Mitigating Your Supply Chain Risk: Part Three
The only thing more important than strategizing your business’s supply chain is taking the steps needed to ensure that your supply chain is thorough, safe, and secure against a wide range of problems and threats. As President and co-founder of supply chain solutions provider INSIGHT Inc, Dr. Jeff Karrenbauer is an expert on all things related to assessing your supply chain risk and learning how to mitigate that risk effectively. In our first installment we asked Dr. Karrenbauer why planning is so important; we followed up with today’s biggest supply chain risks and why businesses fail to plan. Today we learn about the first steps a business can take to start assessing their supply chain right now.
Food Digital: So what can a business start doing tomorrow to begin strategizing and safeguarding itself against supply chain risk issues?
Dr. Jeff Karrenbauer: The first thing is to conduct a very careful audit of your vulnerabilities – and you’ve got to know how to do that. The first thing to do is to commit to saying that this is a serious issue and we’re going to look at it. We’re not going to wait until two years from now – because it’s never going to be ‘the right time,’ you’re never going to be not busy.
To me, the way to do it from a supply chain standpoint is with a very well understood tool. (Yes, we are a vendor, but we’re not the only one.) It’s called a network design model, a strategic supply chain design model. It’s a very well understood mathematical model, and for a manufacturer (if it’s done right) it starts at the source of raw materials acquisition, ends with customers, and includes everything in between – procurement, duties, taxes, ports, everything.
That tool’s primary purpose is redesigning the supply chain. How many warehouses should I have and where should they be? Where should I manufacture? Should I outsource, in light of the entire supply chain and not just labor costs? How do I allocate limited capacity? Which ports should I use?
One of the uses of a tool like that is to start doing war gaming and say: all right, forget that plant. You don’t have it anymore. Forget these ports, forget that distribution center, forget that transportation link – it’s gone. Now, you still have to get that demand satisfied. How are you going to do it?
You impose additional constraints. Sometimes they’re capacity constraints and sometimes they’re more draconian. You just lost that facility. Now what are you going to do? There’s a demand. You’ve got to satisfy it. Tell me how, but you can’t use this guy. Maybe it comes back and says: I can’t without it. That’s good to know! I’ve got a critical facility there, what am I doing about it? Maybe that’s where I need to be redundant. With a tool like that, start sayingwhat-if? It’s war gaming with advanced analytics.
By the way, advanced analytics do not include spreadsheets. Spreadsheets do arithmetic. I could put a formula in that cell. Yeah, that’s called arithmetic. I can sort a column! Okay, so can I on my living room floor with enough time. They’re nice tools, but we’ve gotten to the point where people call that advanced analytics and it’s not. Period. It’s not ever going to be. But that’s the only tool that so many of our graduates come out knowing. There’s the old adage – when all you have is a hammer, everything looks like a nail or you make it look like a nail. So you get some analytical abuse. But this is not spreadsheet stuff: this is much more powerful than that.
Whether you use Insight or not, whether you use tools like that or not, this demands: A) the commitment, and B) the adoption of advanced analytics that are up to the task of looking at the design, or the alternate design in the face of pressure, of your supply chain.
And you’ve got to look at the whole thing. By that I mean the whole supply chain. If you’re really going to do risk analysis, you can’t partition it off and just worry about the ports or certifying the financial stability of your suppliers. That’s not good enough. I’ve seen people say that’s my contingency planning, I went out and made sure my suppliers are still viable. That’s important! I don’t mean to denigrate that, but it’s not enough. You’ve got to look up and down.