In November 2015 Zurich Insurance Group Ltd. Issued its third annual global SME (Small and Medium Enterprises) survey focused on supply chain risks.*
Nick Wildgoose, Global Supply Chain Product Leader at Zurich Insurance Group, commented: “As discovered recently in the report supported by Zurich and the Business Continuity Institute, [although] there are high levels of supply disruption, seven out of 10 organizations admit to not having visibility over their full supply chain, and half of the disruptions occur below the first level of supplier. This makes us believe that SMEs probably underestimate their supply chains risk exposure, and we urge them to reassess this.”
Perception vs. Reality
As implied above, the reality of the risks associated with supply chains exceeds the perception of that risk in the companies that were surveyed. It’s important to consider whether your company may be part of the seventy percent that is subjecting itself to such exposure when there are known, cost-effective solutions (not requiring the revamping of current infrastructure) to close these gaps.
Out of Sight
One reason for the misperception is the lack of visibility into the supply chain on which the company is depending. Companies often have no sense of what happens “behind the curtain” of their first tier suppliers, and the degree to which all the links may create unforeseen vulnerabilities. The links multiply exponentially, increasing the risk exponentially as well.
“Chain” usually conjures the image of a strong, flexible, metal object. This is a metaphor only, and this mirage can easily create a gap in management with serious consequences.
Far from having real the kind of substance and constancy that metal implies, manufacturing across a supply chain calls to mind metaphors closer to an intricate multi-ring, multi-tier performance by the brilliant Cirque du Soleil.
Imagine the trapeze artists, for example, needing to rely on others’ performance to catch them in another ring, and one tier down or up, without actually being able to see them.
One way of improving our perception of the risk is by translating the names of companies, which are all comforting nouns into something more closely resembling reality, i.e., into verbs. The Six Sigma equation can help us with that: Y = f(x) + e Y = f(X) + ε, where
- Y is the outcome(s) or result(s) you desire or need.
- X represents the inputs, factors, or pieces necessary to create the outcome(s)
- f is the function, the way or process by which the inputs are transformed into the outcome.
- ε is the presence of an error, or uncertainty surrounding how accurately the Xs are transformed to create the outcome.
If we consider that probabilities are calculated by multiplying them, rather than by averaging them, then we can also see that in any given chain, with any two suppliers, even if they both meet specifications at 99%, the result of the two processes is not 99%, it is 98.01%.
If the next supplier along any one of these chains shown above is added to the previous two and also achieves 99%, the result of all three will be 97.02%, and so on.
Adjusting the perception of risk to fit reality more closely is vital. The more complex the chain, the more important it is to assess (or re-assess) the gaps that may at some point threaten your company.
The first step in meeting this challenge must be visibility. It’s impossible to manage anything that can’t be seen.
Out of Mind
Once the company addresses the issue of supply chain visibility, a new set of challenges presents itself:
- How to gather the information;
- How to integrate the new information into the company’s management processes;
- How to keep the most useful information “in mind” at the proper intervals, at the appropriate level of resolution and at the right level in the organization: information management.
In other words, the company needs to work out the following: Who needs to know? What do they need to know? How often do they need to know it? And if there is a breakdown, who should be informed of the breakdown?
“In Mind” Means Knowledge, not just Information
Achieving visibility, and then maintaining the flow of information so that it is knowledge rather than simply information that is flowing into various data repositories inside the company, requires a careful selection of tools and procedures.
Simply storing information can be done through document management, including paper documents. The challenge when using a paper-based process is that it is difficult to quickly turn that information into knowledge. The very nature of the “document management” approach is that it creates a barrier to speed. The result is that there may be troves of information, but it may not be actionable enough for proactive behavior.
At a recent industry conference, our “Supply Chain Vulnerabilities” session revealed several areas of concern, but the main multi-industry issue was the lack of documentation of key materials, their suppliers and their route to finished products in the marketplace.
Out of Control
What turns a simple problem of material variability flowing through the supply chain into a disaster is the element of time. A process goes out of control, with sub-standard materials reaching the final customer, because it was not noticed and acted upon at the point of origin. It wasn’t caught in time to prevent a cascade of events that have sometimes resulted in people’s deaths.
Control is About Time
Reactive behavior is much “slower” when compared with a proactive approach. The overarching question then is: how efficiently (with no delays) and effectively (identifying the right issue at the right time) can the company achieve the necessary level of control over its supply chain?
How can it achieve this control over quality, while also controlling costs, without disruption of its operations?
The more far-flung the supply chain, the more important is the efficiency of data gathering and its transformation into actionable knowledge for the company. The inverse is also true: each instance in which substandard material is allowed to pass from one tier to the next, thereby contaminating the next process or sub-assembly, the more costly the result of the missed opportunity to exert control. In some industries, this checkpoint QA is more than a “missed opportunity.” It is a duty and/or a legal responsibility.
EMNS has dealt with this scenario for years and provides GSQA, which offers the data management and automation for supply chain visibility of multiple layers/tiers in a company’s supply chain to reduce the risk of vulnerabilities for certification non-compliance and material variability. Most EMNS customers manage material validation, material variability and certification compliance every day across supply chains of known/documented suppliers by plant location, not just company name/HQ. Several GSQA modules are employed. To focus only on supply chain transparency, GSQA provides the supply chain definition module that includes supplier and sub-supplier onboarding automation, graphical charting of relationships and Google-map reports for really seeing what the supply chain is all about.