The Coronavirus and its’ global impact are devastating! Every day we are updated with the latest count of cases and deaths, in addition to which parts of the world are impacted. It is a tragedy any which way you look at it. There is also a significant amount of buzz around its impact on global Supply Chains and the mad scramble to find alternative sources of supply. Some might even consider the Coronavirus to be a Black Swan that must be dealt with. So exactly what is a Black Swan?
A Black Swan is an event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict. Black Swan events are typically random and unexpected and as such these types of events are the perfect excuse for being left with no real contingency plan when they occur.
What do the following have in common?
- The rise of the internet
- The Dot.com crash
- September 11th attacks
- The SARS virus
- Outcome of the 2016 U.S. Presidential election
- China tariffs
- A multitude of natural disasters
These would ALL be considered Black Swans BUT as they are happening more and more frequently, we can no longer consider them to be “difficult to predict” or random or unexpected. The Coronavirus in particular, is right on the heels of all the other issues we have been facing China, so China, as a major risk, should have already been built into our risk management plans. Obviously, for me many it wasn’t.
What does all this have to do with Category Management? When our clients tell us that they are already doing Category Management, we ask – “Would You be Prepared if . . . . . . . ?” Feel free to fill in the blank with:
- A major European port is shut down for weeks due to a strike, hurricane or attack?
- A major tier one offshore supplier suddenly moves their operations “offshore”?
- The lead time – not to mention the costs – to obtain key commodity inputs triples?
- Sources of energy start shifting significantly (Paris agreement)?
- Your service suppliers face resource shortages due to a change in Visa regulations?
- War breaks out with North Korea and one of your key suppliers resides in South Korea?
If the answer to any of these questions is NO, then you haven’t quite reached that Value Creating / Category Management level of maturity. Some might argue that managing such risks is NOT the role of the Procurement / Sourcing / Category Management organization but I would disagree because proactively mitigating these risks can be a source of competitive differentiation for your function:
- Disruptions have significant and long-lasting implications on sales and marketing
- Real bottom line losses
- Major resource drain to manage disruptions
- Helps in “un-freezing” decision making
- Supply Chains drive customer satisfaction AND dissatisfaction
- Allows us to play a strategic business partner role
So, if you are not doing so already (and most are not), managing risk presents a significant opportunity for you to take on a leadership role within your company. Here are some Best Next Practices for you to consider:
- Change the attitude of Executives and the organization to embrace risk management – many don’t see the value until an event occurs and it’s too late
- Keep executives and stakeholders updated on global risks as part of your role as a strategic advisor – publish briefings
- Ensure adequate risk tools are in place that lead to ACTION
- Ensure strategic competencies are in place to identify risks, manage them and identify opportunities to create a competitive advantage (e.g. on – shoring / near shoring are competitive again)
- Create flexibility and agility in your category strategies and contracts
- Build redundancy into your Supply Chain (much like an investment manager diversifies a portfolio) to mitigate risk
- Help stakeholders deal with uncertainty through education and frequent communication
As noted, the numerous global issues facing our Supply Chains today are happening more frequently and should no longer be a “surprise”. Our emerging role as Category Management professionals is to take the lead in identifying and proactively managing those issues. The next time we ask, “Would you be prepared if . . . . . .. .? we will expect to get a resounding YES!
Let us know what you think and join in the conversation . . . .