‘In any busi­ness it is cru­cial to know your full sup­ply chain’

Yorkshire Post - Business - - FRONT PAGE - Rashmi Dubé

Sup­ply chain is ter­mi­nol­ogy that is thrown around in busi­ness and is a term that most peo­ple in busi­ness use, openly and with­out real thought be­ing ap­plied to it.

It’s used in meet­ings, board dis­cus­sions and in their busi­ness plans. How­ever, when ques­tioned very few peo­ple re­ally un­der­stand who their sup­ply chain is and the real im­pli­ca­tions a sup­ply chain has on their busi­ness. When speak­ing to num­ber of busi­nesses in York­shire, I asked if they knew their sup­ply chain, and many re­sponded with a re­sound­ing yes – which was great to hear. How­ever, when I dug deeper, I dis­cov­ered they only re­ally knew their im­me­di­ate sup­plier and never felt they needed to ques­tion be­yond that.

In any busi­ness it is cru­cial from the dis­as­ter re­cov­ery per­cep­tive but also from an eth­i­cal point of view to know your full sup­ply chain. Given that in to­day’s world, sup­ply chains are so in­ter­con­nected and com­plex the slight­est dis­rup­tion can have a catastrophic im­pact on the busi­ness.

So how does the sup­ply chain work on a ba­sic level? Let us take re­tail as an ex­am­ple. In or­der to ser­vice a cus­tomer, the re­tailer will rely upon a net­work of en­ti­ties, di­rectly or in­di­rectly in­ter­linked and in­ter­de­pen­dent. In this ex­am­ple, the sup­ply chain is likely to start with the sup­ply of raw ma­te­rial, say cot­ton. This will be pur­chased by an­other en­tity that will process that raw ma­te­rial and make it into cloth, which is then some­times then sourced by an­other en­tity who be­come the whole­salers of the cloth.

The whole­salers, in turn, will sup­ply it to the fac­to­ries who make the gar­ment which is then sold to the re­tailer and then even­tu­ally the con­sumer. This can be ap­plied to any busi­ness. Break any part of that cy­cle and we have a prob­lem.

How is the sup­ply chain of­ten viewed? “The sup­ply chain will ul­ti­mately be mea­sured on its abil­ity to pro­duce bot­tom­line re­sults... How­ever, with sig­nif­i­cantly in­creased in­put costs, re­ly­ing only on th­ese mea­sures can mask true sup­ply chain per­for­mance.” Mark Sut­ton, se­nior vice pres­i­dent, Global Sup­ply Chain, In­ter­na­tional Pa­per.

Ac­cord­ing to a re­cent IBM pa­per. ‘The Smarter Sup­ply Chain of the Fu­ture’, the key chal­lenges faced by most busi­nesses in a sup­ply chain are:

Cost con­tain­ment – try­ing to limit cost is prov­ing dif­fi­cult in a global net­work and be­ing able to adapt.

Vis­i­bil­ity – this proves to be low on the agenda for most busi­nesses and those that at­tempt to ad­dress this find re­sis­tance. Vis­i­bil­ity of your en­tire sup­ply chain is cru­cial.

If dis­as­ter strikes you will know how and where to plug any hole within the sup­ply chain. Equally as im­por­tant is to un­der­stand the ethics and en­vi­ron­men­tal im­pact of the sup­ply chain.

Risk man­age­ment – this in con­trast ranks very highly with com­pa­nies. If the sup­ply chain is fully un­der­stood, as a busi­ness, you can re­act a lot quicker if one as­pect of your chain is in trou­ble.

Glob­al­i­sa­tion – has had a neg­a­tive ef­fect on the sup­ply chain. “Con­trary to ini­tial ra­tio­nale, glob­al­i­sa­tion has proven to be more about rev­enue growth than cost sav­ings.” IBM

What hap­pens when tragedy strikes caus­ing a dis­rup­tion in the sup­ply chain? We have seen the re­cent dis­rupted sup­ply chain with KFC who had to close 900 out­lets as a re­sult of bring­ing in a new sup­plier who was ex­pe­ri­enc­ing “teething” prob­lems. The dam­age KFC in­curred was to their brand, cus­tomer loss, loss of rev­enue, hav­ing to con­tinue to pay staff, and hav­ing to deal with the me­dia.

It was es­ti­mated that their over­all loss was £1m per day. I could un­der­stand that as a reader you may be sym­pa­thetic and say well it was not their fault, that the sup­plier let them down. How­ever, some­one within KFC failed to un­der­stand risk and they should have had sys­tems in place just for this con­tin­gency.

A more se­ri­ous con­se­quence took place in March 2000. They were two of the dom­i­nant play­ers in the mo­bile tele­phone in­dus­try, namely Nokia in Fin­land and Ericsson

in Swe­den. At the time the top three con­tenders for mar­ket lead­er­ship were

Nokia, Ericsson and Mo­torola.

The de­mand was on the in­crease for mo­biles, the mar­ket was ripe. Phillips was the sup­plier of mo­bile chips to both Nokia and Ericsson.

Na­ture had other plans. As a re­sult of a light­ning strike to a power line the power went out at the Phillips plant and the cool­ing fans shut down, even­tu­ally caus­ing a fire. Phillips had stated that they did not ex­pect pro­duc­tion to be off­line for more than a week. How each com­pany re­acted was dif­fer­ent and had a last­ing im­pact on their busi­ness.

Nokia had kept their sup­ply chain vis­i­ble and un­der­stood the risk and there­fore acted quickly. As a busi­ness Nokia had al­ready an­tic­i­pated that at some point there was go­ing to be a short­age of sup­ply of chips and had al­ready lined up a num­ber of smaller sup­pli­ers.

Ericsson, on the other hand, de­layed in re­lay­ing the in­for­ma­tion in­ter­nally. It took three weeks for any­one to ap­pre­ci­ate the full im­pact of what had hap­pened. By the time Ericsson re­acted it was too late. They had to delay the launch of their new phone es­ti­mat­ing a di­rect loss of £400m.

There­fore the top tips would be: Carry out a risk as­sess­ment of your sup­ply chain and en­sure that the whole chain is vis­i­ble

Pri­ori­tise ar­eas and en­sure that you have a dis­as­ter re­cov­ery plan in place

Have back-ups in place.

Gather in­for­ma­tion from the sup­pli­ers – who are their sup­pli­ers and be open as to why you need the in­for­ma­tion.

Don’t al­low your busi­ness to be­come vul­ner­a­ble!

BREAK­DOWN:KFC failed to un­der­stand the sup­ply chain risk and they should have had sys­tems in place for such a con­tin­gency.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.