Creating and Maintaining Resilient Supply Chains

Andrew Hiles, Kristen Noakes-Fry

• Publisher: Rothstein Publishing
• Year: 2016
• ISBN:
  9781944480073
• Topic: Business
• Subtopic: Insurance
• Index: Business

Creating and Maintaining Resilient Supply Chains

Will your supply chain survive the twists and turns of the global economy? Can it deliver mission-critical supplies and services in the face of disaster or other business interruption? A resilient supply chain can do those things and more. In Creating and Maintaining Resilient Supply Chains, global expert Andrew Hiles applies the principles of risk and business continuity to enable a reliable flow of materials and information that is a "win" for everyone involved.

From over 30 years of experience working with companies like yours, the author of Creating and Maintaining Resilient Supply Chains helps you to:

• Understand the criticality of procurement and supply chain management to the health of your organization.
• Relate the time-tested principles of good business continuity planning to constructing a reliable supply chain.
• Apply risk management principles to evaluate vendors and create effective contracts.
• Create the specifications that will result in a good tender or bid.
• Anticipate contract issues when you are dealing with other legal systems, including International Commercial Law, Anglo Saxon Law, Civil Code, Sharia Code, and European Law.

In one short book, Hiles distills the knowledge of a lifetime to prepare you to handle risks, pitfalls, and potential ambiguities. As a result, you will know how to carefully plan and negotiate supply chain relationships that benefit all the organizations involved.

Part 1

Understanding

The Resilient Supply Chain

In business, you don’t get what you deserve. You get what you sign for in the contract. Wars have been won and lost by the effectiveness of the combatants’ logistics – companies live or die depending on the performance of their supply chains.

– Unknown

While many BCPs deal with physical incidents, you may face situations in which all your physical assets remain intact – and yet you still lose your operational capability. Perhaps the most common cause of these incidents is supply chain failure.

BC Managers need to work together with their colleagues in procurement departments to ensure continuity of mission-critical supplies and services. Even when supply is maintained, price shocks could impact an organization’s competitiveness severely – or even its viability.

This chapter will help you to:

• Relate your role as a BCM to supply chain continuity.
• Appreciate the criticality of procurement and supply chain management to your organization.
• Understand the basics of procurement including the procurement cycle and associated procedures.
• See how the supply chain works.
• Know the importance of strategic procurement.
• Identify key risks – and some solutions – in procurement, supply chain, and contract management.
  
  

1.1 Supply Chain Dependency

Sir Nick Scheele, of Ford, said, “Purchasing controls the ultimate profitability of the company.”¹ In the public sector, this translates as, “Purchasing controls the volume and quality of service an entity can provide to its customers for a given budget.”

The price you pay for goods and services largely determines the price of the goods and services you provide to your customers. In effect, the price you pay to your suppliers is reflected in the ultimate profitability or cost-effectiveness of your organization.

The phrase “supply chain” is well chosen. Supply involves many links, and loss of any link could cause the failure of the chain.

Ten to fifteen years ago, a large customer could have had literally thousands of suppliers, many of them small, many with numerous competitors. If one failed, it was no big deal – there was always another. However, over the past decade, we have seen acquisitions, mergers, and consolidation among both suppliers and customers. Big customers need big suppliers. The current logic behind this has been that having fewer, larger suppliers who can provide higher volumes simplifies the tendering process, improves the procurement cycle, achieves higher prices, and makes for easier contract management. Now, as a result of these changes, big customers are likely to have dozens or hundreds of suppliers, but not thousands.

With consolidation comes greater dependency. The phrase “supply chain” is well chosen. Supply involves many links, and loss of any link can cause the failure of the chain. Supply chain dependencies are complex; they cross national, cultural, and religious boundaries; they are often buried deep, and are sometimes unknown.

Procurement exercises for critical supply have become extended and laborious, specifications more complex, and safety inventory levels lean, leaving little margin for delivery failure. Toyota, for example, had a four-minute delivery window with one supplier. Finding an alternate supplier who can supply volume and quality against tight timescales is not easy. The balance of power is no longer simply with the customer. Suppliers have real power and leverage over customers, and sometimes their market dominance gives virtual lock-in of their customers.

Complex global supply chains are vulnerable to disruption for a variety of reasons:

• Environmental. These include natural disasters (e.g., earthquakes, volcanic eruptions, tsunamis, extreme weather) and pandemics that disrupt production or delivery of product.
  
  
• Geopolitical. Civil disobedience, war, labor disputes, tariff hikes, sanctions, trade barriers, and customs difficulties come into this category.
  
  
• Economic. Sudden demand, loss of production by suppliers, or vendor bankruptcy may lead to price volatility or shortages.
  
  
• Technological. This includes transport failure and operational failure including failure of ICT systems, manufacturing, or mining equipment. Receipt of counterfeit or sub-standard product can also be included here. Premature obsolescence can also destroy viability.

Over and over again, global dependencies and interdependencies within the supply chain can prove fragile. Following a BCI survey² of respondents in 62 countries, researchers were able to compile a list of the most serious and common supply chain disruptions.

In each of the last four years, greater than 75% of respondents experienced an issue that caused delays throughout the supply chain. Among such incidents, approximately 40% originated below the immediate supplier.³

“Supply chain risk management is gaining more recognition each year, and for good reason,” said David Noble, CEO of the Chartered Institute of Purchasing & Supply.⁴

Disruptions to supply chains are becoming virtually commonplace, and as the BCI report shows, a high proportion of disruptions happen further down the supply chain in places many companies don’t look, such as second or third tiers suppliers.”

Such incidents may become more common in the future as more companies than ever rely on electronic information and remote data sources, seek benefit from “big data,” and shift IT operations to the cloud – and we have recently seen disruptions of service by cloud suppliers.

Further findings from the BCI survey include:

• Bad weather was the main cause of disruption around the world, with 53% citing it – up from 29% in 2011.
  
  
• Unplanned IT and telecommunication outages constituted the second most likely disruption, and the failure of service provision by outsourcers was third – up to 35% from 20% in 2009. These incidents led to a loss of productivity for over half of businesses.
  
  
• The average number of identified supply chain risks in the previous 12 months was 5, with some organizations reporting over 52.
  
  
• 20% admitted they had suffered damage to their brand or reputation as a result of supply chain disruptions.
  
  
• 50% have tried to optimize their businesses through outsourcing, consolidating suppliers, just in time (JIT), or lean manufacturing techniques.
  
  
• Where businesses have shifted production to low-cost countries, they are significantly more likely to experience supply chain disruptions, with 83% experiencing disruption. The main causes were transport networks and supplier insolvency.
  
  
• Only 7% had been fully successful in ensuring that suppliers adopted BCM practices to meet their needs, with nearly a quarter not taking this step. Even when suppliers were regarded as key to their business, nearly half of respondents had not checked or validated their suppliers’ BC plans.

Typically, 24 hours is the period within which businesses look to recover critical activities, since sustained disruption beyond this period would cause significant economic and service delivery problems in many sectors. Very few organizations plan for disruption lasting longer than one week.

The BCI says that the survey shows that while awareness of supply chain risks is increasing, many businesses remain exposed to high levels of risk. The survey report concludes that outsourcing, in particular in IT and manufacturing, often ultimately reduces cost benefits through greater exposure to supply chain disruption.

“The survey underlines the need for robust and regularly reviewed business con...

Table of contents

• Cover
• Title Page
• Copyright Page
• Introduction
• Part 1
• Footnotes 1
• Part 2
• Footnotes 2
• Appendix A
• About the Author