc. If communication is hard because of language barriers don’t give up! Share a cultural experience together and try a new food that is popular in their culture, and if you are in a place like China, remember to be open minded. I have found people love to share about where they are from!
Min Fang is the co-founder of Harper Partners, which provides working capital funding to digital media, technology and many other types of businesses. Prior to Harper Partners, Min was a growth equity investor and investment banker.
“The single most effective way that logistics and supply chain professionals can mitigate supply chain risk is to…”
Make sure that working capital gaps are properly covered. We work with many hardware and consumer product companies that manufacture overseas and sell to U.S. distributors / retailers. Terms to get paid can be as high as 90 days. Meanwhile contract manufacturers can require payments FOB shipping point. With over 20 days earmarked for shipping, that’s a 110+ day gap between needing to pay and getting paid. This gap can take down a company that is otherwise doing very well. To mitigate this risk, proper forecasting, financing, and customer / supplier terms are all necessary.
Paul Clayton is the Senior Director of Consulting Services at FMT. Paul has attained a plethora of knowledge over his 12 plus years of experience in the IT industry; he graduated with a Bachelor of Science from California State University and currently holds numerous Microsoft certifications. Paul’s knowledge and leadership skills enable him to lead FMT’s team of consulting experts in providing world class business solutions specializing in Accounting and ERP solutions, Business Intelligence, CRM, Custom.NET and Development and Integration Services and Collaboration and Workflow Solutions.
“The key to effectively managing a supply chain requires more than planning, tracking and careful calculations. To reduce risk, a supply chain professional needs…”
Real-time visibility. From this perspective, when materials fail to meet your expectations, or manufacturing processes go awry, one can immediately recalculate a new course to best meet expectations. While planning, execution, control and monitoring of these activities is expected to achieve worldwide logistics within cost, a platform that provides real-time visibility into operations is the single most effective way to mitigate supply chain risks.
A worldwide skincare manufacturer outgrew Quickbooks as a unified business platform prior to launching their largest product to date. They needed one platform that’s easily accessible from all business locations, able to track supply chain operations, support manufacturing processes, ensure quality, generate accurate financial forecasts, plus schedule and manage labor during an upcoming product launch. With a fast approaching deadline, NetSuite was implemented at top speed! This modern, comprehensive solution enabled the timely replenishment of raw materials, component traceability on the manufacturing line, and distribution of finished goods in time for their highly anticipated product launch.