The following statistic should startle chief financial officers (CFOs) and procurement leaders: During the past 24 months, three out of four large United States-based companies experienced an unexpected supply chain disruption. These disruptions were serious enough to draw sustained focus or intervention by C-suite executives.
This data comes from a recent survey conducted by APQC [American Productivity and Quality Center], a nonprofit business research firm based in Houston. The issue is an unanticipated negative event involving a physical asset owned by a unit of the enterprise itself or a third-party supplier. For example: a serious flood takes out a power plant at a critical assembly plant which, for months afterwards, can only deliver 30 percent capacity.
One might think the survey findings would catch senior finance and operating executives off-guard, but many are not surprised. "Globalization is the new normal, and that's what's behind your data," says Cynthia Dautrich, chief procurement officer of consumer-products giant Kimberly-Clark Corp. "As you globalize, you constantly need to build out assessments and contingency plans as part of this new normal."
Consider Kimberly-Clark, says Dautrich. "We have products, services and manufacturing mills in over 175 countries. It's very important for us to make sure we get our sources as close as possible to the consumer. But at the same time, we're looking for leverage. We are constantly assessing the tradeoffs among costs associated with shorter lead times versus the risks and costs (manufacturing, inventories and transport) associated with long lead times," she adds. For a Kimberly-Clark making product in Asia and shipping it to North America or Europe, obviously, those are longer lead times.
Supply chain risk conversations have traditionally been denominated by issues, such as the financial stability of a key vendor or the quality of materials coming from suppliers and their suppliers. However, the impact of extreme weather and political turmoil are now taking center stage. In the past two years alone, a steady stream of high-impact natural catastrophes has devastated populations, property and infrastructure, particularly in Asia where a big chunk of the world's manufacturing activity now occurs.
Political instability in the Middle East and other volatile areas has also drawn intense attention. These developments have been alerting senior managers to the fact they are more broadly exposed than they thought. But many are still on the early side of the learning curve. Meanwhile, several companies are on the pioneering side.
Kimberly-Clark offers examples of "best practice" when it comes to modeling a wide range of risks in its global supply chain. The company also models carefully and regularly how logistics activity would need to be in ballet-like synchronization, should something very bad and unexpected happen.
Arrow Electronics Inc., a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions, demonstrates the need for what Paul Reilly, its EVP of finance and operations and CFO, calls "both offense and defense."
And ATMI Inc.'s CFO Tim Carlson shares his view of risks, their potential impact and how his company is prepared to...