Tag Archives: Risk Management

What Major Risks are Facing Our Community?

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The Mpower Group NPXAt a recent planning call with some of the members of the Next Practices Xchange for their upcoming conference, I was asked to come up with the list of concerns that leaders in the community (Procurement, Strategic Sourcing, Supply Chain, etc. etc.) had.  This was to identify the major risks that are facing the community so that a relevant agenda could be developed.  I pushed back at the members and got them to acknowledge that we would be talking about only those issues that they knew about or had identified.  What about all those that they had not?  Based on some of the research that we have done and the various venues we speak at, here is the list that I gave them as the Top 10 list of risks that they should be focused on.  I also told them that we would crowdsource the prioritization of this list and give them some help in picking the top 2 or 3 for their next conference.

Please pick your top three risks!

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So go ahead and provide your input and then check back and see what others said. This information will be used to plan our next conference, so stay tuned.

Regards,

Dalip

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Why You Should Feel Good About the Economy, and Why That’s Good for the Economy!

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While I was growing up with my grandfather (who was quite a management whiz) in India, he explained the concept of inflation when I was quite young.  He told me that people were going out and buying necessities and then storing them to protect against rising prices.  India was going through very high inflation in those days.  He went on to explain that what these people didn’t realize was that it was exactly that thinking and behavior that would lead to higher prices.  A self-fulfilling prophecy!  The science of economics has long conceded this point to the behavioral economists.  How people think about the economy and their economic future actually has an impact on their economic future.

For a fascinating discussion on this, you should read this transcript from NPR here. Two very authoritative prognosticators, David Wessel of The Wall Street Journal and Zanny Minton Beddoes of The Economist, have much to say when they read the tea leaves.  Granted that their focus is on the US economy. As you will note, the health of the US economy is very elastic to the global economy, at least in the short term. Some things to note are:

  • Steady decline in unemployment
  • European meltdown averted – for now
  • Manufacturing showing signs of life
  • Interest rates make government borrowing very cheap
  • Mortgage rates are nudging the housing recovery along
  • The so called “asset bust” related to real estate is almost over
  • Stock Markets – need I say anything about this?
  • Actual growth in the number of jobs

They both sound notes of caution that it’s not quite time to start celebrating, but that the light at the end of the tunnel is not a mirage.

  • Europe has only managed to defer the crisis for now. That does buy the global economy and the U.S. economy some extra time to recover without that Damocles’ sword hanging over our head.
  • Gas prices are always volatile and very elastic to world events and speculation.  They are already showing their volatility.
  • The political situation still does not look like it will lead to actual governance in the near future.  The impact of that was clearly felt during the debt ceiling discussions in Washington last year, including the credit downgrade.

But then the discussion turns to what they call the “intangibles,” which is all about how people feel about the economy.  They agree that how people feel about the economy actually drives their economic decisions.  When people feel good about the economy, they generate far more economic activity (spending, investing, borrowing etc. etc.).  They all agree that the intangibles are finally turning positive.  People are starting to feel better about the economy and their economic future.  David Wessel summed it up best when he said, “Larry Summers, the former Treasury Secretary, once said that you know a period of crisis is over when the surprises are consistently on the up side. And we’ve been through a period where for so long, the surprises have been negative. The fact that they’re positive now does kind of breed a self-fulfilling cycle of confidence that could be very important.”

My advice – pour yourself your favorite libation, and start feeling good about the economy.  It’s the least you can do to help the global economy?  N’est ce pas?

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Hewlett-Packard and Seeing the Bigger Picture

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Back in August, Hewlett-Packard announced a complete overhaul of their business by lessening the company’s reliance on PC and splitting the company in two. The Chief Executive Officer at the time, Leo Apotheker, wanted to lessen the company’s reliance on PCs as tablets and cloud services have started becoming more popular. In many ways the announcement made sense as Michael Gartenberg, an analyst at Gartner Inc. stated “The hardware business has become a difficult business. In many ways it’s a commodity-driven business. This is a major strategic shift for HP.”

Fast forward two months and now there is a new CEO in town and she is looking at the change in a whole new light. According to the Wall Street Journal, Meg Whitman, the new CEO has been looking at the numbers and things don’t seem to be as cut and dry. The new analysis shows that the company might be better off keeping the division which contributes $40 million in annual revenue. The reasoning, however, goes beyond the revenue numbers. Separation would lessen the company’s economy of scale and diminish their buying power AND leverage with their supply base. The supply chain could also become more complicated and decrease profit margins on their other products as well.  Some feel that because of this, the spin-off isn’t worth it.

Let’s take a look at this situation beyond a cost perspective and focus on Value.  HP sold 14.9 million PCs in the second quarter of 2011 alone, which means they are a huge player in the marketplace – particularly with their suppliers.  That scale gives them leverage that can and should go way beyond cost.  They should be using that leverage with their suppliers to help them manage risk, increase innovation (which should impact H-P’s top line not just their bottom line), expand their product offerings, etc.  H-P should be using this “leverage” to help move away from being viewed as a commodity to their customers and start viewing themselves as a “Value” provider.  When approached from a value perspective H-P would be foolish to exit the PC market.

So what, if any, is the lesson here? For one, it shows just how far reaching and influential the supply chain organization can be.  In times when we constantly hear that sourcing and supply chain organizations are losing their influence, H-P shows that there is still some bite left in those functions.  I wonder whether Supply Chain even had a seat at the table when the original decision was made.  I guess they do now, which is a VERY good thing!

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Market Perspective: What is Keeping You Up At Night?

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I was recently asked to speak at another regional ISM event (click here to download the presentation Market Perspective: What Keeps Chief Supply Chain Officers Up at Night?) and having done a significant number of these over the years, I put together a presentation that I thought would work.  Until I realized that this was a rather unique audience and had to switch gears a week before the event.

This was a gathering of various Presidents of the ISM and NAPM regional chapters and they were gathered together in that capacity.  They were trying to figure out how to become more relevant for their regional markets and their customer was the entire Procurement, Sourcing and Supply Chain community of that region.  I decided to give them a perspective of their market based on a lot of the research that we have done and provided them with the proverbial Top Ten list (in no particular order).

I have included the list below and now it is your chance to test and challenge what I provided them and help us rank the list. Please mark your top three organizational challenges. Or if you think an item should not be included, then go ahead and add your inputs in our comments section.

Please pick the three items you lose the most sleep over.

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Risk As a Competitive Weapon for Supply Chain

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Many organizations look at Risk as an evil, a challenge and even a four letter word.  Dealing with risk is commonly left to the Risk Management department who may be ill equipped to identify, let alone manage the huge Supply Chain challenges that we have seen over the last few years.   Risk can actually become a competitive advantage for a Supply Chain organization that knows how to identify and effectively manage it.

Consider the musings of Michael Koploy in his blog post on July 15thhttp://www.softwareadvice.com/articles/scm/post-tsunami-supply-chain-all-stars-1071511/  which focused on the Supply Chain All-Stars that recovered fastest after the Japanese Tsunami.  Mr. Koploy credits fast thinking and cooperation between the Big 3 Japanese Auto Manufacturers as the key to their quick recovery.  These All-Stars were forced to share the “secret sauce” of their supply chains with one another in order to make this happen.  Great!!!   What this tells me is that not one of those companies had a viable risk management strategy in place otherwise they would not have been forced to collaborate with one another.  The collaboration was not a bad thing but was most likely not the first choice approach for any one of those companies.

 Another All-Star identified by Mr. Koploy was Canon, the Japanese producer of high quality printers and cameras.   Michael noted that Canon initially expected to take several months to recover and was “surprised” that they are already at pre-disaster production levels.  This is good news because it shows that Canon’s strategy of investing in Supply Chain redundancy has paid off.   BUT the surprise to me is that Canon’s quick recovery was a “surprise” to them.  If they have a strong risk management strategy (which they may) it is obviously not visible to those that were “surprised” at Canon’s quick response. Imagine the favorable public relations Canon could have had if they immediately announced that they had plans in place and mitigation strategies ready to execute as soon as the disaster struck.

The All-Star that may deserve the Superstar award is Apple.  Apple’s investment in its Supply Chain may very well be its secret to success – wouldn’t we all like to be that successful.  Apple has made its Supply Chain a competitive advantage and managing risk is a high priority.

Risk is scary but these days it is also somewhat predictable and inevitable.  It feels like we have been barraged by natural disasters, economic collapse, political unrest, safety debacles etc. over the last few years globally.  Any and all of these factors can have a significant impact on a company’s Supply Chain.  Risk Management must be a core competency for ANY Supply Chain organization and yet it is not.  It seems almost incomprehensible to me that the lack of a Risk Management strategy continues to be one of the key challenges for many companies.  Even those companies that do have one are not necessarily actively managing it.   It may be time to stop looking at Risk as a four letter word and start looking at it is as a real opportunity to gain a competitive advantage.

Please give us your perspective on this very important issue.  Please join the conversation . . . . . . . .

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