I interviewed Rick Kovac who discussed Supply Chain Risk Management.
Can you first provide a brief background of yourself?
Dustin, I've worked across all those 50 restaurant brands — that includes the likes of McDonald's, Burger King, KFC, Pizza Hut, Taco Bell, Cheesecake Factory, PF Chang's, Pei Wei, Shake Shack, and many others. Those have been based in Asia, Australia, Middle East, US, and Europe.
In regards to supply chain, probably the largest supply chain that I've managed has been about a billion dollars in purchases, and we store some 30,000 SKUs from over a hundred countries and a total of about 3,000 suppliers. So a fairly large supply chain to try to manage. I've been quite fortunate to actually have lived in many countries overseas as well. So I've had about 30 years of not living in the States where I originally started. So that's a quick and simple background.
Can you talk about some of your experience with supply chain risk management?
Yes, I can, I think a lot of companies don't actually have a standard in place in regards to supply chain risk management. So some of the larger ones — the likes of McDonald's and Burger King — will have in place standards for risk management. So you'll have backup suppliers. You'll actually test those backup suppliers on a regular basis to ensure they can actually fill the void if your regular supplier is not able to supply. But many other businesses really kind of talk about risk management but don't have the standards in place. So I've worked for some companies that their risk management was to ask a supplier what would happen if they were unable to supply. And the supplier said, "Oh, we can shift it to another factory." And they would put the tick in the box that supply was covered in the event that the factory was unable to supply.Nobody ever tested the theory. Could the other factory supply? Did the other factory have the equipment? Did the other factory...they may not even have had forming molds.
I've had some instances where companies have done that, and they found out their backup supply was capable, but their backup supply took four, five, or six months to actually become capable because they didn't have the right piece of equipment or they didn't have some of the forming molds in place. And so those needed to be ordered and everything else.
I think risk management in a business needs to be important, but, more importantly, it needs to be positioned to be something that the business talks about on a regular basis and put some standards in place.
How it's done effectively?
I think, Dustin, probably one of the best examples of "effectively" is actually to kind of rank your suppliers, in a sense, A, B, and C. So most critical, obviously, falls in the A [inaudible 4:05] the kind of [inaudible 4:06] the supplier C.So somebody supplying plastic gloves to your business or garbage bags to your business may fall into that C category. Somebody supplying corrugated boxes may fall into the B category. But if you're somebody like McDonald's, for instance, or Burger King or KFC, somebody supplying your French fries may fall into that A category.
Once you've got them in the categories, then you go through and you talk about how you manage that risk. Within the A category, it may very well be I've got a backup supplier, and I need that backup supplier to actually produce product for me their times in a year. So that way, if your supplier falls over, not only is your backup supplier proving to you they have to right equipment, they're proving to you that they could actually provide the product at the standards that you want, and they're not trying to fill in a void and also learn how to make your product at the same time. So I think that's probably what you want to do for your A levels.
For your B levels, it may be just simply saying, if the corrugated supplier can't supply us, we've got a list of four or five others that we can go talk to and get them to provide that product.
In regards to a C, you'd probably just have a nice list of C suppliers to say, if my garbage bag supplier calls me up and says, "I can't supply," who's next on the list to call and get product from?
So I think something as simple as that will keep you covered. If you're a much larger, international business such as McDonald's, then you need to have some understanding that if the US is supplying product to the UK, for instance, not only does the US need to make that as a backup supply but also go through the process of shipping it to the UK so that you've got your shipping lines backed up, in a sense, as well.
Do you have any final recommendations regarding supply chain risk management?
Yeah, I do, Dustin. It's simple. It's you should plan and prepare because, unfortunately, a supplier not being able to supply you isn't something you can kind of work into your daily plan. And the business anticipates that you'll have continuous supply.
So a very good example is the business I'm working at the moment. They had a supplier that provided glass jars to them. And the supplier called up on a Friday and said, "We're actually going to shut down our factory for three months. So hopefully you have enough stock."
Nobody planned a backup. That supplier didn't send anybody a note a month before, two months before, or three months before. They called on the Friday to say, "We're closing today for the next three months while we do some refurbishment to the factory." So that left the business without any kind of backup supplier and everybody frantically on the phone saying, we've only got about a week's worth of stock of glass bottles, because glass bottles take up a lot of space in your warehouse. How do we try to hurry up and get some glass bottles so we can keep producing and not shut down ourselves for three months?
And that's a classic example of not preparing and not preparing for an A-level supplier. And it's important that you make sure you prepare for your A-level suppliers. Your Bs and Cs, you got a little more flexibility. But your A's, if your business is filling glass bottles with a product, and you have no glass bottles, then, obviously, you can't do much business.
Thanks for sharing today, Richard.
Since you're like being a Boy Scout, if you were ever in the Boy Scouts, you always need to be prepared and plan ahead and make sure those critical products, you've got some kind of viable backup in the event that that supplier has some issues.
About Rick Kovac
Senior Executive - Global Experience in Operations, Supply Chain, Procurement and Distribution