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2015

 

Nearly one in 10 organizations don’t know who their key suppliers are, which leaves them open to severe disruption because they are unable to manage their supply chain effectively, according to a report published today by the Business Continuity Institute and supported by Zurich Insurance Group.

 

The “Supply Chain Resilience Report” includes some startling findings, such as that only 14 percent of the executives surveyed from small and medium-sized enterprises (SMEs) believe their business would be significantly affected if were they to lose their main supplier. Overall, 39 percent of the respondents consider their companies to be at some level of risk from the loss of their main supplier, while 55 percent believe the loss of their most important supplier would not influence their day-to-day business.

 

Even more surprising, and in contrast, the survey found that seven in 10 organizations admit to not having visibility over their full supply chain. “This makes us believe that SMEs probably underestimate their supply chain’s risk exposure, and we urge them to reassess this,” says Nick Wildgoose, global supply chain product leader at Zurich Insurance Group.

 

The survey results also found that half of supply chain disruptions occur below Tier 1 suppliers. As the report notes, this could have major consequences when it comes to managing the supply chain and ensuring that disruptions are minimized. That’s particularly important given that the report also found that 74 percent of organizations had suffered at least one disruption during the previous 12 months, and that 14 percent of the organizations had suffered cumulative losses of at least $1 million European as a result.

 

I was interested to see that unplanned IT and telecommunications outage (cited by 64 percent of the respondents), cyberattack and data breach (cited by 54 percent of the respondents) and adverse weather (cited by 50 percent of the respondents) are the top three causes of supply chain disruption listed in the report. Interestingly, new entries to the list of top 10 causes of supply chain disruption are product quality incident (in 8th place), business ethics incident (in 9th place) and lack of credit (rounding out the top 10).

 

Also of note, when asked about the consequences of a supply chain disruption, loss of productivity was the most frequently named consequence, cited by 58 percent of the respondents. Customer complaints was named the second leading consequence, cited by 40 percent of the respondents. Rounding out the five most significant consequences were increased cost of working, loss of revenue and impaired service outcomes.

 

There is good news in the report as well. For example, one third of the respondents report high top-management commitment to supply chain resilience, which is an increase from 29 percent of the respondents last year. Also, 68 percent of the respondents report that their company has business continuity arrangements in place to deal with supply chain disruptions.

 

“Through our work with customers in this area, we’ve found that increasing supply chain visibility and resilience are major sources of competitive advantage,” says Wildgoose. “Top management leadership is the key to overcoming silo thinking about supply chains within an organization.”

 

What I’d like to know, is whether your company has good supply chain visibility and everyone knows who the key suppliers are? Secondly, are key executives committed to supply chain resilience?

 

 

Detroit's Big Three automakers reportedly are moving forward with plans to produce more small cars for the North American market in Mexico, which allows them to reduce labor costs on smaller cars while using higher-paid U.S. workers to build more profitable trucks, sport utility vehicles and luxury cars.

 

Indeed, new versions of several popular U.S. compact cars are expected to be made in Mexico, people familiar with the companies’ plans say, a Reuters article reports. The cars include General Motors’ new Chevrolet Cruze hatchback, a successor to Ford’s Focus compact and a replacement for Fiat Chrysler Automobiles’ Jeep Compass compact SUV.

 

The decisions in turn prompt automotive research firms to project a big increase in Mexican output of small cars by the three companies. AutoForecast Solutions estimates that GM, Ford and Fiat Chrysler will collectively produce 45 percent of their small cars for the North American market in Mexico by 2020, up from 18 percent in 2014, the Reuters article explains. LMC Automotive researchers put the 2020 figure at 37 percent, also up 18 percent from last year. Finally, researchers at IHS Automotive project the Mexican percentage of small car production to reach 42 percent in 2020.

 

This isn’t a surprising move. A recent USA Today article points out that in 2014, automakers announced $7 billion in new projects for Mexico, according to the Center for Automotive Research. That’s in addition to the 18 automotive plants already in Mexico, and at least five more are already planned or under construction. The result is that Mexico has seen a 40 percent increase in auto jobs since 2008, USA Today reports.

 

The automakers’ strategy is based around margins and competitiveness. The production shift would primarily reduce costs in production of compact and midsize cars, which have small profit margins. Secondly, shifting production to Mexico also may enable the companies to be more competitive with foreign rivals, such as Nissan and Volkswagen AG, who have been steadily adding production capacity in Mexico.

 

Margins on small cars may fall even further if production remains in the U.S. because new labor agreements negotiated by GM, Ford and Chrysler grant the first raises in a decade to veteran workers, and give recent hires a path to earn $30 an hour after eight years on the job, the Reuters article points out. However, Mexican labor rates, which averaged about $5.50 an hour in 2014 according to the Center for Automotive Research, offer a significant cost savings.

 

“Moving car production to Mexico makes sense,” Haig Stoddard, industry analyst for WardsAuto, says in the USA Today article. “It makes sense to build less-profitable vehicles in Mexico and more-profitable ones in the U.S.”

 

There is more than low-cost labor that makes Mexico appealing for automotive production. The country’s infrastructure, supply base and productivity all have clearly improved in recent years.

 

The flip side of the coin is that shipping costs from Mexico to the U.S. remain high, and energy sources can be unreliable. Furthermore, executives at many companies still have concerns about safety and security in Mexico. In an AlixPartners survey last summer on nearshoring, only 42 percent of the North American respondents said they expect improvement in those areas in Mexico. That number is down from last year, when 55 percent of the North American respondents said they expected improvements to safety and security in Mexico.

 

Nevertheless, if the U.S. companies do shift much of their small car production to Mexico, it will be interesting to see what impact their investments—along with those of other automakers and the Mexican government itself—have on Mexico.

 

What are your thoughts on automotive production in Mexico? Do you think there will be a time when most small cars are produced there?

 

 

People outside of the industry often don’t know what the supply chain is, or even worse, they have a negative image of a dirty manufacturing plant. But that doesn’t need to be the case.

 

International trade association MHI, formerly known as Materials Handling Institute, has launched a new initiative to promote careers in the supply chain. Called iWorkinTheSupplyChain, the effort is focused on both increasing awareness of careers in the supply chain and promoting the role of blue and white collars serving in supply chain related positions.

 

More than that, MHI says the campaign is designed to not only promote manufacturing and supply chain as an innovative and rewarding career choice but to change the perception of jobs in the industry. The goal of the #iWorkInTheSupplyChain campaign is to connect, engage and inspire next-generation workers to pursue manufacturing and supply chain careers, MHI says.

 

“New and emerging manufacturing and supply chain technologies require highly-sophisticated skillsets and an equally sophisticated, well-trained and well-paid workforce,” says George Prest, MHI CEO. “Because supply chains work behind the scenes, you only hear about them when there is a disruption. We, as an industry, have to do a better job communicating the amazing and rewarding career opportunities available. That’s the goal of this campaign.”

 

The campaign was launched this week with a video titled #iWorkInTheSupplyChain, which tells the stories of various manufacturing and supply chain professionals. It can be seen at iWorkInTheSupplyChain.com. In addition to those personal stories, the website includes a video of a variety of individuals talking about their connections to the supply chain, including well-known television personality Mike Rowe, who, with the others, was filmed at MHI’s annual conference in Jacksonville, FL earlier this fall.

 

MHI invites everyone who works in manufacturing and the supply chain to join this campaign and explain their role in the supply chain. The association created an interactive blog at iWorkInTheSupplyChain.com where, as it says, professionals can join the conversation, tell their unique stories, upload videos and connect with other manufacturing and supply chain professionals.

 

As a benefit, supply chain professionals who do share their story at iWorkInTheSupplyChain.com can enter to become the 2016 MHI Face of the Supply Chain. This award will honor a supply chain professional whose personal story demonstrates the hard work, creative-thinking and a commitment to innovation it takes to succeed in this industry, MHI says. The winner will be announced at the MODEX trade show next spring.

 

MHI points out that although more than 11 million people work in the supply chain, which is 8.6 percent of the nation’s workforce, there still is a shortage of skilled supply chain workers. An estimated 600,000 manufacturing positions in the U.S. are unfilled for a lack of qualified workers, according to MHI. In addition, the “U.S. Roadmap for Material Handling & Logistics” predicts that, between now and 2018, there will be 1.4 million new jobs in the logistics and supply chain field.

 

With those numbers in mind, MHI spokespeople say it is more important than ever to explain that supply chains are global enterprises led by a diverse group of professionals who use innovation, creativity and smart thinking to not only drive operational efficiency but to keep the economy going. Furthermore, supply chain careers are rewarding and highly-compensated jobs which may lead to the C-suite.

 

I’m interested in your thoughts on #iWorkInTheSupplyChain. Do you think the campaign will help promote awareness of careers in the supply chain? Would you post a video there?

 

 

As work on the Panama Canal expansion project continues—and gets closer to being finished next year—authorities for some U.S. states working to deepen seaports are picking up the tab themselves, rather than wait for federal funds. These port authorities worry that if they don’t act quickly, their ports may lose competitive advantage. At the same time, they also worry about how much federal funding they may receive, along with whether they will actually receive those funds.

 

The issue is that the new so-called post-Panamax class of ships carries loads twice the size of current ships, and requires ports at least 43 feet deep. New generations of ships are even larger, and require harbor depths of 50 feet or more. Without expansion, many U.S. seaports cannot accommodate these larger ships.

 

Authorities at many ports are scrambling to catch up. Who will actually end up footing the bill though, remains to be seen. The U.S. government has historically been responsible for maintaining navigable waterways, with Congress authorizing projects overseen by the Army Corps of Engineers and appropriating funds. In recent years, federal lawmakers have been slow to approve port work and even slower to appropriate money. President Barack Obama’s fiscal 2016 budget request for the Army Corps’ coastal navigation-channel construction program was $81 million, the least in over a decade, says Jim Walker, director of navigation policy and legislation at the Virginia-based American Association of Port Authorities, in a recent Bloomberg Businessweek article.

 

“The federal government is just funding constrained,” Walker says. “They’re very focused on the deficit and trying to reduce federal spending. The states just see the need to get these investments completed.”

 

Consequently, at least four ports in Florida, Georgia and Texas have decided to foot the bill to deepen federal waterways themselves, a total of almost half a billion dollars, rather than wait years for funds, Businessweek reports.

 

For example, earlier this fall, Florida’s Port Miami finished dredging its waters to 52 feet, making it the deepest port south of Virginia and positioning it as one of the first calls for post-Panamax ships. The $220 million project was funded by state and local dollars after delays in Congress led Governor Rick Scott to say Florida would foot the federal government’s $77 million share and seek reimbursement later, Businessweek reports.

 

Then there’s the Georgia Ports Authority, which has been working for more than a decade on a $700 million harbor deepening along the Savannah River. The state advanced its entire $266 million share, a cost that normally would have been distributed over several years if federal dollars had been at hand, Businessweek reports.

 

The flip side of the coin is that not all ports are ready to pay for construction hoping reimbursement eventually shows up. The Port of Corpus Christi in Texas has gotten approval from Congress to deepen its port to 52 feet. The appropriations from Congress have yet to materialize, and Businessweek reports that the port’s executive director says he has no other choice but to wait for federal money on a project that will cost more than $300 million.

 

Given the potential economic impact, it’s easy to see why port authorities feel compelled to undertake dredging and expansion projects immediately. Not only do they compete with other U.S. ports for shipping business, but Cuba has undertaken a significant construction project to turn the port of Mariel into a regional trading hub. As Port Miami director Kurlya, said in a Miami Herald article, “The bigger the ships, the more cargo, the more jobs.”

 

What impact will some U.S. ports deepening, or not deepening, their harbors have on your company’s supply chain?

 

 

Shortages of natural resources—minerals such as copper, aluminum and mercury—could lead to cascading shocks and eventual instabilities in the global trade system, according to a study published in the journal Science Advances.

 

Mineral resources and rare earth metals in particular, are increasingly important in the production of electronic devices ranging from mobile phones to medical technologies to tanks and missiles. The resources are mined and shipped around the world through increasingly complex global trade networks.

 

“Regional shortages of minerals necessary for the manufacture of modern technologies could ripple throughout the trade system, leading to a sharp increase in the price volatility of such minerals in the global markets,” says Peter Klimek, a researcher at the Medical University of Vienna, who led the study in collaboration with International Institute for Applied Systems Analysis (IIASA) researchers.

 

The study examined trade flows of 71 mineral commodities between 107 countries, using new methodology to assess the systemic risk in commodity trade networks. Minerals produced as byproducts of other processes—for example, rare earth metals produced as a byproduct of phosphorus mining for fertilizer—are the most susceptible to price volatility leading to systemic instabilities, says IIASA Advanced Systems Analysis researcher Stefan Thurner.

 

Some of these high-risk byproducts include gallium and vanadium, produced by aluminum and uranium mining respectively. Another high-risk mineral is tellurium, mined as a byproduct of copper and crucial for manufacturing solar panels, the study notes.

 

“Commodity markets, like financial markets, are highly international and interconnected,” says Thurner. “Understanding these networks gives us a handle to explain and possibly predict a large portion of the instabilities in terms of price volatility in the markets.”

 

In particular, the study points out shortcomings in the management of non-fuel mineral resources that increase the systemic risk, and provides a method for countries to assess their resilience with respect to such rippling network effects. The authors also propose policy measures, such as a tax based on commodity risk that could create more stable markets.

 

This isn’t the first time researchers have noted that a shortage of such minerals and metals could potentially disrupt entire supply chains and economies. In 2012, PricewaterhouseCoopers research noted that the manufacturing, chemicals, automotive, energy/renewable energy, aviation, metals, infrastructure and high-tech hardware industries could all be seriously effected by shortages of minerals and metals. The automotive, chemicals and energy sectors in particular would be hit hardest by what PwC then called, “a ticking time-bomb.”

 

At the time, China, which mined but also used most of the rare earths, had imposed significant quotas to limit their export. It also raised export taxes on rare earths to as much as 25 percent, on top of value-added taxes of 17 percent.

 

Those policies led to market-based responses, involving both supply and demand. For instance, new supplies were already in the pipeline at the time China restricted its exports, partly because countries and companies alike had realized global demand was poised to outpace the output of China’s mines and processing facilities. Furthermore, Siemens, Samsung, Toyota and other major technology manufacturers also began to design products that use fewer rare earths or substitute materials, so demand fell as well.

 

That doesn’t mean, however, that shortages of various minerals couldn’t have a crippling impact on various global supply chains. I look forward to learning more about how countries may assess their resilience to resource shortages, and potentially predict market instability.

 

 

Just over half (51 percent) of North American supply chain executives say developing a sustainable supply chain is a strategic priority for their company, according to the results of a survey by West Monroe Partners, a business and technology consultancy.

 

The study of supply chain executives, conducted in partnership with Loyola University’s Supply and Value Chain Center and BearingPoint, also found that 36 percent of the surveyed executives say their companies have plans to incorporate sustainability into their operations, and 22 percent of that group plan to do so in the next one to three years. Of companies which plan to implement sustainability initiatives, the key motivators are to improve competitive advantage and brand image, according to the respondents.

 

The other side of the coin is that last year, West Monroe conducted a sustainability survey of North American consumers, and found that more than half of them were willing to pay at least five percent higher prices for products ordered online if they’re delivered sustainably, and 76 percent of the consumers would wait at least one extra day for climate-friendly transport.

 

“It’s telling that more companies aren’t implementing sustainable business practices in their operations given the demands of customers,” says Yves Leclerc, managing director at West Monroe Partners. “Most supply chain teams are struggling to manage the complexities of globalization, the war for talent and increasing demands, so allocating budget and resources toward sustainability doesn’t seem feasible unless companies can put together a business case for the return on the investment.”

 

West Monroe Partners, Loyola University Chicago and BearingPoint sought to better understand how North American companies are incorporating sustainable business practices into their operations. To further the analysis, the North American survey’s results were compared against a survey conducted by West Monroe’s global alliance partner, BearingPoint. In Europe, 59 percent of the executives surveyed said developing a sustainable supply chain is already a strategic priority for their company.

 

Like their North American counterparts, European supply chain executives cite brand image improvement as the most important motivator. Innovation was far less important to European respondents than North American respondents (36 percent versus 47 percent). Interestingly, European supply chain executives place the highest importance on the economic impacts of sustainability whereas North American executives prioritize environmental impact.

 

What’s also interesting is the rate of adoption. Writing in Forbes earlier this year, Steve Banker, service director, supply chain management at ARC Advisory Group, pointed out that 72 percent of the companies included in The S&P 500 Index publish sustainability reports, which is up from just under 20 percent of the companies publishing such reports in 2011. Over time, companies’ sustainability efforts become more mature and corporate sustainability goals filter down and become key supply chain goals as well, which makes sense because they are compatible goals, Banker wrote.

 

There are numerous challenges when it comes to considering sustainability as a strategic priority. For instance, respondents to the West Monroe survey had differing ideas of sustainability—some consider basic recycling programs sufficient while others look at carbon footprint. So simply defining sustainability can be challenging. Secondly, since there aren’t regulations mandating action, many organizations can’t get the budget they need to take more meaningful action because there isn’t enough perceived value of sustainability initiatives.

 

What are your thoughts on sustainability? Does your company consider developing a sustainable supply chain to be a strategic priority?

 

 

Women are the largest pool of untapped talent for the supply chain. They represent nearly half of the total U.S. labor force, and earn more than half of the associate’s, bachelor’s and master’s degrees in the U.S. However, they make up less than a third of the workforce in manufacturing. The challenge is to determine how companies can recruit, and retain, female employees.

 

“Minding the Manufacturing Gender Gap: How manufacturers can get their fair share of talented women,” a recent report completed by APICS Supply Chain Council, Deloitte and The Manufacturing Institute, compiles feedback from more than 600 women across manufacturing roles. One of the responses that most stood out for me, is that 26 percent of the respondents rated their companies’ retention efforts as poor or very poor when it comes to retaining female employees.

 

With that number in mind, I was interested to read about two initiatives targeting women in technology and the supply chain. The first, Women of Color in Tech, now offers free stock photos that can be used to make it easier for women of color to picture themselves as software engineers, IT analysts and infosecurity professionals, reports an article that ran in the Chicago Tribune.

 

“When we were creating our website, I noticed that there were few stock images of women of color in professional and technical settings,” says group co-founder Christina Morillo in the article. “So I decided that we should hold a photoshoot made up of women of color who actually work in the tech industry, with the idea that people could use these images in all of their materials. We didn’t want people to experience the same frustration we faced.”

 

The group held the photoshoot, and has released a set of 60 photos featuring women of—as they note—different styles, sizes and skin colors. The women are featured in technology office settings, working at computers, collaborating in teams and reading.

 

“Our ask? That you use these photos to show a different representation of all women in tech,” the group wrote in a blog post, the Tribune article reports.

 

Co-founder Stephanie Morillo, who is not related to Christina, says “The photos are general enough that they work well across a number of industries and can represent people having an interview, a meeting or a brainstorming session every bit as they can about tech education and pair programming.”

 

Although it isn’t new, I was interested to recently read about an initiative at Manhattan Associates, called Women’s Initiative Network (WIN). Originally started as part of Manhattan’s PRISM program focusing on diversity and inclusion, WIN fosters a work environment and culture that supports the company’s talented women in achieving their professional goals, says Connie Taylor, a Manhattan vice president of R&D and one of the program’s executive sponsors in the U.S.

 

“If you look at our industry, historically it’s been a fairly male-dominated field, particularly within areas like warehouse management and software development,” says Taylor. “We launched WIN 18 months ago to provide a forum for women working at Manhattan to network and learn from one another. Plus, the initiative will help us recruit talented, in-demand women.”

 

WIN holds various events throughout the year, such as leadership training sessions, informal meetings to watch and discuss TED talks or more structured panels with invited speakers, Taylor explains. In Atlanta, the group also partners with community organizations and has hosted mentorship days, where high school girls shadowed some Manhattan female employees. WIN has also been a big part of Manhattan’s yearly conference, Momentum, and this an entire track was dedicated to the topic of women in supply chain, Taylor says.

 

I am intrigued by the Women of Color in Tech initiative, and look forward to finding out how often the stock photos are used. I also am interested in reading more about the support WIN offers female employees at Manhattan Associates, as well as providing mentorship for high school girls interested in supply chain careers.

 

Does your company have a program like WIN? If so, how do you think it helps women?

 

 

To be sure, Volkswagen and Takata have their own challenges. As the investigations into Volkswagen’s diesel engines with higher than reported emissions levels and Takata’s exploding airbags continue, it now appears the nature of vehicle testing and the rising amount of fines federal regulators are willing to level are the new normal for the automotive industry.

 

Volkswagen AG, which continues to struggle with the after effects of its admitted cheating on U.S. emissions tests, announced earlier this week that an internal investigation has revealed “unexplained inconsistencies” in the carbon dioxide emissions from 800,000 of its vehicles. This announcement came the day after the U.S. Environmental Protection Agency said it found illegal emissions defeat devices on 3.0 liter diesel engines used in larger Volkswagen sport-utility vehicles such as Porsche’s Cayenne, Audi’s Q5 and Q7, and Audi A6 and A8 sedans. The vehicles the EPA tested reportedly had increased nitrogen-oxide emissions up to nine times the allowable standard.

 

The next day, Volkswagen said it would halt sales of newer model vehicles with 3.0 liter diesel engines while it reviews the new U.S. test data. The stop-sale includes 2013-2016 model-year Volkswagen and Audi vehicles and 2014-2016 Porsche Cayenne sport-utility vehicles. The company says this development could cost it another $2.2 billion.

 

As a result of the Volkswagen investigation, the EPA already announced it will significantly change the way it tests for diesel emissions after being tricked by the software in Volkswagen cars for seven years. In a letter to car manufacturers, the EPA said it will add on-road testing to its regimen, “using driving cycles and conditions that may reasonably be expected to be encountered in normal operation and use, for the purposes of investigating a potential defeat device.”

 

There are also new developments regarding Takata, the maker of millions of potentially faulty airbags that can explode and shoot metal fragments at drivers and passengers. The National Highway Traffic Safety Administration (NHTSA) announced it is levying a penalty of up to $200 million on Takata for failing to disclose the airbag defect to regulators in a timely manner. It’s worth noting that this is the largest civil punishment ever imposed in the auto industry by federal regulators.

 

First, Takata is being fined $70 million, and secondly, the Japanese company could face an additional $130 million penalty if it fails to abide by its consent order with the NHTSA, which includes the appointment of an independent safety monitor. As part of the agreement, Takata is required to phase out the manufacture and sale of inflators that use phase-stabilized ammonium nitrate propellant. Investigators believe the chemical plays a role in contributing to the defect.

 

“For years, Takata has built and sold defective inflators,” said U.S. Transportation Secretary Anthony Foxx. “It refused to acknowledge that they were defective. Delay, misdirection and refusal to acknowledge the truth allowed a serious problem to become a massive crisis.”

 

The amount of Takata’s fine isn’t really surprising, given that regulators issue increasingly aggressive penalties against manufacturers which break auto safety laws. For instance, last year, General Motors was penalized $35 million for not promptly reporting a defective ignition switch. Honda received a $70 million penalty earlier this year, in part, for failing to report hundreds of death and injury claims to the government. Then last summer, Fiat Chrysler agreed to pay as much as $105 million to the government for failing to complete safety recalls.

 

Volkswagen and Takata are under increasing scrutiny from federal regulators, and it now appears, as the EPA and the NHTSA both become more aggressive, that will be the industry norm. Perhaps what’s most interesting isn’t that there are recalls, because that’s to be expected given the increasing complexity of modern vehicles. Instead, what stands out to me anyway, is that fines rapidly climb for companies that are aware of defects but don’t respond promptly. What’s more, when automotive companies are aware of defects but deny it, the fines are even higher. Frankly, that seems fair.

 

What are your thoughts on either of these companies, recalls, or fines for delayed recalls?