No lucky strike for supply chains

It’s a new year, but the problems for supply chains are much the same. Among them, increasingly, is industrial action.

December drew comparisons with the Winter of Discontent with strikes or threats by Post Office staff, train and tube drivers, airport workers, and even Argos delivery drivers. With the tube strikes this week, that discontent has followed us into 2017.

As others have noted, comparisons with the 1970s are overplayed. It actually became harder for unions to take legal strike action in the UK last year, for example, with the passing of the Trade Union Act in May. Unions now require a ballot turnout of at least 50% for industrial action – and 40% support of all eligible to vote when it comes to vital public services such as health, education, transport, border security and the fire brigade.

Nevertheless, recent activity does suggest something of a resurgence in the UK following a near-record low in the number of days lost to industrial action in 2015. The action we’ve seen also has significant impacts. Academics estimate the Southern Rail strikes alone have cost the UK £300 million. The tube strikes this week may even cost the same, according to some of the higher estimates.

Moreover, while levels of UK industrial action have trended downward in the last few decades and remain modest, they’re much higher elsewhere, including in some of our near neighbours. France, Denmark, Norway, Belgium (which saw a particularly high number of strikes last year), Spain, Finland and Ireland have all lost anything from double to seven times the number of days as the UK to action in recent years. If businesses are not directly affected themselves, others in their supply chain may well be.

All of which is simply a reminder that industrial action remains a key threat to the supply chain. Businesses need to build in resilience and redundancy to account for it, and to do that, they need to have an accurate view of their exposures.

Time to get serious on supply chain cyber risks

The new Cyber Highway service makes it easier than ever for businesses to start to asses the cyber security of their suppliers. It’s an opportunity more need to take.

Cyber is rising up the supply chain. Last month former Home Secretary David Blunkett launched the Cyber Highway, a new website through which business can check whether suppliers are certified under the Cyber Essentials scheme.

The scheme promotes basic standards of “cyber hygiene” to protect against common risks such as hackers and malware infections. Businesses can have a self-assessment questionnaire independently reviewed by an external certifying body to gain a Cyber Essentials badge or have an external body actually do the tests for a Cyber Essentials Plus badge.

For central government, all contracts handling personal information or providing certain ICT products and services have required certification with the standard since October 2014. Two years on, the new Cyber Highway site makes it easy for private sector businesses to effectively apply the same standard. They can now track suppliers’ progress towards Cyber Essentials certification in real-time.

It’s hoped this will, in turn, prompt more businesses to sign up to the scheme and work to achieve certification – vital following the vote for Brexit, according to Blunkett.

“It is more important than ever, post-Brexit, for businesses to hold an internationally-accepted certification, as competition increases and an extra level of cyber-resilience is required,” he said at the launch.

Opens doors: Risks from suppliers, vendors and customers

There’s also a couple of other reasons to welcome such moves.

One is that many big security breaches can be traced back to attackers exploiting vulnerabilities of suppliers.

That might mean criminals targeting businesses’ raw materials suppliers or just service providers. The data breach at US retailer Target, which in 2013 had 40 million customer details stolen and leaked, remains perhaps the prime example of the latter. That attack was the result of network credentials stolen from its refrigeration, heating and air-conditioning subcontractor.

The second reason to welcome initiatives like the Cyber Highway is related to this: Many businesses still seem to be complacent about this aspect of their supply chain risk.

A recent survey by insurance brokers Marsh found that only a quarter of UK large and medium-sized corporations assess their supply chains for cyber risks. As the report notes: “[T]he overwhelming majority of companies are leaving themselves exposed to third parties, from service providers to customers.”

Anything that gives businesses the tools to start changing this can only be a move in the right direction.

More than words: slavery in the supply chain

It may not seem it, but the deadline for company’s statements on tackling modern slavery is deadly serious. Businesses need to be sure they know what’s happening in their supply chains.

Human rights is the number one corporate social responsibility issue in supply chains, according to a recent survey. It ranks ahead of even environmental concerns and traceability when it comes to identifying essential concerns in the coming year.

It’s hard to argue with this: Human rights are a key focus of not just consumers, but also government in attempting to crack down on abuses. And one key example is regulation to fight modern slavery.

The end of September marked the “deadline” for big organisations with a financial year ending in March to publish their modern slavery statements. In the statements – introduced by the Modern Slavery Act 2015 – organisations supplying goods or services with a global turnover of £36 million are expected to set out the steps taken to ensure modern slavery is not taking place in their business or supply chains.

A light touch

On the one hand, the requirement doesn’t seem too taxing. It is, for instance, a “soft” deadline: government guidance says only that businesses should publish their statements “as soon as reasonably practicable” after the end of each financial year, and “encourages” publication within six months – hence the end of September cut-off for those with financial years ending in March.

This is, as others have pointed out, “a light-touch approach”, and some of the initial efforts seem to reflect a failure to take the new rules seriously.

According to one analysis of the statements submitted so far, most fail to meet minimum standards the Act sets out. The majority, for instance, are not signed by a company director or are not available from the company’s website homepage – two basic requirements.

No excuse not to know: time for supply chain transparency

Nevertheless, the advent of these statements is an important milestone.

For a start, the availability of statements from hundreds of companies introduces a benchmark by which policies can be assessed. They are also likely to be pored over by campaign groups, including those focused on “strategic litigation”, bringing cases in the civil courts to penalise abuses.

Finally, more moves against slavery in the supply chain can be expected, with Theresa May recently reiterating her commitment to the issue as Prime Minister.

Given all that, statements are going to be more than just a PR tool. Some, according to the UK’s Anti-Slavery Commissioner, are likely to end up as evidence of whether companies ought to have known slavery in their supply chains was taking place – making them guilty of a criminal offence.

The statements are really just the start; businesses need to be sure they have the visibility and processes to root-out abuses in the supply chain.

As Theresa May wrote when she was Home Secretary overseeing the introduction of the Modern Slavery Act: “It is simply not acceptable for any organisation to say, in the twenty-first century, that they did not know.”

The Brexit case for proactive supply chain changes

EU vote has brought risks, but also opportunities. It’s time for a review.

Brexit is among the factors pushing supply chain risks to a three-year high, according to a new survey. The Chartered Institute of Procurement and Supply quarterly Risk Index is up one point on last quarter, and up almost two on last year to reach 80.8 (out of 100).

Two months on from the EU referendum, however, we’re actually little closer to knowing what Brexit will mean.

With the government still not invoking Article 50 (despite some pressure), negotiations for the UK’s withdrawal from the EU have yet to even begin. Theresa May has said it will not be triggered this year, and there is “idle chatter” of further delays – perhaps until after the French and German elections in May and September, respectively.

In the absence of those negotiations, we’ve no way of knowing the likelihood of any of the various options: whether we’ll end up with someone similar to Norway’s membership of the EEA or an entirely new arrangement – a “special status”.

In one sense, then, we’re no further on than when we last looked at this issue. Yet, the intervening period has been useful in a couple of respects.

Supply chain risks sooner rather than later

First, it’s shown us that some of the more dire speculation about the impact of Brexit was just that. Both unemployment and retail sales figures have so far confounded the doom-mongers. There’s no guarantee that will last, but it makes it clear that predictions about the impact from Brexit are unreliable.

It also makes it clear that there’s still time to make changes to respond to a new environment. But that window could close soon.

For many, the risks need to be monitored closely well before the final parting. As a recent report by Credit Suisse makes clear, for instance, many UK exports are not goods being sold to consumers but components used by EU manufacturers’ products. Those EU producers are likely to be reviewing their supply chains now, even if you are not.

“Indeed, the risk is that the current uncertainty surrounding the UK’s membership of the EU may be sufficient for some EU companies to slowly shift sourcing parts of their value chains away from the UK. As such, the negative effects on UK export demand may occur sooner rather than later,” the report notes.

Making the most of Brexit

But Brexit also presents opportunities. Whether it forces you to or not, Brexit probably should change your supply chain – or at least make you consider changes. A lot of companies have taken this to heart, with a survey of retailers by Barclays showing many looking to new sources.

In fact, the Brexit vote – like any big change – is a prompt to review the supply chain to check its robustness and its efficiency, because where there are risks, there are also often opportunities. It’s better to try to address both early on.

Will Brexit break your supply chain?

Brexit means uncertainty and complexity for supply chains, but that shouldn’t stop us planning

We know the result, but not much more. The only certain conclusion we can draw from the EU referendum vote is that we’re in for a period of uncertainty.

In one sense, little has changed. The UK’s membership of the EU continues. David Cameron has said it’s up to whoever replaces him to officially notify the European Council of the UK’s intention to leave and that won’t be until September. Then there’s a two-year period to negotiate a “withdrawal agreement”. Even that may be extended.

The UK could remain in the EU into 2019 or longer.

So, on the one hand, nothing’s changed. On the other, everything is different. Whether you support Brexit or think it’s madness, it’s impossible to deny it’s a game changer.

Volatile supply costs

First, there’s the short-term uncertainty. Even the most optimistic supporter of Brexit would struggle to claim we’re not likely to see increased volatility. Big currency moves, for example, are likely to be a fact of life for some time to come. We’ve already seen a 31-year low against the dollar. One analyst has predicted it could fall to parity by the end of the year.

Whether that’s true or not only time will tell, but less settled currency markets will be here for the foreseeable future. The impact on costs of overseas supplies and raw materials could be significant.

Uncertainty also means investments are more difficult to predict, both for businesses themselves and for suppliers. That could affect plans to support growth.

Longer-term, though, the big questions are likely to be about access to markets.

Diverging Regulation and Standards

This is not always going to be simply about tariffs. There are other dangers in going your own way.

Before the advent of the single market, for example, it was often impossible to sell a product designed for one EU market in another due to different technical standards or regulations operating in each.

Manufacturers must keep an eye on these barriers creeping back in. Existing harmonisation in industries may be eroded over time by new regulations and developments in either Britain or the EU. Equally, they may be the result of intentional protectionist measures introduced by the remaining EU countries.

Like any change in tariffs, this will only become clear with time. There is one thing we can already bet on, though: increased complexity

Increased supply chain complexity

Any arrangement other than membership of the EEA like Norway’s is likely to see either a change in the UK’s terms of trade with the EU or the possibility to change its terms with those outside – and perhaps both.

That could mean opportunities, as well as challenges. But if it means sourcing from new markets or just navigating new rules when buying from existing suppliers, it will mean changes to the supply chain that have to be managed.

There’s no crystal ball, but there are things businesses can do to prepare now.

Most obviously, they need to look at anything they can do to make their supply chains resilient. Dual sourcing from suppliers both within and outside the EU could be one way businesses hedge their bets, for example.

Even before considering that, though, businesses need to make sure they really understand their supply chains, and have visibility across them. That will enable them to consider the impact the various possibilities may have and plan accordingly. It will also mean they can react faster and more intelligently to the dangers and opportunities Brexit brings when the time does eventually come.

Power, money – and technology: the rise of the supply chain CEO

Evidence supply chain management is increasingly critical to corporate success

Money isn’t everything, but it helps, and supply chain management professionals are likely to welcome evidence of rising salaries. According to the recent Institute for Supply Management (ISM) survey average salaries in the US grew 7.9% last year, while the proportion of supply chain managers making $100,000 or more is now up to 44%.

There’s evidence it’s not just a US trend, either. In the UK, another recent survey has predicted increased pay in the coming year, albeit at a slightly more modest rate of 5%.

For me, though, a more telling piece of evidence of the status of supply chain management is more anecdotal: the increasing numbers of supply chain managers who have gone on to lead their organisations as chief executive (where, of course, the financial rewards are all the greater).

As a recent article in Forbes notes, the role call of CEOs from a supply chain background includes leaders of some of the world’s biggest and best-known companies: Tim Cook at Apple, Mary Barra at General Motors, Brian Krzanich at Intel, Fabian Garcia at Revlon, John Hendrickson at Perrigo…

All told, it seems career prospects for supply chain professionals look pretty good. What’s perhaps even more interesting, however, is what that tells us about supply chains themselves.

Setting the course: supply chain strategy as corporate strategy

On the one hand, it clearly sends the message that supply chains are important – and touch a lot of the business; the Forbes piece says chief supply chain officers (CSCOs) now often control more than half companies’ spending and have two thirds of employees reporting to them directly. In short, supply chain managers are good choices to run the business because they know the business.

It also notes, correctly, that globalisation and changing manufacturing patterns means supply chains have become enormously complex. The supply chain function has had to attract smart people, and it’s perhaps not surprising some of those sharp minds rise to the top.

The reason for the increasing profile of supply chain managers, though, can probably be summed up more simply: Supply chain management has become a strategic position, making the progression to CEO more natural.

As the writer puts it: “The modern CSCO approximates the thought process of the CEO, balancing risk and opportunity, fighting the near-term battle with an eye on long term strategy, and focusing above all on profitable growth.”

The role of supply chain software

I would add one further thought: That this transformation is heavily supported by the increasing role of technology.

First, much of the logistics, administration and number crunching is increasingly automated, enabling supply chain managers and their departments to focus on more strategic issues. Second, it’s only through technology that supply chain managers can actually gain the visibility and understanding of complex supply chains – and associated risks – they need to make decisions.

That’s unlikely to change. After all, if supply chain managers are to keep making the step up to leadership, they’re going to have to show more than just that they’re responsible for making strategic decisions; they’re going to have to demonstrate those decisions are the right ones for the business.

Treacherous waters

“When will we learn?” asks an article in the shipping bible Lloyd’s List, reviewing the findings of a recent report on the Hoegh Osaka. We now know the container ship, which ran aground in the Solent in January 2015, was unsafe when it left port.

For Lloyd’s List and others the issue is one of safety: a proper concern for safety, rather than box-ticking, could have prevented the incident. There are, though, important lessons for supply chains, too, that are worth noting.

On the one hand, it’s important not to overstate the risks to supply chains from shipping catastrophes. Maritime cargo losses are on a long-term downward trend, according to insurer Allianz. Regulation and improved practice have seen losses almost halve in the last ten years.

On the other, shipping lanes are still dangerous places and best practice is undeniably patchy. To quote from Lloyd’s List: “These were vessels operated in developed countries by companies with resources at their disposal. What horrors are happening on the ships not run by immediately recognisable industry names?”

It’s certainly a question worth considering.

So, too, are a couple of other issues. One is that the risks facing the maritime industry are by no means static. Whether it’s the growing number of giant “mega ships” or, less obviously, cyber risks as ships become another component in the Internet of things, the risks continue to evolve.

Another issue, though, is that we’re stuck with some of our geography, which doesn’t look like changing anytime soon.

Consider these lines from the BBC report on the Hoegh Osaka: “It was pure chance that the ship ran aground in shallow water. If the ship had started to turn a few moments earlier or later, the Hoegh Osaka would have ended up in the only deep water channel. It would have stopped the container port, stopped the cruise ships, stopped the ferries. And it would have meant Britain’s largest oil refinery running out of supplies.”

That, too, is worth thinking about, especially since the Hoegh Osaka is far from the only ship in recent history to have threatened the Bramble Bank, the channel so pivotal to the UK’s refining capacity and free flow of shipping.

Some risks we are probably stuck with, although business can try to make it easier to establish liability when things go wrong. The story of the Hoegh Osaka has this reminder for supply chains, though: it’s not just who’s supplying you that matters; you need to know how they’re doing so, too.

Taking the biscuit

Think you’ve got supply chain problems? Spare a thought for John Titmuss. He took up his role as group supply chain director at United Biscuits (where he was previously HR director) at the start of October. Two months later came Storm Desmond. Then storm Eva.

The flooding of the company’s factory has caused massive disruption to its business. Production of some lines was able to start up again in January, but many of its most famous brands are yet to make it back onto supermarket shelves. Stocks are only expected to reach supermarkets from mid March.

It has been a vivid illustration of the impact natural hazards can have on supply chains even in developed, established markets.

Food for thought
The nation’s biscuit crisis has prompted a fair bit of levity, but the consequences are serious. Industry insiders estimate United Biscuits could be looking at a £50 million insurance claim. But at least insurance will cover the losses, according to the company, and at least its brands are probably strong enough for it to pick up where it left off with suppliers.

For many others, such a business interruption – a three-month break in production – would be terminal.

The food industry, of course, faces significant challenges in terms of managing its supply chain. Supermarkets developed the original just-in-time supply chains, after all – with their approach famously adopted elsewhere.

Added to this they face the usual issues: not just flooding but theft, ethical issues, and increasing complexity from expanding into new geographies. United Biscuits is a good example, with exports rocketing and key target markets including Africa, the Middle East, India and China. Supply chain risks management is as important, or even more so, here as in any other industry.

In this context, the apparent vulnerability of the company’s production – so crippled by flooding at its factory (and not for the first time) is striking. A national shortage of ginger nuts will strike many as a storm in a teacup. It suggests, however, a sector that still has some way to go to build supply chain resilience.

Does not compute

Changing customer demands, high levels of risk in global markets and globally dispersed partners are among the key risks facing manufacturers, according to a survey by pollsters YouGov for GTNexus.

The results, published earlier this month, show four in ten manufacturers have experienced a supply chain disruption impacting their business in the last 12 months – whether external, such as from weather or strikes, or internal, from technology problems or shortages of talent, for example. As the report notes, the findings potentially underplay the issue, with other studies showing up to three quarters of businesses experiencing a disruption each year.

“Virtually no business involved in producing or selling products is immune to supply chain disruption. Events such as natural disasters that impact supply chains are unavoidable, and a host of other disruptions – everything from supplier shortfalls to product transport challenges to labour strikes, terrorism and social unrest – occur with surprising frequency,” it reads.

Despite this, three quarters of manufacturers operate without a Chief Supply Chain Officer, the survey found. Instead, the findings suggest manufacturers will be increasingly reliant on technology to ensure effective supply chains. Among the top level findings, the survey reports that advanced analytics and the Internet of Things are expected to prove key technologies in boosting supply chain performance.

People or processors?
It’s difficult to fault this: the complexity of modern supply chains increasingly means a technological solution is essential for a coherent view.

As the report notes: “Having visibility across the supply chain and its involved business partners is the single most important way to proactively sense and respond to disruptions, and thus mitigate their impact. You can only control what you can see.”

The report authors are also far from alone in recognising the importance and potential of the Internet of things in enhancing visibility across the supply chain. Moreover, the challenge of achieving visibility and the potential benefits technology could bring are not unique to manufacturing. Similar lessons are just as applicable to sectors such as healthcare and pharmaceuticals.

Yet it’s also obvious that technology alone cannot answer the challenges facing businesses’ supply chains.

First, firms need the right people with the insight and expertise to seek and apply the technology available effectively. Second, businesses need commitment at the top to address issues of supply chain resilience to begin with.

Unfortunately, that commitment is not always as solid as it should be: Another recent survey of pharma and healthcare firms found that, despite unplanned events having a major impact on them, 40% of supply chain decision makers in these sectors still didn’t rank contingency planning as a critical area for investment.

Without a commitment to address that problem, technology will only ever be able to do so much.

Time for a fresh approach to ESG supply risks?

Are traditional supply chain methods failing when it comes to companies’ environmental social and governance (ESG) policies? It depends on what you count as success, according to a recent report by the University of Sheffield, picked up by The Guardian.

It suggests  traditional ESG auditing approaches to supply chains are “working for corporations, but failing workers and the planet”. The report’s assessment of corporate schemes using independent auditors to monitor factories, develop codes of conduct for suppliers and publish transparency and ethical reports is damning.

“Audits are ineffective tools for detecting, reporting, or correcting environmental and labour problems in supply chains,” the authors write. “They reinforce existing business models and preserve the global production status quo.”

One issue the academics have with such “benchmarking regimes” is that they are voluntary. This allows corporates to focus their attention where they see the best returns in publicity and efficiency; they argue it has led firms to prioritise environmental concerns over labour market worries, for example. (And one can argue about how well they are doing even when it comes to the environment, according to another recent report.)

Another problem noted is that the “auditors” of these voluntary standards, reliant on the companies for business, have no real power. As it quotes interviewee: “[Y]ou cannot open a locked drawer … you can look at a record that says something but you wouldn’t be able to go and find out whether it’s actually true”.

That’s reinforced by cases it notes of sites that have passed audits only to have major violations revealed or catastrophes soon after. It’s certainly worrying reading.

Catching it early
Despite this, it’s hard to agree with the report’s authors entirely. One note of caution is that the report’s scope is not huge – 25 interviews over a two-year period with ethical auditors, business executives, NGOs and supplier firms. That, though, doesn’t invalidate some of the points raised.

The key problem, rather, is that it’s difficult to accept the conclusion: that the regime is “working” for companies, despite the failures it outlines. If the auditing regime is not effective in picking up and preventing scandals such as the collapse of the Plaza garment factory in Bangladesh in April 2013 or revelations of slavery and human trafficking in the Thai shrimp industry in 2014 (to use its examples), then it is failing companies, too.

As those examples show, abuses that are allowed to persist ultimately result in scandal or tragedy. Neither benefits businesses, which have commercial as well as moral reasons to prevent them. If the auditing approach is failing, businesses have every reason to drill down to their supply chains and try to put that right.