I interviewed Andrea Stroud who discussed Supply Chain Visibility and Risk Management.
It’s great to speak with you today, Andrea, and I look forward to hearing your views on supply chain visibility and risk. Can you start by providing a brief background of yourself?
Absolutely, Dustin. I’m Andrea Stroud. I’m a research program manager with APQC; it’s a Houston-based nonprofit that focuses on benchmarking and best practice business research. My focus is on conducting supply chain management research and uncovering and sharing benchmarks and best practices so organizations can use the information to help with their business decisions.
Thank you. My first question is: Why is supply chain visibility such an important topic for organizations?
Without question, supply chain visibility is a requirement for any company competing in today’s global marketplace. Supply chain visibility is an important topic for organizations because it provides an in-depth look at an organization’s inventory, the location and materials at any point in time, supplier processes and patterns that allow for predictability, as well as the ability to respond if patterns happen to change, because, oftentimes, they do. Supply chain visibility also ensures that everyone is working from the same page because it offers real-time collaboration between retailers and suppliers.
What are the benefits of having a visible supply chain?
A visible supply chain can offer many benefits. Some of the benefits include helping organizations improve performance and costs by helping to identify supply chain inefficiencies. For instance, when bottlenecks or disruptions are identified in the supply chain, organizations have the ability to source additional resources. Visible supply chains also help organizations establish better supplier relationships. Organizations may find that during a supply chain disruption, having good relationships will actually make it easier to find the alternative resources that they need. This, in fact, increases network responsiveness, which can help organizations predict the estimated time a delivery will arrive to customers. Organizations want to know when an arrival’s going to happen. If it’s going to be late, they need to know, and if they can find a way to mitigate the possibility of it being late, then they need to do so.
Can you talk about some of the steps that companies are taking to improve their supply chain visibility?
Many organizations find themselves asking how can they obtain greater supply chain visibility. Two steps that we have seen in our research here at APQC include establishing supplier relationships, as I mentioned earlier, and creating alert systems. A good example of this can actually be seen from ATMI—a provider of technologies for the semiconductor life science and flat panel display industries, and a best practice organization in APQC’s Supplier Category Management Study. ATMI developed a proprietary system that provides greater visibility into the origin of its materials, and they did this by creating an alert system using information from multiple tiers of suppliers. The alert system tracks the components of ATMI’s top revenue-generating products down to the base elements, providing the company with a clear picture of where the components come from and what the components contain. This is great because if a disruption occurs, the organization is quickly alerted if any of its suppliers or even its suppliers’ suppliers had been affected. This, in turn, enables the organization to quickly find alternative sources of materials if necessary. Innovative solutions much like the alert system implemented by ATMI will be needed for companies if they want to have greater visibility into their supply chains.
Is there a link between supply chain visibility and an effective supply chain risk-management program?
The more visibility organizations have in their supply chain, the better they’re going to be able to identify and manage possible supply chain risks. Organizations can’t maintain effective risk programs without access to the key information about their suppliers. Organizations actually need to be able to quickly respond to disruptions and have that key information that makes it possible. It’s kind of uncanny how many companies lack visibility of their suppliers beyond the first tier. As part of one of APQC’s recent study, Managing Risk of Supply Chain Disruption, we actually found that the majority of participating organizations identified having poor visibility into risk factors among tier-two and tier-three suppliers as the top obstacle of their supply chain risk management program.
How are organizations addressing risk with their suppliers?
Organizations are addressing risk with their suppliers by conducting risk assessments of key suppliers. In the previously mentioned Risk Study, APQC member, Baker Hughes, a global oilfield services company provided information on how it monitors the financial health of its Tier 2 and Tier 3 suppliers. Baker Hughes makes it a common practice to audit its key suppliers, and evaluating any possible risks that could occur. Baker Hughes has 100 percent oversight for its public suppliers and 95 percent oversight for its private suppliers. The company accomplishes this audit by contracting with a third-party financial evaluator to obtain information from its private suppliers.
In our Risk Study we found that the majority of organizations with key supply chain partners in areas of the world known for high-impact natural disasters, like extreme weather, political turmoil, they actually conduct formal risk assessments of their key suppliers. By key suppliers, I’m actually talking about the strategic and critical suppliers. To adequately mitigate the disruption risk, it’s important for organizations to conduct regular supplier assessments; I can’t stress that enough. We found that organizations that never conduct such assessments or conduct assessments sporadically open themselves up to greater risk of disruption and, potentially, a slower recovery from that disruption.
We’ve also found that the majority of organizations that conduct formal risk assessments of key suppliers at least annually tend to also conduct more in-depth assessments that review their suppliers’ compliance with local labor laws, safety procedures, financial health, and process quality.
Organizations we found, they use multiple methods of assessing potential threats to supply chain resiliency. Almost half of the organizations that we looked at in our Risk Study rely on informal procedures; for example, site inspections or conversations with suppliers’ managers to assess potential threats. But the problem with organizations that aren’t conducting formal assessments of potential threats is the fact that it puts their mitigation strategies at a much greater risk of failure during an actual disruption.
The main thing I want people to walk away with understanding is that there is a great benefit for a visible supply chain and the need for organizations to conduct formal assessments and not just for their tier-one suppliers, but also their tier-two and tier-three suppliers.
Thank you, Andrea, for sharing your views today on supply chain visibility and risk.
Dustin, thank you for speaking with me about this very important topic on supply chain visibility. Please let your listeners know that I’m happy to answer any questions and to discuss this topic further. I can be contacted at email@example.com.
About Andrea Stroud
Research Program Manager APQC