If two years ago, there would have been a scary movie entitled COV1D-19 and the impact to Supply Chain, many of us would not have believed it. Who would have envisioned shortages in basic toiletries, the inability to physically be close to individuals, the lack of a cohesive national strategy, and the overall devastation to the economy? Although we could not imagine this, how can Supply Chain leaders prepare to respond in a more agile way to devastating world events? In order to answer this question, we have to define what does the word "Risk" mean? The definition is different for each individual, function, company, and country. In this presentation, we will discuss how to identify, prioritize, and address risk while becoming a stronger organization.
- How do you decipher between "Risk" and "Crisis" Management? How should your actions differ in each scenario?
- How do you retain and in some cases attract "Key" talent during a Crisis?
- How do you incorporate "Risk Management" as a part of your ongoing process improvement initiatives?
Hello, my name is Naeema Booker. I would like to speak with you about risk mitigation and business continuity and change the world.
First, we would like to assess what does risk management mean to your organization. The definition of risk varies depending on your organization, your industry, and the key factors that drive your business. So, as you look to develop a risk management strategy, the first thing you should think about is, how does your organization define this? As I will say, this focuses on supply chain, how does your organization define supply chain? What functions, aspects of your business processes are incorporated into supply chain?
Many of you think about who are the key business partners that are critical in decision making processes. As you look at those business partners, making sure that you understand what their needs are, and you could include them in the overall risk strategy. Then, how does your business distinguish between normal risk and significant market disruption? Last but not least, how does your organization determine when to initiate steady state actions or normal business actions versus what levers to pull in the midst of crisis?
The first thing we like to talk about is how do you define supply chain risk or risk in general? You can break risk into two different factors. There are certain aspects of risk are manageable, and then there are certain aspects that are disruptive things that you would not think about [unintelligible] that are unplanned. So think about manageable risks, lack of value for supply chain contributions. This is really about just ensuring that the organization has a great understanding of the value that the supply chain organization [unintelligible], not only cash flow, costs, savings, process, improvements—all things that supply chain brings to the table.
Ensuring that your organization does not have a poor talent management and retention strategy. Maintaining high performing employees, especially during a crisis, is even more critical. Limited visibility supplier business strategy. If you do not understand the strategies that we are suppliers, and then they change their strategies, that can also impact your ability to perform to meet your customer needs. Port internal process management. If your organization is still primarily focused on transferring tribal knowledge instead of having written documented processes, that is also a risk when you start to go through a significant amount of turnover or changing based off of market trends. Poor supply quality performance. Obviously, if you cannot get your parts in a timely manner or your price requires significant amount of rework, that is going to impact your overall operation to drive up the costs within your business. Then, supply capacity constraints. You want to ensure that your supplier can meet your operational needs so that you can support your customer.
Then, we’ll move on to what are disruptive risk factors. Those factors include cybersecurity failures. If your company is hacked, and you’re not able to get all of your information, that can disrupt your business for hours, days, or even months. Market conditions. Market conditions, health crisis, and geopolitical conflicts. I’ve highlighted all three of these in red because these are things that we are going through on a global scale right now. The market has been significantly impacted by the COVID 19 pandemic that we are experiencing. There are significant unemployment, significant reduction in volumes that many employers are dealing with now. How do you address that we missed something that, as you said, something that is not planned. Supplier financial distress, supplier business strategy change.
Everything under the disruptive risk factors are things that will negatively impact your business, but are very hard to plan for. So have you put together a crisis management plan to support all of this activity? The best time to put a crisis management plan together is when you’re actually not in a crisis. So developing that crisis management plan, assessing what is your risk, identifying your action plan management, and then putting together overall business continuity plan. A lot of business continuity plans are developed in time prices. Therefore, when the next price is [inaudible], you will be better prepared to address that in the future.
The next thing we would like to talk about is how to organization to find supply chain. I’ve put a couple of examples here based off of my experience. The first one is what we would call the industry benchmark, which is the score model, which is supply chain operational readiness model. In that model, it really breaks down each individual function to ensure that people can become experts in what they do versus being so spread across the entire organization.
A few examples that I share in the aerospace industry, as an example, that aerospace company, but the demand supply planning is often managed under the same team as supplier management. Whereas, if you compare that to an industrial manufacturing company, the materials organization owns the planning. Then, if you look at the source, which will be strategic sourcing, supply management, procurement, I normally combine across both industries. If you look at sourcing delivering, source and delivery, you would have transportation and logistics, which sometimes resides within supplier management and sometimes operates within their own warehousing function.
From a customer perspective, in aerospace industry, a lot of times customers are managed to the business development organization which resides in marketing. In some industrial manufacturing companies, business development resides with customer sales. Then, there are things that are not even considered as part of your score model, but they are critical to the success of supply chain. For instance, legal is a separate function of contracts in the aerospace industry. But customer contracts, patent, intellectual property, and other supplier contracts may have different process owners. In industrial manufacturing, as an example, you may have one legal content to be able to support our new supply chain.
Next, I would like to talk a little bit more, just to give some background information on what is the score model. As I mentioned before, it’s a supply chain operations reference model. It’s a process reference model, which is developed by the Supply Chain Council. It’s across industry model standard diagnostic tool for supply chain. I would highly recommend if your company has not looked at utilizing or transitioning into a score model if this is something that you think of because they will help you to ensure that your staff is functionally excellent within a specific area. In general, a score model describes the business activities associated with meeting a customer’s demand. This includes plan source, make, deliver, return, and enable.
If we want to show just an overall framework for what was the score level one process look like. If you look in the middle of plan, this is the area that most Supply Chain organizations focus on—sourcing, making, delivering, and returning parts back to the customer. Then, on the end, you have the customer portion. Then, the customer orders, which comes out of the door. You have also the inputs into the process, which is all of our supplier partners. They have the same process that your manufacturing company may have, which is source, make, deliver, and return. So if you’re looking back end to end supply chain, that is what we call the score framework.
Next, I would like to talk a little bit about how does your organization manage risk. There’s two key factors here that are important to risk. One is how mature is your organization. Obviously, if you’re a startup firm versus a company that’s been in business for over 100 years, the maturity of your organization, the process documentation, all of that will be at different ends of the scale.
So I put together this sphere model to talk about one of the various steps that an organization should take to get to a world class risk management approach. In the middle is crisis management, I would say, right now, especially with the COVID 19 pandemic, all companies are in some type of crisis management. When this crisis first started in March, in discussionsas well as in my day to day activities, most of the conversations were about, how do we mitigate this risk? How do we understand what customers are going to do? How does this impact our inventories? How does this impact current volume levels? How does this impact our staffing? What do we do for industry and long term market trends? So a lot of work on crisis management.
After you assess what your current situation is, you have a better understanding of that landscape, then you can start building that foundation to address the crisis. That can include a multitude of factors—reducing your workforce, lowering your buying forecasts, transitioning to council, some of the inventory orders. There a lot of different things that will make the foundation for being able to support crisis management.
Once that foundation is in place, then I say move into what are called functional excellence. Functional excellence is where you’re focusing on mitigating risk when you’re not in a crisis. What do I need to do to be best in class? What do I need to do to make sure that everyone in my organization understands that this is kind of [unintelligible]? I want to reach out to my supply base. So those individuals, and those partners work with me to assess risk, and we can work together and in a much more cross functional approach.
Then, you obviously reach world class organization. My vision is that you have a dedicated [unintelligible]. Their primary focus is risk management, which you see in a lot of organizations is that the organization’s will focus on having a risk be managed by someone on top of their core functional business requirements. That is very difficult to manage because you get into workload resource constraints, and obviously, the day to day business normally will take precedence over managing business continuity. So if possible, I would highly recommend that each function have their own business continuity and risk mitigation team.
One of the next things that you need to think about in managing risk—I’ll put a couple of things here. I won’t go through everything. I’d like to start with assessing what are the things that you should start with, the things that you should stop, and what are the things that you should continue. The first things I would think about starting, if you haven’t already started some of these is, as we talked about, go out and benchmark other supply chain organizations, and identify how companies have established a risk metric management process. What are their success stories? How can you create that foundation to start implementing this process within your organization? If you don’t already have dedicated resources assigned, dedicated resources just support this activity, it is something that is business critical, and it will pay off once you go into a crisis mode.
Leverage your sign up process heavily. This is where you can really start focusing on does my supply equal my customer demand? Do I have the right warehouse capacity? Do I have the right level of new business coming in? By leveraging the sign up process heavily can improve your overall business efficiency, and the value of your company. If you have not already started modifying your KPIs and your processes, this is critical. It is important that you identify how to measure the process, how to measure efficiency. Then, once you identify how to measure it and you automate it, so you can replicate the metrics on a monthly basis.
Next, I will say the things that I would recommend that you start. The one is lack of executive sponsorship. It is very important that you have executive sponsorship for the supply chain organization. The supply chain organization slack buried deep within operations organization, and really why your supply chain organization is seen as a function that attracts high talent within the business. So that is key. It is also key that the supply chain organization feeds executives and leaders reaching back into the supply chain function to attract, retain, and also promote from within.
Ignoring supplier relationships. During critical time, supplier relationships are key. By partnering with your suppliers, you’re often able to mitigate impacts such as cash flow, excess inventory—a multitude of factors. Having a short term focus. It is critical to not just focus on the short term although you are in a crisis, because once you come out of the crisis, you want to also be able to ensure that you can support your long term business goals.
Last but not least, focus on transitioning any tribal knowledge that you have into documented processes. That is going to be critical to help support you during any economic downturns or economic uptimes. If you’re hiring a lot of people, you want to be able to replicate processes that are successful. If you’re having to go through data, you want to be able to transition that work effectively. So really transitioning tribal knowledge into documented processes is critical to every organization success.
Then, what are the things that you want to continue? To effectively manage risk, first ensure that supply chain is involved in the business development. This is very critical. You want to make sure that as you’re assessing new customer programs, they should be assessing customer demand, and that supply chain is actively involved in those conversations and part of the cross functional team making the decisions. Also, you want to focus on increasing your employee engagement, ensuring that your employees are actively engaged, focused, and are enjoying the work that they’re doing.
There are things we’ve talked about, but it’s also important just to make sure that, during this time, you focus on advancing your market intelligence. If your market intelligence is not at the level that it needs to be thinking about, how do you improve in that area? How do you increase your partnership with your suppliers? Then, how do you maintain a focus on your strategic long term critical initiatives while you’re managing through your current ways?
Lastly, I would like to leave you with a couple of key messages in a few areas. One is talent management. How to retain key talent in burdensome scenarios? So talent management is really critical to risk mitigation. Talent management varies depending on where you are, I would say, in your organization or your product lifecycle. You may be focused on growing your organization, you may be having the industry boom, where it’s harder for you to attract and retain talent, or you could be going through an economic downturn. Each one of these scenarios requires a different level of risk mitigation, but it is something that you should include in your overall business continuity plan.
When you’re in a crisis, how do you emerge as a stronger organization? When you’re in the middle of the crisis, first [unintelligible] it is critical not to lose focus on improving your current processes being more efficient, but also focusing on long term improvements. Do not strictly focus on what it will take to survive for the next month. We need to be thinking about, what does it take to survive for the next 5 to 10 years? Balancing that work with all the leaders within your organization.
Next, I’d like to talk about crisis management. Change is happening at the speed of light, so I would like everyone to always think about, how can I be more agile? How can I focus on addressing and changing in a quick and efficient manner? There are a couple of factors that you need to ask yourself when you’re in the middle of a crisis. How do I stop or mitigate my future financial losses? Because when you’re in the middle of a crisis, it really is about how do you improve cash flow? How do you focus on ensuring the overall success of your business? And what are the business practices or policies that I need to implement immediately during the crisis? Then, how do I prepare to support my business after the downturn ends? If you cut capacity, if you reduce orders to your suppliers, how do you ensure that, when you’re buy in comes back, those suppliers, as well as your internal workforce, is able to support the increased demand?
Next, I’d like to talk a little bit about change management. Risk mitigation is purely about change management. One of the key things, as a leader, is being ambassador for leading and supporting your organization transformation. Change is difficult, and change can is handled differently by different individuals. So always be positive. Be an ambassador for leading and supporting your organization change. Help your team understand what is the short term versus the long term patient. Be transparent during your State of the Union discussions. If there are impacts to your workforce, if the volume reductions, if there’s significant change in the business climate, share that with your workforce so that they can be there with your company as a part of the journey.
Take ownership and focus on what you control. Everyone has a different statement of work, a different area of the process that they need to focus on. So focus on that area, and be functionally excellent in what you do. Provide stability and leadership to your team. This is a time where that is critically needed. As I would like to say, we are all leaders, whether you have direct reports or not, provide the leadership and direction to your peers, to your executives, to everyone within the organization that you create yourself. So [unintelligible] that you would like to see.
Final thoughts would be, be flexible, agile, and accept that change is the new normal. That is a key statement—change is the new normal. Provide the type of leadership direction that you personally crave. Servant leadership is critical. Focusing on those within your organization, within your teams, and supporting your peers and executive saw in challenging times is something that is very important, and being an advocate and driver to make a positive change within your organization.
Thank you for taking the time to join me today. I hope that this presentation was beneficial, and that you learned something from it. Hopefully, you will be able to think through risk management strategies for your organization, and develop an efficient and effective business continuity strategy.
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