Supply Chain Risk Management - 1

In the last twelve months we have seen governments topple, tsunamis and earthquakes cause personal and Supply Chain devastation, the continued fall out of the banking crisis, public sector strikes in the UK and major European countries unable to service their debt and on the brink of bankruptcy, potentially causing the collapse of the Euro. For as long as I’ve been alive (let’s not go there) I don’t recall a period of time when the immediate outlook appears to be so glum, without any obvious signs of recovery.

We live in uncertain times.

Perfect Storm?

The question is whether what we are currently going through is a temporary ‘perfect storm’ of issues, or the new norm.

So what to do? The over-riding mindset of many businesses to these economic woes is to keep its head down and hope for the best. Many manufacturing companies are announcing major job cuts and the closure of production capabilities, taking a ‘blunt edged’ approach to removing costs out of the Supply Chain. Whilst this reaction is understandable, and companies are simply trying to survive at all costs, I can’t help wondering whether this is the smartest approach. In many cases they are selling the ability to compete tomorrow in order to survive today.

False Economy?

A number of strategic cost reduction decisions have inadvertently embedded new levels of risk and complexity into their Supply Chain – the one-dimensional pursuit of a ‘lowest cost’ model has led to many companies outsourcing and off-shoring key capabilities to countries where labour costs are cheaper. This, however, has sometimes proven to be a false economy, as rising fuel prices have dramatically impacted transportation costs, and labour costs in these countries have risen once people start to demand a higher standard of living. As a reaction to this changing situation, China, for example, has recently begun to outsource its manufacturing to Vietnam, and companies like BMW Motorcycles have moved production back from China to areas of ‘profitable proximity’ i.e. Eastern Europe where the level of risk is low, as well as the costs. Gartner also recently announced that they predict that by 2015 30% of outsourced and off-shored manufacturing will return.

Building Strong Foundations

Recently I posted about Unilever and how they are made the ‘conscious choice’ to invest and redesign their Supply Chains, focusing on customer value and sustainability rather than simply cutting costs. The result – the highest period of growth in 2010 for 30 years, at a lower cost model than when they were cutting costs. Rather than sacrificing the future, they are building strong foundations for it.

Two very different mindsets, and two very different approaches to the current economic crisis. One approach is all around surviving, keeping your head down and hoping this ‘perfect storm’ will pass. The other assumes this is the ‘new normal’, and tales the opportunity to manage their business better in the downturn by taking the opportunity to better position themselves for the upturn – and in doing so finding that growth in this period is possible, as long as you work together, take time to step back from the chaos, and make the choice to make courageous, informed, intelligent decisions about how you can compete in this new environment.

Which approach is your business taking?

In my next post I will discuss an approach businesses can adopt in order to create customer focused, risk conscious, segmented Value Chains. As Charles Darwin once wrote,

“It is not the strongest of the species that survives, nor the most intelligent. It is the one that is the most adaptable to change.”
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Sean CuleyBusiness Transformation Expert (SCOR-P, FCILT)

Sean Culey (SCOR-P, FCILT) is a global keynote speaker on the topic of disruptive technologies and their impact on businesses, the economy and society. He is the author of 'Transition Point', a detailed look at the causes of technological disruption and the impact it has had on our society, and how the current wave of technological change - from robotics to AI - will completely disrupt our business models, economy and society at large.  Sean is also the author of numerous articles published in magazines such as Forbes, The World Financial Review and The European Business Review.

 

Sean is an expert at helping companies develop and deliver new customer centric business models, and he advises supply chain leaders on how to align their organisation to ensure they are executed successfully. He has 25 years of experience including six years as CEO of business consultancy ‘SEVEN’, and a decade working for Cadbury Schweppes, where he was the Global Design Authority on what was the world’s largest SAP implementation. He has developed a series of masterclasses about Disruptive Technologies and how companies can create new business models to exploit them.

 

Sean is also Visiting Fellow at Cranfield University and a Fellow at the Chartered Institute of Logistics and Transport (FCILT). He is also the UK’s only certified SCOR Master Instructor and a futurist for IBM Watson.

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