www.isg-one.comMOVING TARGETA Changing World Poses New Risks for Supply ChainsBy Joseph Yacura, Director, ISG
MOVING TARGET ■ JOSEPH YACURA 1INTRODUCTIONSupply chain professionals have traditionally addressed supply chain risks aspa...
MOVING TARGET ■ JOSEPH YACURA 2EVOLVING FACTORSSupply Chain Velocity: Virtually all aspects of supplychain now operate at ...
MOVING TARGET ■ JOSEPH YACURA 3A NEW APPROACH TO MANAGING RISKIn today’s global business environment, supply chainmanageme...
041713© Copyright 2013 Information Services Group – All Rights ReservedFor further information, please contact Alex Kozlov...
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Moving Target: A Changing World Poses New Risks for Supply Chains

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This ISG white paper examines how the nature of supply chain risks faced by
business organizations is changing, and outlines elements of a strategy
designed to effectively assess and mitigate risk in a dynamic and interdependent global economy.

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Moving Target: A Changing World Poses New Risks for Supply Chains

  1. 1. www.isg-one.comMOVING TARGETA Changing World Poses New Risks for Supply ChainsBy Joseph Yacura, Director, ISG
  2. 2. MOVING TARGET ■ JOSEPH YACURA 1INTRODUCTIONSupply chain professionals have traditionally addressed supply chain risks aspart of their due diligence process when identifying and qualifying potentialsuppliers. This approach has served them well in the past when extremeevents were less frequent and the consequences of such events were lessimmediate and far-reaching.Today, with clusters of suppliers located in specific regions to gain operationalefficiencies and information flowing in real time, a new dimension to risk hasevolved – and most companies find themselves in a reactive mode. Ascompanies large and small become less vertically integrated and moredependent on third party suppliers, the nature of supply chain riskmanagement has changed dramatically, requiring new approaches todesigning and implementing risk mitigation strategies.This ISG white paper examines how the nature of supply chain risks faced bybusiness organizations is changing, and outlines elements of a strategydesigned to effectively assess and mitigate risk in a dynamic and inter-dependent global economy.
  3. 3. MOVING TARGET ■ JOSEPH YACURA 2EVOLVING FACTORSSupply Chain Velocity: Virtually all aspects of supplychain now operate at high speed. Orders are placed tomanufacturers in real time using point of sales systems.Packages are tracked real time from point of origin topoint of delivery. Service providers schedule resourcesbased on predictive models. All these processes assumeno disruption in order to achieve optimum efficiency,lowest cost and customer satisfaction.This increased velocity has allowed companies to takepockets of inventory out of the system. Previously,companies had different amounts of inventorythroughout their processes, warehouses, in transit etc.Today, lean manufacturing processes and Just-In-Time(JIT) production methods have eliminated these pocketsof inventory. As a result, any delay in processes or in thepipeline, due to any reason (bad material, manufacturingdefects, transportation delays, etc.,) affects the finaloutput. Services face similar increased risks as optimumstaffing models cannot respond quickly to customerdemand in the event of a risk occurrence or a disaster.Speed of Information and Communication: A relatedgame-changing issue is the unprecedented speed andease of access to information, coupled with theexponential growth of communication channels.Traditionally, public opinion was developed throughshared personal experiences and through the publicmedia; as a result, the needle of public opinion generallymoved at a relatively slow pace. The advent of socialmedia changed everything. Now public opinion of acompany can be shaped or altered almost immediatelyon the global landscape by a single influencer. An eventcan happen anywhere and any individual with internetaccess and either a laptop or smartphone can state anopinion – supported by photos and videos– regardingyour product or service. Put simply, bad news – whethertrue or not – travels fast, far and wide, and one badproduct or one less than acceptable service interactioncan spark a public relations and reputational crisis forbusinesses ranging from hotels to insurance companiesto manufacturers to restaurants. Similarly, price volatilitybecomes increasingly risky, as markets respondimmediately to changes in demand or preference.Ubiquity of Risks: The range of risks faced by anyenterprise has increased in type, frequency and impact.Organizations have to worry about weather, terrorism,cyber attacks, fraud, disease, labor strikes and otherfactors. In many cases, the triggers to risk can be assimple as a single individual with criminal intent and/orpoor judgment. As a result, supply chain executives whoattempt to track and address discrete risks on a one-offbasis quickly end up like the circus performer strugglingto keep multiple plates spinning on poles.Concentration of Suppliers: Because a large number ofUS organizations have sourced operations to India, acountry-wide disaster – whatever the cause – poses therisk of significant disruptions to business operations. Asa result, contingency plans must go beyond IT DisasterRecovery considerations and encompass broader issuesrelated to overall Business Continuity. More specifically,the increasing specialization of service providers has ledto geographic concentrations of suppliers in certainfunctional areas. In locations such as the Philippines andCost Rica, for example, customer call centers proliferate.While this allows businesses to leverage the languageskills and specialized expertise of workers in thosecountries, centralizing critical services in one geographicarea increases exposure to risk.Political Unrest: An increasingly globalized andintegrated economy, characterized by critical suppliers indisparate geographic regions, by definition increases riskfrom social and economic unrest, since any hot spot ofsocial or political turmoil is likely to represent a link ofsome kind in an organization’s supply chain.Regulatory Risks: Monitoring regulatory conditions in allcountries where outsourced operations are located iscritical. Changes in regulatory mandates regarding labor,environmental safety and impact, intellectual property,taxes and other factors are all central to the economicviability and sustainability of an outsourcing initiative. Ifproducts are involved, duties and logistics also need tobe monitored for negative impacts. US regulators arepushing for stronger governance on all third-partyproviders to ensure that they – and their tier two sub-contractors –are delivering to requirements. (Foradditional information on this specific topic, downloadan ISG white paper on regulatory compliance.)Intellectual Property: A company that outsources criticalprocesses to a third party may be required to pass onintellectual property to that provider in order to executethat process. In the US, intellectual property can beprotected by either patents or copyright, providingauthors/originators with legal rights of ownership. Thejudicial systems of most advanced countries providemean of recourse against violations of owners’ rights.However, different countries have different termsregarding ownership protection, and companies have tounderstand the legal systems where their suppliersreside – including the degree of oversight andenforcement – to ensure adequate protection of theirintellectual property.
  4. 4. MOVING TARGET ■ JOSEPH YACURA 3A NEW APPROACH TO MANAGING RISKIn today’s global business environment, supply chainmanagement risks are increasingly urgent, ubiquitousand multi-faceted. Risks can come seemingly from anysource at any moment, with significant and lastingconsequences for a business. A seemingly innocuousevent in a remote corner of the world can quicklycascade throughout an enterprise. Deeply integratedteams of multi-tiered providers are increasinglyvulnerable to breakdowns at any point in the deliverychain.In light of these challenges, global businesses today needto develop a fundamentally new approach to assess,prepare for and mitigate these risks. Key elements ofsuch a strategy include: A clearly defined supplier management strategycharacterized by stringent and frequent audits ofsuppliers. This oversight is essential as companiescontinue to outsource critical internal andcustomer-facing processes to third-partyproviders. Specific components of this strategyshould include:‒ Visibility into what suppliers are responsible forwhat tasks, as well as what responsibilities sub-contractors are taking on that the business maynot be aware of.‒ Defined processes and actions to take in theevent of a supply chain risk – who does what tocontain the risk and mitigate the damage, who isnotified when, who is responsible, and so forth. Businesses also need to view supply chain riskmanagement as an ongoing process – not a one-and-done exercise. Typically, enterprises focuseffort on due diligence and financial andcapabilities analyses early in the process ofsourcing and contracting with suppliers. However,with today’s three-year contracts with one-yearoptions, all the data collected at the outset of arelationship has a limited shelf life, and three tosix months in, those early days assessments areoutdated – and of little use when a potential crisisarises. Contracts need to address the dataquestion and ensure that data is continuallycollected, analyzed and used through the contractto ensure a positive outcome for bothorganizations. Over the short term, businesses need to assesstheir environment and identify their top prioritiesin terms of where the risks lie and where theimmediate solutions can be found and how theycan be implemented. Over the long term, theyneed to move away from viewing supply chain riskmanagement as a tactical exercise that addressesdiscrete problems when they arise, to a holisticview that assesses interrelationships between andwithin suppliers, as well as the cause and effectlinkages throughout the supply chain. A key characteristic of this holistic perspective isthe standardization of reporting and taxonomiesaround supply chain risk management andgovernance. Today, however, the onus of definingmandates generally falls on the client – the resultis a hodgepodge of processes and frameworksthat accommodates each client, to the detrimentof all. Service providers have a significantopportunity here to proactively drivestandardization, and many clients would welcomeproviders who came to them and said, “Here’s thestandard way of doing things.” Finally, a “dashboard” approach to assessing theglobal landscape. Businesses need tools to keep abird’s eye view on the global landscape, and keeptrack of multiple risk areas – be they related toterrorist threats, weather events or crime trends.The dashboards need to be integrated toprocesses that escalate responses and readinessto heightened risks in any particular area. Theyneed to include, address and measure the itemabove.While business organizations can’t guarantee that a crisisof some sort will not occur within their supply chains, awell-managed supply chain and a sound risk mitigationstrategy can help a business prepare and limit thedamage and take corrective action when a risk eventoccurs.
  5. 5. 041713© Copyright 2013 Information Services Group – All Rights ReservedFor further information, please contact Alex Kozlov, Director of Marketing, Americas, at alex.kozlov@isg-one.comor +1 617 558 3377Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory servicescompany, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private andpublic sector organizations to transform and optimize their operational environments through research, benchmarking, consultingand managed services, with a focus on information technology, business process transformation, program management servicesand enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, thedeepest data source in the industry, and more than five decades of experience of global leadership in information and advisoryservices. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries. For additionalinformation, visit www.isg-one.com.LOOKING FOR A STRATEGIC PARTNER?

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