Supply Chain Resilience

Season 1, Episode 5: Managing Multiple Disasters discusses best practices in supply chain resilience. Join Manager of Advisory Services Kim Hirsch and Senior Advisory Consultant Steven Greenstein for a back to the basics discussion. In this episode, you will learn about preparation, simulations, and exercise; being cautious of employee burnout; and key resource planning. Learn more about Fusion Risk Management and see how technology can help with the basics. Discover what's possible and request a demo!

Transcript

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Kim Hirsch (00:00):
Welcome back to Building a More Resilient world, sponsored by Fusion Risk Management. This podcast is where we discuss the basics of business continuity and risk management. Today, we're going to talk about supply chains and how solid business continuity and risk planning can help you to ensure that you understand which vendors your organization relies on and what to do if they fail you. Today we're talking with Steve Greenstein, a senior advisory consultant at Fusion. My name is Kim Hirsh, manager of the advisory services team. Remember, most of the people on our team have been practitioners, so we ran our own programs at companies like yours, and we faced many of the same challenges that you're likely expected to solve for every day. So, first of all, thanks for being here today, Steve.

Steve Greenstein (00:39):
Thank you, Kim. I'm looking forward to it.

Kim Hirsch (00:41):
So, first, let's define exactly what we're discussing. When we talk about planning for supply chain outages, what does that really mean?

Steve Greenstein (00:48):
If you think about an organizational structure and how it services goods and services through either professional services or product, you have to worry about your extension of your organization and what would happen if a very key part of your supply chain for delivering those services or goods or products was disrupted. So the focus really is, how do we know and what can we do to prepare against those types of outages? Because they can be very disruptive. And in some instance of crippling, there are several instances that I've come across in my professional career that I usually talk about. One that wasn't too far along ago was the Ford Motor Company production of its F-150s. When there was a sole source magnesium supplier that they counted on for all the F-150 productions, and that particular supplier had a major fire, their production of the F-150 stopped. Matter of fact, they didn't produce trucks back, I think, in May 2018 for over a week, which basically cost them over $60 million in profits loss. So that's a good indication of a sole source and a very key disruption to a supply chain.

Kim Hirsch (02:02):
Yeah, I think that's a great example. When I was in a procurement organization before going into business continuity, um, one of the things that we always counsel people against was having sole source suppliers. Um, but it's kind of common to find that, isn't it?

Steve Greenstein (02:17):
Yeah, unfortunately it is. Another one that is something that came up not too long ago, it was with Kentucky Fried Chicken. They actually switched over their logistics and systems infrastructure partners because they wanted to do a just-in-time chicken delivery to all the stores. And unfortunately that didn't go a way they wanted it to go. And so they actually, specially in the UK, had to close down hundreds and hundreds of stores because they couldn't get the chickens that they had just tried to advance to the stores just in time, just in time. So things like that do happen, and it could be crippling.

Kim Hirsch (02:54):
Yeah. If you can't have chicken, you're probably not going to be able to do much with the chicken store, are you?

Steve Greenstein (03:00):
Nope. That's true.

Kim Hirsch (03:02):
Okay, so let's talk about, you know, one of the often quoted phrases around supply chains and is one that I use a lot, comes from, uh, some FFIC guidance a few years ago that talked about how you can't outsource risk. You know, I think that's very true. Customers are going to blame you when they can't buy your product, not that third party supplier, so how can companies plan for this eventuality when it kind of seems like it might be outside of their control?

Steve Greenstein (03:26):
That's a great point. And yes, it is very true. The end consumer will always look to that last person they had purchased, what transacted with, they don't look back into that supply chain. So yes, situational awareness and understanding what you have in place in your ecosystem of supply chain is paramount. Really, having that close relationship, understanding, and communicating regularly with those very key critical suppliers is of paramount importance because at the end of the day, the buck stops with you, and you cannot go back in time and try to pass off your responsibility to delivering that service or product or goods. So, yeah, that is a true thing. The thing that I usually tell our clients about is that, what you just mentioned is going to eventually happen. There's no doubt about it. We live in a world full of peril and risks and threats, and it's impossible to prepare for all of them, but we should know who our linchpin partners are. What is the critical nature of our supply chain, and how do we best defend against that?

Kim Hirsch (04:35):
And that puts to mind, uh, another example that I've heard many times. Um, years ago, like in the early days of cell phones, there was a semiconductor chip manufacturer that had a fire. And of course these are very clean rooms where they make these types of things, and so the fire destroyed all their inventory. They told their clients 'don't worry about it,' you know, 'we'll be back in business soon, we'll get your shipments to you'. The clients that believed them and relied on them just making a magical turnaround went out of business, and the ones who said 'you know what? This feels like it's going to be a much worse problem than they're letting on to', uh, were able to go out and get alternative suppliers, and you kind of corner the market on that and survived for another day. So, kind of, that situational awareness that you're talking about - that has to go deeper than just kind of knowing who your suppliers are, right? You need to know a lot about them and their industries, in fact.

Steve Greenstein (05:23):
Absolutely. And what you're referencing is the old Erickson and Kia situation which is like textbook Harvard Business School type of a case study. And yes, uh, you're absolutely right. You really need to understand what that demand looks like, what the market looks like, is there pent up demand? You know, things move very competitively and globally. And so that visibility, not only into your supply chain outage possibilities, but more important about the market demand and what you're looking for in the future. It's rather complex but certainly something that we need to focus on.

Kim Hirsch (05:58):
So when you think about that, what are some of the risks that are just kind of inherent to supply chains that you recommend the clients plan for?

Steve Greenstein (06:04):
Yeah. Uh, gosh, Kim, there's so many. I could write a book on this, but generally they fall into some broad categories. And so, for me and what I've seen in my professional career and working knowledge is the real critical supply chain partners - you need to understand their financial capacity and their ability or instability in times of trouble. What is their quality? What's their quantity levels? How much can they manufacture or deliver? Do they have flexibility? Are you their top client customer? Or are you one of many? Where do you sit in that pecking order? How does a possible event in their geo or their region possibly affect you? These are all real risks that you need to kind of understand and assume and be able to pivot against because they will happen. It's almost impossible to really get a bird's eye view of every single thing that's happening in that particular world of that supplier; however, the right questions, the right diligence, the right things you should know, can overcome some of these inherent risks. And again, with all risks, you might choose to accept it and just kind of live with it, and many organizations do, but there are some really smart things we can do to kind of overcome those, uh, inherent risks.

Kim Hirsch (07:28):
Are there some actions that organizations can take to decrease their risks?

Steve Greenstein (07:33):
Yeah, for sure. So if you think about, and you mentioned this early on Kim which is really a very important concept for organizations to really inventory and deal with, and that's of single points of failure. Are they a sole source organization? Are they a single source organization to your organization? Do those organizations have fourth and fifth lines of supply? So think about, I have the relationship with you as my supply chain - that's my third party - but they may subcontract to a fourth party. Now I'm actually inheriting that risk of that fourth party. So really diving deep, getting that whole eco structure DNA look at that organization, understanding what their levels of finished goods are, raw materials, component tree, things that could, um, disrupt them - those are really smart things to monitor and to measure and to keep an eye on. Well some of the things we can do as organizations is the old fashioned stockpiling while this is a world that is totally immersed in e-commerce and truly global.

Steve Greenstein (08:42):
And we also think about the things that can go wrong when it comes to, like, third party logistics, as I mentioned with the Kentucky Fried Chicken situation. We still have ability to warehouse inventories, we can try to predict demand, we also can maybe take on some manufacturing on our own, or maybe diversify. There's many, many routes to remediation. They do cost money. At the end of the day, organizations and senior leadership need to understand the cost and benefit of all these types of possibilities. And again, some organizations, they just accept it because of scale or price discounting. But at the end of the day, if that is your sole source and they go out of business, guess what? You could go out of business. So be very mindful of those strategies of, you know, dual sourcing, diversification, near sourcing, inventory buildup, stockpiling, things of that nature.

Kim Hirsch (09:40):
Yeah, and I think you're hitting on something that's really key to understand about risk too. I think, you know, a lot of people make business decisions like just-in-time running lean because they make all kinds of financial sense but then they're not really looking at the risk of doing that on the backside. And it really leaves you very fragile when you're looking at your supply chain and, kind of, that one dimension of just what's cheapest and most efficient.

Steve Greenstein (10:04):
Absolutely, yeah, and it's burnt a lot of organizations.

Kim Hirsch (10:08):
So are there any lessons learned from your own work and planning for supply chains that you can share with the audience to give them, kind of, ways to get started and their own journey looking at this area?

Steve Greenstein (10:17):
Sure. I think an organization needs to make this a multifunctional organizational effort. You need to involve procurement and vendor risk management and legal, and, of course, business continuity. And you need to all come to the table to really understand, right from the beginning, from the onset - the contract - have we built our contracts right so we have rights of inspection? There's nothing that could substitute, in a normal non-COVID world, an eyeball test - going to the plant, seeing the senior leadership, getting that warm and fuzzy feeling you need to have with your partners in business. Um, unfortunately in the world we're living in today, maybe that is limited to some degree, but with the technologies of, you know, instant webex-ing and spinning up conference calls, it's something we can all accomplish. But the eyeball test is really important, again, to know who you're in business with is really important.

Steve Greenstein (11:14):
The other very important aspect, I think, is you really need to build those safeguards. You cannot tolerate single points of failure. You really need to diversify. You've got to rethink the idea of, you know, scale and the economics of lowest price because survivability is not a price one needs to pay and should not pay. The other last parting thought I would tell you is that it's really important to plan, to develop action plans. What if something should happen? What if this key tier one supplier of ours goes out of business, goes bankrupt, has a fire, is part of a natural disaster? What do we do? Do we have action plans? So building a plan around your supply chain, identifying those critical/most important vendors/suppliers to your organization, keeping in communication with them, and at least annually revisiting, uh, performance - really important to safeguard. And then from lessons learned, I've seen the better organizations make that part of their normal operations.

Kim Hirsch (12:16):
Yeah, that's great. I think, kind of, that idea of that organizational effort in how you approach and plan is a really great way to kind of summarize the advice that you've given to people today. You know, by taking that holistic view of what's going on, you can say, you know, can we avoid sole source suppliers? Is there something that we could do that we're not doing now by just trying to focus on being lean in our organization? Building that situational awareness of your supply chain so that you know how your entire enterprise is impacted by it, and then also how to plan around those impacts, and then kind of looking for that single point of failure where you're really diving deep and saying, you know, 'what are the risks that we can control, and then how do we build our organization around, um, decreasing that risk?' Or, as you said, accepting risks that have to be accepted but understanding what the impact that will be when something can and will go wrong. Well, it's just been great talking to you about this today, Steve. I've really learned a lot, and I appreciate all the time that you've given us.

Steve Greenstein (13:15):
It was a great opportunity to speak with you again, Kim, and share some ideas. Thank you so much for this time today.

Kim Hirsch (13:20):
Absolutely. So thanks again to everybody for joining us for, uh, Building a More Resilient World, and we'll look forward to speaking with you again soon. Have a great day.