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Are Your Supply Management Processes “Fail-safe?”

When things don’t go according to plans, the unprepared are often forced to act as mere spectators left to “grin and bear it,” while hoping that either no one notices or that the impact of the issue is not devastating.

If you’re in charge of toilet flow and general construction in the Olympic Village, your mistakes are covered by online and print media and you can easily become the scourge of global athletes (and possibly some in the media) impacted by the problems. But, if you are in charge of the Olympic Diving Competition and your water turns a shade of electric green (see the article’s banner image), everyone around the world sees firsthand that you have made a highly visible (and unusual) mistake and should not be fully trusted.

In the arena of global supply management, being caught unprepared, particularly on the direct materials side, can have severe consequences. In most cases, standing idly by will only magnify the current problem: witness what many feel was a slow move by Toyota to address its accelerator problems a few years ago. Toyota’s delay and how it tried address the problem ultimately became a bigger issue than the actual problem. Today there is still real debate about the cause of the accelerator problem and if it really was a design flaw or, as the Department of Transportation uncovered, user error (“pedal misapplication”) that caused the issue. What is not up for debate is that Toyota paid out a $1.2 Billion settlement in 2014. Podcast listeners may be interested in Malcolm Gladwell’s recent podcast on the topic [speaking of great podcasts…. have you heard about THIS!!]

Ironically, in recent years, I have had several deep looks into the supply management and supply risk operations at Toyota and came away very impressed each time. I am not alone – Toyota’s supply management operations were regarded as Best-in-Class by other industry analysts and insiders alike and many of Toyota’s processes are still seen as “best practices” within and beyond the auto industry.

Target, like Toyota, is another company/brand with an impeccable reputation for quality and a high performance supply chain. When it finally decided to enter Canada in 2013, it hit a few snags…. no, the better description is that it failed miserably and the supply chain was one key culprit. The textbook issues here included bad data, supplier and supply chain staff mistakes, and faulty third-party inventory management systems, all of which were exacerbated by trying to scale up too quickly. Less than two years after a grand nationwide launch, Target was forced to close all 133 of its Canadian stores – its Canadian bacon was totally fried.

Toyota and Target obviously rebounded from their high profile supply chain issues and it is likely that these two leading companies will be better prepared for the next disruption.

In the midst of the last credit crisis, supply risk management and contingency planning gained significant traction within procurement ranks. Chief Procurement Officers tasked with huge savings targets often had to strike a balance between negotiating significant cost reductions and triggering a potential supplier bankruptcy. Sourcing strategies were reviewed in the context of supply risk as well as savings. Contingency planning, something never contemplated by many procurement organizations, came into vogue. The question is whether or not the great work done in the last crisis continues today. This is important to know because history suggests that the next unexpected event is lurking around some next corner.

One CPO of a global pharmaceutical company has been working with his team fairly aggressively over the past several years to develop and prioritize a supply risk program. The team has developed a screening process that regularly evaluates suppliers and leverages outside services to deepen its market knowledge and awareness of changes in supplier risk profiles, all in support of the program. A couple of things make this program noteworthy – (1) Scope: The scope of the program is impressive in that it does not solely focus on the largest or most strategic suppliers. Screenings are conducted based upon the potential total impact a supplier can have across a number of areas including revenue, production, regulatory, and consumer. (2) Contingency Planning: The team has developed a specific set of plans when certain emergencies arise and more general plans or approaches to address a wide-range of problems that cannot be reasonably predicted. With a fail-safe process designed to minimize the likelihood for problems and a series of planned responses or approaches for when they do, this group is more than a few paces ahead of the crowd.

Remember, a fail-safe plan is not one that ensures against failure (in the complex world of supply management that is all but impossible), but rather, one that minimizes the impact when failure occurs. Are your systems fail-safe?

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