The final installment to a Q&A series, generated following a prominent Risk Management publication's request for industry expert opinion.

q. "What tools can companies use to manage their supply chains and ensure they have up-to-date information on their whole extended enterprise?"

a."For a multi-national organisation, the risk management of thousands of suppliers is not practical unless a prioritisation method is applied. This method should not be based purely on volume of spend; a more robust approach to SCRM is needed which should include quantification of financial exposure to all critical supply points (both internal and external, and 1st tier and Xth tier suppliers).

Having built up a detailed picture of critical supply points, and taken steps to reduce key exposures, the final step is to monitor the status of those locations. In a recent KPMG report entitled ‘Enhancing supply chain networks for efficiency and innovation’ only 9% of the respondents said they could assess the impact of disruptions within a matter of hours. The 9% have a competitive advantage by being able to respond quickly to failures in their supply chain. In our data rich world, there are many information feeds ranging from natural hazard alerts to financial monitoring, which can help supply chain managers to stay on top of the status of critical supply points."

The second part of a series in which Catherine Geyman, of Intersys Risk, answers questions posed by a prominent Risk Management publication.

q."What are the challenges to managing the risks a modern, global supply chain presents? Can you give any examples specific to your own experience?"

a."Two of the biggest challenges for global companies with complex supply chains are i) lack of visibility of the actual manufacturing source (particularly in Tier 2, or 3 suppliers) ii) the ability to prioritise and focus on managing the most critical supply chain exposures based on value at risk; this is a particular challenge for complex multi-nationals with thousands of key suppliers.

Examples:
i) Lack of visibility of the End to End supply chain. When a fatal explosion occurred in a German manufacturing plant in 2012, the automotive industry felt secure that it had alternative sources of nylon-12, but it was unprepared for the loss of a precursor to nylon-12, cyclododecatriene (CDT) made at the same plant. The whole industry was dependent on CDT production from that plant and its impairment caused a shortage of nylon-12 which continued for months.

ii) A large pharmaceutical manufacturer sourced a particular grade of lubricant (used in tablet formulation of a wide range of its key products) from a sole source. As it was an inexpensive material, bought in relatively small quantities, it was not a management priority for Procurement. However, when the value at risk on this supplier was analysed it was realised that a major problem there would result in significant supply interruption across a range of products. In this instance, the solution was straightforward – a relatively small investment in a manageable volume of safety stock would mitigate the majority of the exposure."

Catherine Geyman, of Intersys Risk, was asked by a prominent Risk Management publication to give her opinion on a number of topical issues. The publication summarised and, for clarity, her full answers are shown below.

q: Have lessons been learned from the issues emanating from the Thai floods and the horsemeat scandal?

a: "Certainly the horsemeat scandal has put a greater emphasis on understanding the true source of a material. A common problem across both the Food and Life Science industries is in pinpointing where a material is actually made when so many are sourced through agents and distributors. A similar provenance problem was experienced by the pharma industry in 2008 when the heparin scandal broke and it became obvious that a number of significant western manufacturers had no idea of the origin of the starting material – pigs intestines harvested in tiny, unregulated workshops across China. That particular issue put pressure on western regulators to increase their presence overseas and since then the US Food & Drug Administration has opened more centres in overseas locations which in turn have resulted in a greater number of inspections of foreign facilities and an increase in regulatory actions preventing non complying drugs and foodstuffs from entering the US.

From an internal controls point of view, the pressure to extend auditing activities further back up the supply chain has increased and the auditor’s skill set has been redesigned in an attempt to better detect fraudulent supply chain activities. There has also been a push in the food sector to simplify the most complex supply chains and to exploit more opportunity to source locally. The Food industry is not alone in reassessing its ability to reverse some of the outsourcing activities of the last decades, the pharma industry too is also seeking more manufacturing opportunities at home, with projects such as REMEDIES co-funded by the UK government and industry partners to redesign the UK pharma supply chain."