Executive Briefings

The New Supply Chain Normal: Global Uncertainty, Complexity & Risk

Analyst Insight: There were more than 2,000 supply chain disruptions for publicly held companies in 2011. That, coupled with PRTM's 2010 global survey stating that over 90 percent of all companies plan to grow market share by manufacturing and selling in overseas markets, it goes without saying that our global supply chains will experience additional uncertainty, complexity and risk in 2012. And yet, the vast majority of manufacturers are fully unprepared for the complexity of manufacturing and servicing global customers with regionally customized products. - Gregory L. Schlegel, adjunct professor, Supply Chain Risk Management, Graduate Program, Lehigh University

Some time ago, after an exhaustive global survey, AMR (now Gartner) profiled the supply chain for a typical global manufacturer. They stated: "A $1bn manufacturer was managing 15 internal manufacturing sites, 38 contractor facilities, across 5 supply chains in at least 2 continents!" That was in 2006. With the advent of globalization 3.0, the complexity of our supply chains has increased dramatically since that survey. And what happens when we grow our supply chain footprint? Lead times expand; the number of "nodes" in our supply chains expand; and with that expansion the probability of a disruption, delay or error increases ... and on and on. This profile doesn't take into account the continuing number of natural disasters and weather-related events occurring around the world, the likes of which global supply chains now must contend with on a regular basis.

• Financial impacts of supply chain disruptions. Consider the facts:  Over 2,000 disruptions to publicly held companies' supply chains occurred in 2011, with organizations such as Hendrick & Singhai and ChainLink Research actually codifying those disruptions and calculating the financial impacts.  Therein lies a very compelling reason to act in terms of developing a supply chain risk management (SCRM)  "preparedness and resiliency" program going forward. The latest financial impact of any disruption amounts to at least a 10 percent to 12 percent reduction in shareholder value, as well as devastating negative impacts to top-line revenue, operating income, return on sales and return on assets.

• Preparedness & Resiliency. With supply chains expanding around the globe, several exemplar companies have begun the supply chain risk management journey to identify, assess, mitigate and manage enterprise-wide risk. This cadre of early adopters - across multiple industries - such as Nokia, Ericsson, Cisco, DuPont, Coca Cola, Bayer Crop Science and Bayer Materials Science, have embraced new techniques and tactics such as the ERM (Enterprise-wide Risk Management) Framework; scenario planning, using probabilistic methods; risk heat maps and risk response plans. These new methods, coupled with emerging KPIs such as VAR (value at risk), T-t-R (time to recovery) and resiliency indexes, are proving to be invaluable in the efforts to mitigate and manage global risk.

• The Compelling Reason to Act. Here are the three main reasons many early adopters are embracing SCRM across their supply chains.

o        1) It's imperative to reduce the duration and time of a risk event. Time is money, and we have witnessed the devastating financial impacts of a disruption;
o        2) It's imperative to reduce the slope or severity of the risk event;
o        3) It's imperative to be able to accelerate the time to recovery of a risk event.


                                     The Outlook

In 2012, expect to witness over 2,500 supply chain disruptions, for publicly held companies alone. With many companies planning to grow their market share around the globe, we expect to see more and more multinational companies embracing the basic tenets of supply chain risk management. Look for the complexion of SCRM to resemble many of the initial elements above, and to be driven by a very new and compelling Supply Chain Maturity Curve, focusing on visibility, predictability, resiliency and sustainability.


Keywords: Supply Chain Security & Risk Mgmt, Quality & Metrics, Supply Chain Analysis & Consulting, Global Supply Chain Management, Globalization 3.0, Supply Chain Footprint, Resiliency, Enterprise Risk Management, Value at Risk, Time to Recovery, Supply Chain Maturity Curve

 

Some time ago, after an exhaustive global survey, AMR (now Gartner) profiled the supply chain for a typical global manufacturer. They stated: "A $1bn manufacturer was managing 15 internal manufacturing sites, 38 contractor facilities, across 5 supply chains in at least 2 continents!" That was in 2006. With the advent of globalization 3.0, the complexity of our supply chains has increased dramatically since that survey. And what happens when we grow our supply chain footprint? Lead times expand; the number of "nodes" in our supply chains expand; and with that expansion the probability of a disruption, delay or error increases ... and on and on. This profile doesn't take into account the continuing number of natural disasters and weather-related events occurring around the world, the likes of which global supply chains now must contend with on a regular basis.

• Financial impacts of supply chain disruptions. Consider the facts:  Over 2,000 disruptions to publicly held companies' supply chains occurred in 2011, with organizations such as Hendrick & Singhai and ChainLink Research actually codifying those disruptions and calculating the financial impacts.  Therein lies a very compelling reason to act in terms of developing a supply chain risk management (SCRM)  "preparedness and resiliency" program going forward. The latest financial impact of any disruption amounts to at least a 10 percent to 12 percent reduction in shareholder value, as well as devastating negative impacts to top-line revenue, operating income, return on sales and return on assets.

• Preparedness & Resiliency. With supply chains expanding around the globe, several exemplar companies have begun the supply chain risk management journey to identify, assess, mitigate and manage enterprise-wide risk. This cadre of early adopters - across multiple industries - such as Nokia, Ericsson, Cisco, DuPont, Coca Cola, Bayer Crop Science and Bayer Materials Science, have embraced new techniques and tactics such as the ERM (Enterprise-wide Risk Management) Framework; scenario planning, using probabilistic methods; risk heat maps and risk response plans. These new methods, coupled with emerging KPIs such as VAR (value at risk), T-t-R (time to recovery) and resiliency indexes, are proving to be invaluable in the efforts to mitigate and manage global risk.

• The Compelling Reason to Act. Here are the three main reasons many early adopters are embracing SCRM across their supply chains.

o        1) It's imperative to reduce the duration and time of a risk event. Time is money, and we have witnessed the devastating financial impacts of a disruption;
o        2) It's imperative to reduce the slope or severity of the risk event;
o        3) It's imperative to be able to accelerate the time to recovery of a risk event.


                                     The Outlook

In 2012, expect to witness over 2,500 supply chain disruptions, for publicly held companies alone. With many companies planning to grow their market share around the globe, we expect to see more and more multinational companies embracing the basic tenets of supply chain risk management. Look for the complexion of SCRM to resemble many of the initial elements above, and to be driven by a very new and compelling Supply Chain Maturity Curve, focusing on visibility, predictability, resiliency and sustainability.


Keywords: Supply Chain Security & Risk Mgmt, Quality & Metrics, Supply Chain Analysis & Consulting, Global Supply Chain Management, Globalization 3.0, Supply Chain Footprint, Resiliency, Enterprise Risk Management, Value at Risk, Time to Recovery, Supply Chain Maturity Curve