Why CPO’s Get Upset Watching The News

Decrease Font Size Increase Font Size Text Size Print This Page Send by Email

What you own you control, but big corporations no longer own large chunks of their production process, or supply chain. They are increasingly dependent on outside actors for their success and are vulnerable to a new array of risks as a result.

Resilience and Risk Management

Global supply chains mean that organizations are dependent on key suppliers often located half way around the world. However as many companies have learned to their cost, they are also dependent on long list of sub-suppliers – many of which they may never have met.

While corporations have been in a race to outsource manufacturing, they cannot outsource responsibility in the eyes of regulators, consumers, or investors for their products and how they are produced.

For example in 2008 Mattel suffered major reputational damage, combined with hefty fines, as a result of lead paint (supplied by an otherwise insignificant sub-supplier) finding its way into its toys. Incidentally, that was just one of just under 400 product recalls by the US Consumer Product Safety Commission in that year.

Risk Becomes Global

Procurement professionals must take risk very seriously. You and I watch the news at night to learn of civil unrest, earth quakes and tsunamis around the globe. Although sad, at times even distressing, these events have little direct impact on our lives.

For the professional buyer the story is very different – any of these events could have an impact on the global supply chain. For example the Tsunami in Japan or the floods in Thailand could halt production by a key supplier causing customer shipments to be delayed and results for the quarter to be hit.

For Emerson the Thai flooding turned 2011 into what its CEO described as ‘one of the most difficulty in its history’, with an estimated hit of up to 400 million on sales in just one quarter.

But the list of potential disruptions to the global supply chain is a long one, including; strikes, transport failures, customs or tax changes, public health scares and so on. There are few insurance policies to cover such calamities.

Risk Management

A top business priority is the building of resilience into the supply chain and that requires risk management plans for all important suppliers, markets and materials. That is exactly what Emerson’s CEO has set about doing: “We are building the most robust supply chain in the entire industry.” The company is currently risk-mitigating all of its facilities, products, and key components against future supply chain threats.

Related to the issue of risk is that of supply chain visibility – an increasing requirement for consumer interest groups as well as many investors. In many industries product traceability through the extended supply chain is now mandated.

Because these issues are driving buyers they must drive sellers too. Sellers must present themselves as the low risk alternative. They must help buyers to manage risk, putting recovery plans in place in the event of disaster and otherwise building resilience into the supply chain.