Information Technology

Factors for Successfully Managing Supply Chain Risks Part 5

This blog post is the continuation of our Identifying the Factors for Successfully Managing Supply Chain Risks research post. Our recent study to better understand supply chain risks focused on the structure, implementation, and maintenance of a formal system for managing risks in the supply chain.  These factors included: Corporate Strategy, 2) Supply Chain Organization,  Process Management, Performance Metrics, and  Information & Technology. We will now further explore Factor 5 Information & Technology.

Factor 5:

Information & Technology

In this study, firms had information of what goes on in other parts of the supply chain. An issue on information was not suggested as it was asked on a 1 to 7 scale (not satisfied to very satisfied), How satisfied are you with your supply chain group’s performance on “Visibility” (detailed knowledge of what goes on in other parts of the supply chain – e.g., finished goods inventory, material inventory, WIP, pipeline inventory, actual demands and forecasts, production plans, capacity, yields, and order status). The mean was modestly high (4.26) with a very small amount of variance, as was their agreement that their company uses real-time inventory information and analytics in managing the supply chain. Furthermore, the questions were also asked on 1 to 7 scale (not used to extensively used), To what extent are the following used in managing your supply chain and risks within it: 1) Information gathering; and 2) Establishing good communications with suppliers. The means for both questions were very high (well above 5.00) and had small amounts of variance.  In this study also, information delays, scarcity, sharing, & infrastructure breakdown was seen overwhelmingly as one of the lowest rated risk factors both currently and for the future.

These findings are not surprising given that firms in this study showed that a wide variety of information-based technology and applications are being spent for their SCM efforts (e.g., ERP configuration systems, electronics reverse auctioning, radio frequency identification, Collaborative Planning Forecasting and Replenishment – CPFR, etc.), but very few firms showed that their technologies are being used to support risk considerations. Respondents agreed that the key to improved supply chain visibility was sharing information among supply chain members. However, there was only one company that demonstrated an increased focus on inventory optimization to deal with the risk of out-of-stocks or to buffer against the increased risk of supply disruptions. The role of supply network design and optimizations tools is still evolving on the SCM side.

Few of the firms used technology applications to do the following (with the exception of the 3 electronics and 1 food manufacturer): joint technology development initiatives, data warehousing, network design analysis programs, demand signal repositories, inventory optimization tools, and forecasting techniques (e.g., to pre-build & carry additional inventory of critical items). These techniques would be useful in managing risk and continuity with regard to new product launches as might be more required for electronics manufacturers than say automotive. These firms were more inclined to embrace techniques such as scenario planning and capacity modeling.

The firms in this study did not use their technology to evaluate their supply chain networks and lacked disciplined network-analysis programs. The more advanced firms in this study did leverage their technology to periodically assess strategic decisions about where to locate distribution centers and manufacturing capacity. They did look at what network design would allow them to service customer demand at the lowest cost and risk. None of them however were using network-design tools in innovative ways such as modeling the networks of their key competitors to test various scenarios and to perform frequent what-if analysis. None were also employing network-design tools to assess risks in the design of the network or even using simulation techniques to test network-configuration options.

Most of the technology supported the following SCM applications for the purposes of managing risk: information gathering, partnership formation and long-term agreements, supplier development initiatives, supplier performance measurement systems, consistent monitoring and auditing of a supplier’s processes, using an approved list of suppliers, visiting supplier operations, establishing good communications with suppliers, inventory management (buffers, safety stock levels, optimal order & production qty.), spend management and analysis, credit and financial data analysis, business process management, contract mgmt (e.g., leverage tools to monitor performance against commitments), and contingency planning (jointly with suppliers).

Overall, the firms in this study did not engage in proactive modeling exercises as part of a concerted sales and operations planning process. As an example, they lacked a strong what-if capability and could not do cost versus delivery trade-offs.   It was agreed though that internet-based systems will become the common platform for supply chain integration and that the use of supply chain planning software will increase dramatically.

Concluding Comments:

Managers agreed that without a systematic analysis technique to assess risk, much can go wrong in a supply chain (i.e., unexpected cost, extended lead times, poor quality, or numerous other negative performance variables). Analyzing the risk associated with SCM is a relatively new subject, and little has been done to assist managers with this process. But one thing is certain, documenting and analyzing risk must be an essential part of continuous improvement. It becomes critical to have an easily understood method to identify and manage risk.

FMEA is a mainstream tool used to collect information related to risk management decisions for most companies in an engineering capacity, but not in a supply chain capacity. There were several documented procedures to complete a FMEA across industries in this study, especially in automotive. Most managers supported a modified version of the tool that could be used to help evaluate the risk of SCM decisions. For several of the firms in this study, FMEA is a well documented and proven technique commonly used to evaluate the risk for failures in product and process designs. SCM decisions can be evaluated in much the same manner as product and process defects.

While many factors have been cited as influencing the predisposition towards having a system for managing risks in the supply chain, certain factors were identified as having a critical impact on predisposition and progress towards this. These factors included: Corporate Strategy, Supply Chain Organization, Process Management, Performance Metrics, and Information & Technology. These factors describe a situation where the respondents saw managing supply chain risks as an extension of SCM. They also describe a situation in which respondents recognized that success with managing risks requires cross-functional teams and cooperation. There seems to be recognition that succeeding requires more than simply introducing a new program or department. Rather, it is an undertaking that requires the participation of multiple parties working together. It is argued that these various factors act to pre-condition the firm and its systems to the introduction, acceptance, and progress on managing risks in the supply chain.

We hope Part 5 of the research study helps shed light on the Information & Technology Factor and summarizes the 5 Factors for Successfully Managing Supply Chain Risks.