How do you manage risk?

A recently released Accenture study, “Don’t Play it Safe When it Comes to Supply Chain Risk Management,” shows the wide range of approaches companies take when it comes to managing their supply chain risk.

Unfortunately, only slightly more than one quarter of the companies surveyed are taking the most important tack, developing a “playbook” or plan that various parts of the organization can implement immediately when a crisis strikes.

It’s well and good to identify alternative suppliers that can step in when needed.  And it’s critical to monitor all of your suppliers (not just Tier 1) on an ongoing basis for troubling trends and potential risks.  Building in excess capacity in the event of high volatility is important, too.

But if you don’t have that plan or playbook everyone can follow, you risk having everyone react “one off” and potentially exacerbate the crisis.

On Wednesday, July 16, ISM will host its Risk Management Summit in New York City.  It’s an opportunity to learn how to identify and oversee critical risks, and learn the key measurements you need to effectively communicate and implement a risk strategy.  For more information, visit ISM Conferences for 2014.

 

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Managing supplier relationships

We couldn’t agree more with Philip Hicks, procurement manager at Northumbrian Water, who said the key to his company’s supply chain sustainability is getting out and meeting with its top suppliers. As he points out, companies expect their suppliers to help them achieve their sustainability goals, and it’s only through personal engagement that suppliers will come to understand the role they play.

A Sedexglobal report, however, encourages companies to go a step further into the supply chain and meet with as many suppliers as possible, whether they’re Tier 1, 2 or 3. It points out that the “greatest and most critical sustainability risks are found deeper down the supply chain.” Unfortunately, only a third of companies are actively seeking transparency below Tier 1 in their supply chain.

How deep into the supply chain are you managing your supplier relationships? Are you going far enough?

Conflict minerals reporting deadline approaches

The first deadline for companies to publicly disclose their use of conflict minerals that originated in the Democratic Republic of the Congo (DRC) or an adjoining country is fast approaching.  Justmeans.com reports that nearly 6,000 companies will have to provide these disclosures by May 31, 2014, and they’re finding it’s a complex process.

Any company that uses tin, tantalum, tungsten and gold for the functionality or production of its products now must disclose specific information, including the source of those products, according to the “Conflicts Mineral Rule.” It’s part of efforts to raise awareness of and change the human rights abuses in the DRC mining industry, and the financing of armed conflict from the sale of the minerals.

Less that a year ago, a PriceWaterhouseCoopers survey found that almost half of the executives surveyed were still in the initial stages of their compliance efforts, while 16 percent hadn’t begun gathering information and 32 percent were still trying to determine if the rule even applied to them.

We’ll host a half-day Mega Session on this rule and its long-term implications for companies and their suppliers at the ISM Conference May 5-7 in Las Vegas.  We hope you can join us.

Managing supply chain sustainability at Target

On the heels of Mary Barra’s appointment as CEO of General Motors, we can’t resist sharing this GreenBiz.com interview with another female executive in the supply management world. Kate Heiny leads the enterprise-wide sustainability strategy for Target, a Fortune 50 company and one of the most important retailers in the US with the more than 1,700 stores in 49 states.

Early in her career Heiny recognized that industries would need radical transformation in order to be successful in the future, and she views sustainability as the business strategy critical to the long-term viability of Target.

She and her Sustainability Team are responsible for helping Target’s guests and team members live more sustainable lives and minimize Target’s impact on the environment.

For example, Target is a founding member of the Sustainable Apparel Coalition, a trade organization of brands, retailers, manufacturers, government and non-governmental organizations and academic experts who are working to reduce the environmental and social impacts of apparel and footwear products around the world. Target uses the Coalition’s Higg Index to gauge its environmental sustainability performance and make changes for improvement.

With its grocery items, Target is making long-term commitments to offer food that will be GMO-free by year-end 2014, increase its organic food offerings by 2017 and replace farmed salmon with wild salmon.

Collaboration, creativity and sharing are three words Heiny uses frequently to describe how her team is working to imbed sustainability into their team members’ day-to-day work at Target. “Sustainability needs to be a holistic way of working and operating, not just one initiative or team,” Heiny said.

ADR North America’s New Home

SourcingGuy has found a new home. ADR North America has had a successful partnership with the Institute for Supply Management for three years offering high quality professional development courses through the ISM-ADR School for Supply Management. We were interested in building on that partnership, so we have merged our organizations through an acquisition of ADR North America by ISM.
We think it is a very good fit for ADR NA and ISM. We will be continuing to better integrate our professional development offerings with our consulting practice, and ISM expands the services it can offer its members and the supply management profession generally. ADR NA continues to be a licensee of ADR International, so we will still be providing our innovative products such as Development Needs Analysis (DNA) and PRISM. And, of course, I’ll still be writing blogs and articles for a number of publications and presenting at the ISM Annual International Supply Management Conference and Educational Exhibit. See you in Baltimore.
Here’s a link to the news release on the acquisition.
The Twitter hashtag is #ISMADR.

The New “China Syndrome”

The original meaning of the term “China Syndrome” described how the fuel in a nuclear reactor might overheat and melt down, creating a disaster by burning through the reactor’s layers of protection. A new meaning for China Syndrome might describe how an overheating, or possible meltdown of the Chinese economy could create disastrous volatility in commodity demand and prices.
The Wall Street Journal has a good capsule summary of three scenarios over the next decade. Here’s the link, if you have access:

As China Goes, So Go Commodities – The Wall Street Journal

Under any scenario except a complete collapse of China’s hard charging economic growth, there is almost certain price pressures on energy sources as well as certain grains over the next ten years, and continuing pressure on construction materials as long as China keeps building infrastructure at an astonishing pace.

Over the long-term, successful supply chain strategies will not only need strategies for containing costs, but a continuing focus on innovations that provide alternatives to traditional materials, reduce waste or use recycled products.

The price vice

Crain’s Detroit Business confirmed this week the trend I recently mentioned here — that automotive companies are back to singing a one-note song, and the only lyric is “price, price, price.”

Crain’s called it the price vice in its coverage.  That’s particularly apt, because it is a squeeze between costs and price. I like the term because “vice” also means a forbidden activity, and that’s exactly what a fixation only on price ought to be.

 

 

More Inflation Cautions

The Institute of Supply Management’s Purchasing Managers Index (PMI) for October that was reported today made its biggest jump since 2006. — from 52.6 in September to 55.7 last month. (See the news release.) That’s good news for the economy as a whole, but it bolsters our cautions that pressures on prices are likely to increase faster than the pace of economic recovery over the next few months.

The PMI is considered a leading indicator of economic business conditions. Purchasing managers are already reporting price increases in 11 commodity categories. Furthermore, inventories have been contracting for 42 consecutive months. Those facts suggest that price pressure is likely to go up.

Suppliers may be trying to recover from their losses over the last year and perhaps betting that shortages might drive prices higher quickly. It’s also possible that tight credit is still limiting manufacturers to add production capacity. Whatever the reason, buyers must remain diligent in their efforts to contain cost.  As companies recover and work to improve their bottom line, cost containment will be the core focus in managing suppliers in 2010. It will be necessary for buyers to review their tools for containing costs and develop new methods for dealing with price escalation.

In southeast Michigan we see the same kind of pressures on prices, but there was also a drop in the local PMI, released by the Institute of Supply Management – Southeast Michigan.  The ISM-SEM reported that its October purchasing managers index was 51.3, a drop of more than 10 points, but still in the range that demonstrates some modest improvement in economic conditions. The three-month trend of the index also remains positive.

We likely had an uptick in September as a trailing result of the ‘Cash for Clunkers’ automotive incentives. The October composite figure shows a slight cooling off, but looking deeper we see local purchasing managers reporting higher prices in a number of categories. That suggests there is finally demand building that can drive new growth.

The drop in the southeast Michigan index might suggest a note of caution about the national figure, too, because Michigan’s PMI often leads the index for the rest of the country. October’s big jump in the national PMI might be followed by a lower index next month, matching Michigan’s pattern. With so many uncertainties, we shouldn’t be surprised if the recovery has some fits and starts. Overall the outlook is still positive.”

Time to Rethink

As light begins to appear at the end of the economic tunnel, there are some key steps businesses should take to streamline their procurement —

Read more of this article published in the ADR International e-Newsletter.
Also in the current e-Newsletter, an article by Rebecca Howard about getting the most out of every training dollar. Professional development for procurement teams is usually a slam dunk return on investment — but training programs are not all equally effective.  Read more here.

ADR has recently launched its own ADR Academy with nine online courses on fundamental topics — from portfolio, cost and market analyses to global sourcing. Here’s a link to an article about it, and another link directly to adracademy.com.

Pro to Know, Five in a Row

Bill Michels, chief executive officer at ADR North America LLC, has been named by Supply & Demand Chain Executive magazine as a “Pro to Know” as a consultant advising companies about purchasing strategies and managing supplier relationships.
Every year the trade magazine for purchasing executives honors industry leaders who have made substantial contributions to the supply chain field. This is Michels’ fifth time earning the “Pro to Know” designation; Michels was recognized for his leading expertise in identifying troubled suppliers and mitigating the risks if they fail.
Michels is a nationally known expert on strategic purchasing, cost and change management.  He has pioneered new methodologies and theories, practices and tools for the transformation of the supply chain, helping businesses increase profitability and value. Michels writes regularly for trade publications and general business periodicals and is called on to present his expertise at seminars and conferences in manufacturing, wholesaling, chemical, pharmaceutical and commodity industries. His blog is http://www.sourcingguy.com.
“This year’s Provider Pros to Know have shown themselves to be thought-leaders in their respective supply chain segments,” said Andrew K. Reese, editor of Supply & Demand Chain Executive. “Their efforts in developing the tools and processes have enabled companies to weather risky economic conditions and place themselves in a position to surge ahead in better times.”