Posted by Andrew Bartolini on March 3rd, 2010
Stored in Articles, Chief Procurement Officers, General, People, Process, Strategy

When things don’t go according to plans, the unprepared are often forced to just grin and bear it and hope that no one notices or that the total impact of the issue is not so great.

If you’re the producer of the Olympic Opening Ceremonies, it is easy enough to overcome a Stonehenge–like snafu made on a big stage by inviting the affected party back and making a few jokes. Laugh and the world (literally, in this case) laughs with you. No harm, no foul.

But 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 exacerbate the current problem: witness what many feel was a slow move by Toyota to address its recent problems. 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 industry analysts and insiders alike. Once the current issues have been resolved and put behind it, I’m sure that many of Toyota’s processes will continue to be seen as “best practices” within and beyond the auto industry.

The purpose of this article is not to analyze what happened at Toyota and why or how (there are literally hundreds of insightful articles out there covering this ground) but to suggest that the unexpected is always lurking around the next corner.

In the midst of the recent current credit crisis, supply risk management and contingency planning gained significant traction within procurement ranks. CPOs 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.

One CPO of a global pharmaceutical company has been working with his team fairly aggressively over the past four 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 processes fail-safe (free movie, 2 hours required)?

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