Reduce risks with technology
Gayatri Balaji, President, BPO division, Xchanging
Every business leader wants to maximise their revenue and profitability and reduce their risks. Some of the leading Fortune 100 companies excel at identifying risks to their supply chains and have strong mitigation strategies in place to offset the negative effects.
In the aftermath of the Japanese earthquake and Thai floods in 2011, there was a global parts shortage. With several global corporations having their factories in the region, these events seriously disrupted their supply chain engines, leading to delays in taking products to market. The result was damaged sales and increased costs.
And nature is not the only factor that can play havoc with your supply chain: the global economic crisis, political unrest, demanding customers, shorter product lifecycles, technology changes, terrorism and cyber threats define the environment in which businesses across the globe operate today.
Intelligent use of data from your supply chain, in combination with external market information, can considerably advance your business’ ability to plan for and mitigate market and pricing volatility that may come your way, especially in the current unstable global economic climate.
Identify your risks
The first step to mitigating risks is identifying what these could be. The top three supply chain risks for any global organisation are:
1. Inventory risk: This, I believe, is one of the biggest risks, and is often the result of a mismatch in projections and actual market demand. Maintaining excess inventory can become a liability and put a strain on your finances. An inventory risk can also come from failing to predict a high probability of internal or external triggers of disruption in the supply chain.
2. Procurement risk: Factors in this category include unpredictable natural events, which can create shortages and increase the cost of acquiring raw materials, and fluctuating exchange rates or supplier price hikes, which can dramatically raise costs.
3. Financial risk: Having your working capital tied up in languishing inventory and slow moving receivables can increase the cost of your supply chain. The ProfitPoint, Supply Chain Survey Report 2012 found that globally only 70 percent of SCM experts are able to estimate their supply chain costs accurately.
Leverage technology and analytics
Across the industry we are seeing an increasing investment in Supply Chain Risk Management (SCRM) among procurement professionals, specifically on technology solutions that mitigate risk.
The ability of technology to provide increased visibility of relevant data, and to track the accountability of stakeholders across the supply chain, is tremendous. Technology has crept into SCM step by step, beginning with electronic invoicing, computerised shipping and tracking and automated notification, thus enabling users to easily place orders, track shipments and monitor inventory in real-time.
The best organisations are differentiating themselves by adding a layer of predictive analytics to their existing technology. By feeding data from their existing risk management systems into analytics and dash boarding applications, they are able to spot key trends, patterns, and potential disruptions within supply chains and identify the right risk mitigation strategies.
They are using predictive analytics at every step of the supply chain cycle, thus enabling procurement managers to determine how best to allocate resources to protect against vulnerabilities.
For example, algorithms can be built to provide advanced notification of surges or slowdowns in demand. This information can then be monitored and fed-back into the supply chain management process, to drive better warehouse and distribution management, transportation management, production planning, and supplier capacity and order collaboration.
This technological capability provides procurement teams with a holistic view of the on-ground reality in real time. This not only improves their ability to predict events, plan for risks and the relevant mitigation strategies, but also reduces the risk of bad decision making when it’s business as usual.
Technology can also play a major role in managing financial risks. Organisations can embed effective working capital management tools and platforms into sustainable processes to eliminate those historic ebbs and flows and minimise related business risk across their supply chain base.
A mature supply chain should include a clear overview of costs on an ongoing basis. Predictive analytics tools can enable organisations to plan for continuous improvement and to reduce costs by at least five percent. Advance alerts can provide you with the agility to dynamically balance supply and demand, and help to manage capital risks and trading partner vulnerabilities.
In conclusion, leveraging technology and predictive analytics can help organisations better manage risks within their supply chain by:
· Transforming multiple forms of available data into meaningful insights and key response indicators
· Weighing and factoring constraints and variability with supply chain planning and execution information
· Converting these insights into actions and the best possible mitigation plans
Biden establishes Supply Chain Disruptions Task Force
The US government is to establish a new body with the express purpose of addressing imbalances and other supply chain concerns highlighted in a review of the sector, ordered by President Joe Biden shortly after his inauguration.
The Supply Chain Disruptions Task Force will “focus on areas where a mismatch between supply and demand has been evident,” the White House said. The division will be headed up by the Secretaries of Commerce, Transportation, and Agriculture, and will focus on housing construction, transportation, agriculture and food, and semiconductors - a drastic shortage of which has hit some of the US economy’s biggest industries in consumer technology and vehicle manufacturing.
“The Task Force will bring the full capacity of the federal government to address near-term supply/demand mismatches. It will convene stakeholders to diagnose problems and surface solutions - large and small, public or private - that could help alleviate bottlenecks and supply constraints,” the White House said.
In late February, President Biden ordered a 100 day review of the supply chain across the key areas of medicine, raw materials and agriculture, the findings of which were released this week. While the COVID-19 health crisis had a deleterious effect on the nation’s supply chain, the published assessment of findings says the root cause runs much deeper. The review concludes that “decades of underinvestment”, alongside public policy choices that favour quarterly results and short-term solutions, have left the system “fragile”.
In response, the administration aims to address four key issues head on, strengthening its position in health and medicine, sustainable and alternative energy, critical mineral mining and processing, and computer chips.
Support domestic production of critical medicines
- A syndicate of public and private entities will jointly work towards manufacturing and onshoring of essential medical suppliers, beginning with a list of 50-100 “critical drugs” defined by the Food and Drug Administration.
- The consortium will be led by the Department of Health and Human Services, which will commit an initial $60m towards the development of a “novel platform technologies to increase domestic manufacturing capacity for API”.
- The aim is to increase domestic production and reduce the reliance upon global supply chains, particularly with regards to medications in short supply.
Secure an end-to-end domestic supply chain for advanced batteries
- The Department of Energy will publish a ‘National Blueprint for Lithium Batteries’, beginning a 10 year plan to "develop a domestic lithium battery supply chain that combats the climate crisis by creating good-paying clean energy jobs across America”.
- The effort will leverage billions in funding “to finance key strategic areas of development and fill deficits in the domestic supply chain capacity”.
Invest in sustainable domestic and international production and processing of critical minerals
- An interdepartmental group will be established by the Department of Interior to identify sites where critical minerals can be produced and processed within US borders. It will collaborate with businesses, states, tribal nations and stockholders to “expand sustainable, responsible critical minerals production and processing in the United States”.
- The group will also identify where regulations may need to be updated to ensure new mining and processing “meets strong standards”.
Partner with industry, allies, and partners to address semiconductor shortages
- The Department of Commerce will increase its partnership with industry to support further investment in R&D and production of semiconductor chips. The White House says its aim will be to “facilitate information flow between semiconductor producers and suppliers and end-users”, improving transparency and data sharing.
- Enhanced relationships with foreign allies, including Japan and South Korea will also be strengthened with the express proposed of increasing chip output, promoting further investment in the sector and “to promote fair semiconductor chip allocations”.