A Sustainable Supply Chain: 4 Things to Tell Management
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A Sustainable Supply Chain: 4 Things to Tell Management

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“A sustainable supply chain reflects the firm’s ability to plan for, mitigate, detect, respond to, and recover from likely risks.” ...

“A sustainable supply chain reflects the firm’s ability to plan for, mitigate, detect, respond to, and recover from likely risks.”
This article was written to provide supply chain professionals with a few key concepts that management may need to support the building of sustainable supply chains.
Briefly covered are: 1) The linking of compliance to performance standards to supply chain collaboration is a critical operational goal; 2) Risk management and continual improvement lie at the heart of effective supply chain monitoring and mitigation; 3) Monitoring compliance is a complex operational issue but one with proven methodologies for implementation; and, 4) Compliance to standards of performance and supply chain collaboration can save more than it costs.

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A Sustainable Supply Chain: 4 Things to Tell Management A Sustainable Supply Chain: 4 Things to Tell Management Document Transcript

  • A Sustainable Supply Chain: Four Things to Explain to Management Omar Keith Helferich, PhD & John E Griggs, PhD Supply Chain Sustainability LLCBeing Succinct Can Help When Explaining Complex ConceptsSuccinctly stated, “A sustainable supply chain reflects the firm’s ability to plan for, mitigate, detect, respondto, and recover from likely risks.”iOne way to gain the support needed to maintain a sustainable supply chain is to ensure that corporatemanagement understands four important supply chain concepts: 1. The linking of compliance to performance standards to supply chain collaboration is a critical operational goal. 2. Risk management and continual improvement lie at the heart of effective supply chain monitoring and mitigation. 3. Monitoring compliance is a complex operational issue but one with proven methodologies for implementation. 4. Compliance to standards of performance and supply chain collaboration can save more than it costs.Each of these four concepts is briefly presented below: Compliance to Standards of Performance; Concepts ofProcess Improvement; Monitoring Performance; and Benefits of Continual Improvement.Compliance to Standards of Performance - A GoalSupply chain professionals embrace a policy of compliance to standards because to do so is consistent withtheir goal of improving performance though best practice strategies and the improved operational efficiencyand effectiveness of their supply chains.Our four-year focus on supply chain security-brandprotectionii- has led us to three simple conclusions: 1) theconcepts of risk analysis and continual improvement will lieat the core of any meaningful supply chain performanceimprovement; 2) the concepts of “compliance” and“collaboration” merge when we define and attempt toadhere to standards of supply chain performance; and, 3) it isproven fact that process improvements lead to increasedprofit and corporate resiliency. The connecting of Figure 1: The Connecting of Compliance and Collaboration“compliance to standards” and “supply chain collaboration”as we envision it is shown in Figure 1, The Connecting of Compliance and Collaboration.
  • A Sustainable Supply Chain: Four Things to Explain to ManagementThe Underlying Concepts of Processes Improvement StandardsRisk Analysis and Continual Improvement are the two core concepts which underpin all internationally-recognized standards… whether called performance standards or compliance standards. Understanding thesetwo concepts is critical in addressing the issues of supply chain risk.Risk AnalysisThere are various models used to represent the “Risk Management Process”. All include the two fundamentalattributes of the probability (likelihood) of an event occurrence and the impact (consequence) potential of theoccurrence.With roots dating back to the late-50s and used primarily within the food and pharmaceutical industries, onesuch risk model is Hazard Analysis of Critical Control Points (HACCP)iii.The basic principles of HACCP are:  Principle 1: Conduct Hazard Analysis  Principle 2: Identify Critical Control Points (CCP)  Principle 3: Establish Critical Limits for Each CCP  Principle 4: Establish CCP Monitoring Requirements  Principle 5: Establish Corrective Actions  Principle 6: Establish Record Keeping Procedures  Principle 7: Monitor HACCP System PerformanceISO 31000, Risk Management – Principles and Guidelines (ISO 31000) iv and ISO 28000, SecurityManagement Systems for the Supply Chain (ISO-28000)v defines a risk management framework as a set ofcomponents that provide the foundations and organizational arrangements for designing, implementing,monitoring, reviewing and continually improving risk management throughout the organization.ISO 31000 uses the following definitions of risk, definitions which are consistent with definitions used innumerous other risk analysis approaches:  Risk: Effect of uncertainty on objectives  Level of Risk: Magnitude of a risk, or combination of risks, expressed in terms of the combination of consequences and their likelihood  Consequence: Outcome of an event affecting objectives  Likelihood: Chance of something happeningIn practice, there are tools that can be useful in assessing and managing supply chain risks including;failure modes and effects analysis, CARVER-Shock, scenario analysis, simulation, economic models, andstochastic analytical models. viWhat is relevant is not which risk analysis approach is best suited for a particular industry or supply chainfocus; what is relevant is that all international standards and all emerging industry or aspect standards will 2 © Supply Chain Sustainability LLC www.supplychainsustainability.com
  • A Sustainable Supply Chain: Four Things to Explain to Managementhave “risk analysis” as a core and underlying concept.Continual ImprovementThe second core concept is “ContinualImprovement”; a concept that is also commonacross all major existing and emerging standards ofperformance.Not intended as a history lesson, but to establish itsrelevance and staying power, Figure 2: The ContinualImprovement Timeline, traces currently used conceptsback to Frances Bacon. Bacon’s scientific method isreferred to as "hypothesis (Plan)", "experiment" (Do)–"evaluation" (Check)”. Shewhart defined this as hiscycle of continual improvement, which was latermodified and used by Deming and, many say, used inthe development of Six Sigma Figure 2: The Continual Improvement TimelineFrom a supply chain risk perspective, the importance of continual improvement is made very clear by the side-by-side comparison of ISO 31000’s and Shewhart’s PDCAA view of the concept of continual improvementshown in Figure 3, ISO 31000 and PDCAA. All relevant international standards and all emerging industry oraspect standards will have “continual improvement” as a core and underlying concept. Commitment Commitment Plan the Risk Management Plan Framework Continually Improve Implement Risk Act Do the Risk Framework Management vement Monitor & Review the Check & Analyze Risk Framework ISO 31000, Risk Management Shewert’s PDCAA Figure 3: Continual Improvement - ISO 31000 and PDCAA 3 © Supply Chain Sustainability LLC www.supplychainsustainability.com
  • A Sustainable Supply Chain: Four Things to Explain to ManagementDefine and Adhere to Performance StandardsComplexityThe International Organization for Standardization (ISO) hasdeveloped over 18,500 International Standards on a variety ofsubjects and some 1,100 new ISO standards are publishedevery year.Figure 4, Key Word Search of ISO Standards, shows the countof published and under development standards reported fromISO’s website using terms of relevance to supply chainprofessionals. Even allowing for overlap and standards thatare not relevant to various organizations it is a daunting list.ISO publishes: non-certifiable standards (e.g. ISO 31000:2000,Risk Management and ISO 26000, Social Responsibility);certifiable standards by sector (e.g. ISO 22000, Food Safety);and, certifiable standards by aspect (e.g. ISO 28000, SupplyChain Security). Figure 4: Key Word Search of ISO StandardsThere are: guidelines (e.g. Asia-Pacific Economic Cooperation(APEC) Private Sector Supply Chain Security Guidelines); self-assessment Programs (e.g. BIS ComplianceCriteria: Export Management and Compliance Program); benchmarking tools (Michigan State University andUniversity of Minnesota, Food supply Chain security); and, government compliance requirements (e.g. C-TPATMinimal Security Criteria).What is important to keep in mind is that overtime and if the standards survive, they all take on the samegeneral approach and much of the same concepts and content. An example of interest is to compare thecontent evolution of the 11 C-TPAT nodal minimum security criteria requirements and the content of therecent C-TPAT best practice study; it is clear to us that C-TPAT will continue, by design or not, its evolutiontoward an ISO-like standard.If you must develop a corporate-specific standard of performance for, as an example, suppliers, then it makeslogical sense to pattern it after a formal standard.The Monitoring ProcessTo balance the complexity, we need to focus on basic commonality.To which we would add a fourth… the monitoring process.No standard, guideline, check-list, self-assessment, or compliance criteria require that an independent 3rd-party audit firm be retained to audit compliance to a standard. This is obviously the case when a standard isdefined as “non-certifiable”; it is the case in all published ISO standards and other industry standards as well. 4 © Supply Chain Sustainability LLC www.supplychainsustainability.com
  • A Sustainable Supply Chain: Four Things to Explain to ManagementWe will not make a case for or againstcertification to a standard by anaccredited certification body.But, as an example, if an organizationwishes to internalize (or outsource)the process for implementing andmonitoring a supplier complianceprocess, there is no need to reinventthe wheel. The model for such anapplication can be taken directly fromthat used by the auditors themselves,which is illustrated in Figure 5, A BasicCompliance Monitoring Process.The relevance to us is that a workingmodel of what and how to do it exists Figure 5: A Basic Compliance Monitoring Processand implemented versions aremanaging millions of “compliance audits” per year.The Benefits of Continual Process ImprovementRequesting funding to plan a response to plan for an earthquake, followed by a tsunami, followed by nuclearreactor failures would not have been successful. Nor, most likely, would funding be secured by the threat ofnon-quantifiable consequence to unlikely events. Most organizations seem to have a high tolerance for risk.So, a suggestion is to embrace the policycompliance to standards as your idea and“sell” the concept on the basis ofincreased profit, reduced risk, andimproved mitigation of the damagecaused by the occurrence of planned foror unforeseen eventsExamples of research results include: 1)Improved product safety and a 38%reduction in theft/loss/pilferage; 2)Improved supply chain visibility and a 50%increase in access to supply chain data as Figure 6: The Proven Benefits of Process Improvementswell as a 30% increase in timeliness ofshipping information; 3) Resilience and a 30% reduction in problem identification time, response time toproblems, and in problem resolution time. 5 © Supply Chain Sustainability LLC www.supplychainsustainability.com
  • A Sustainable Supply Chain: Four Things to Explain to ManagementThe outcomes presented in Figure 6: The Proven Benefits of Process Improvement are consistent with theexperience that supply chain reengineering initiatives can achieve.vii Process improvement lies at the heart ofbuilding a more cost-effective and resilient supply chain. One can take the perspective that compliance tostandards imposed by external organizations is a waste of time and resources or one can take the perspectivethat the organization will, for any number of reasons, seek compliance and it should be embraced and viewedin the context we understand – continual improvement in the supply chain.SummaryTo repeat, we believe: 1. Linking of compliance to performance standards and supply chain collaboration is a critical operational goal. 2. Risk management and continual improvement lie at the heart of effective supply chain monitoring and mitigation. 3. Monitoring compliance is a complex operational issue but one with proven methodologies for implementation. 4. Compliance to standards of performance and supply chain collaboration can save more than it costs; a belief shared with other supply chain professionals and proven by research.Whether or not you agree with our basic beliefs, perhaps we can all agree that we need to gain managementunderstanding and support by a refocus on basic issues… starting from the perspective of brand protectionand increased profit… embracing - not downplaying - the complexity of a global supply chain… focusing on,understanding, and leveraging the underlying elements of risk analysis and continual improvement…understanding the overlaps and directions of “guidelines, checklists, best practices, and standards”… designingcompliance requirements that are corporately-relevant and externally-usable… conforming to a provenprocess of monitoring compliance to standards.A big challenge, but supply chain professionals are used to that.i Bowersox, Donald J., David J. Closs, and M. Bixby Cooper, Supply Chain Logistics Management, McGraw-Hill Irwin, Third Edition, 2010. Chapter 17.ii Michigan State University (MSU) and Griggs and Associates LLC conducted its Department of Homeland Security (DHS) sponsored research onglobal food supply chain security from 2004 through 2007 under a grant awarded by the National Center for Food Protection and Defense (NCFPD).NCFPD is a DHS Center of Excellence lead by the University of Minnesota. The MSU research study was supported by the U.S. Department ofHomeland Security (Grant number N-00014-04-1-0659), through a grant awarded to the National Center for Food Protection and Defense at theUniversity of Minnesota. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author (s) and donot represent the policy or position of the Department of Homeland Security.iii Hazard Analysis & Critical Control Points (HACCP). HACCP is a management system in which food safety is addressed through the analysis andcontrol of biological, chemical, and physical hazards from raw material production, procurement and handling, to manufacturing, distribution andconsumption of the finished product. US Food and Drug Administration.iv ISO 31000 Risk Management- Principles and Guidelines, www.ISO.org, International Organization for Standardization.v ISO 28000 Specifications for Security Management Systems for the Supply Chain. www.ISO.org, International Organization for Standardization.vi Research by Authors for American Red Cross and DHS, and Zsidisin George A. and Bob Ritchie, Supply Chain Risk- A Handbook of Assessment,Management, and Performance, Springer, 2008.vii Supply chain reengineering projects and research by the authors and supporting university research.; Helferich, Omar Keith and Robert Cook,Securing the Supply Chain, Council of Logistics Management, 2002. 6 © Supply Chain Sustainability LLC www.supplychainsustainability.com