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.
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.”