By Jack Kohane
Why things go wrong in today’s supply chains and how to make them right topped the agenda at The Logistics Institute’s first national conference held in April in Toronto. Themed “Risk and Resilience in Global Supply Chain Logistics,” more than 50 delegates, most with P.Log. certifications, gathered to listen and learn about what many call the horns of the supply chain dilemma in the 21st century.
“The more connected our supply chains are, the farther they stretch around the globe, the more vulnerable they are to risk,” said Victor S. Deyglio, Founding President of The Logistics Institute at the event. “Resilience is not simply about bouncing back. Resilience is the ability of a supply chain to reduce the probabilities of disruptions, if possible, but more importantly to reduce the consequences of those disruptions, and to reduce the time to recover normal performance.”
Speakers at the Conference, hailing from Canada and other parts of the world, and representing a range of disciplines, offered the delegates their perspectives on today’s major supply chain issues, challenges, opportunities, as well as an array of solutions in slogging through the quagmire of diverging forces that are pulling companies and logistics professionals in multiple directions all the time.
In launching the Conference with an opening address, retired shipping director, David Watson stated that the topic Risk and Resilience is perfect for today. “Logistics is a 24/7 occupation. Risk is always a factor….there is no crystal ball. We have to expect the unexpected as there are so many interactions, so many touchpoints all along the supply chain, some disruptions and deviations are controllable but many are beyond our control. Disruptions, both manmade and natural require timely action, but cannot be planned for except in “retrospect” in the form of recovery plans. Critical success factors are responsiveness, get all the facts, analyze the options, actively communicate, collaborate, keep communicating with key stakeholders and other intermediaries involved. Do not sugar-coat or raise false expectations, just relay the facts and the viable options for consensus and recovery. Information exchange is the key. People want to know why goods don’t arrive. People need to know the whole story….an accurate assessment of the situation. If someone says that we have a problem, I ask them what they think is the solution. Think the problem through so that 2 or 3 options can be considered. Resilience is the moment of truth…the what-ifs, when pre-planning scenarios in the structure of the supply chain are put to the test.”
Based on his experience in earthquake engineering for the telecommunications and electric power industries, keynote speaker, Alex Tang, a Mississauga, ON-based independent management consultant and civil engineer, spotlighted the hazards that continue to regularly plague global supply chains. “These can be divided into two categories: technological (manmade such as vandalism, sabotage and terrorism) and natural —- snow, ice, wind storm, flooding, fire, landslide, lightening, earthquake, volcanic eruption, and EMP —- electromagnetic pulse which can cause a lot of damage to electronics particularly for telephone systems.”
In engineering, Tang noted that resilience is defined as the capacity to recover quickly from stress. But the question is how quickly? What is an acceptable time for recovery for the people who use those services, like telecommunications, electric power? “If you have a facility that is really critical to your operations, that will be the focus of a manmade hazard attack…look at events like 9/11, where terrorists focused on a certain critical type of structure,” he said, concluding that in planning to mitigate risks, one should never say: it’s not going to happen to me. To prepare for hazards, Tang urged logisticians to establish a logistics leadership forum to develop best practices and standards. “I think we have enough talent in this room to start to develop this group, to start something for the logistics industry, for the supply chain.”
Taking the podium to build the theme of risk analysis and global integrated logistics, Essa Al-Saleh explained what companies like his are doing to manage risk and resiliency in the face of all kinds of possible hazards. “Risk exists, it has to be managed,” began the President and CEO of Agility Global Integrated Logistics, a $5 billion global logistics provider, operating in over 100 countries and headquartered in Baar, Switzerland. “Everything is becoming more interconnected and our dependency upon each other is the way forward. How do we make that interdependency more resilient, more robust?”
Targeting emerging markets is a big part of the answer, according to Al-Saleh, who pointed out to Conference attendees that his company has conducted years of research in partnership with transport intelligence to rank 45 emerging markets based on compatibility, infrastructure and market size. The purpose of producing this Index, he stated, is to share its findings with Agility’s stakeholders, its customers, and its competition. “It’s not about having a competitive advantage, he said. “The question is what you do with this information.” The Index includes activities in developing markets. “Those markets do have some hazards, not just natural disasters, but regulatory, compliance, and government corruption issues,” Al-Saleh continued. “It’s important to do your planning before you jump in.” He recommends developing a framework to manage risk and build resiliency, recognizing the risks and having the patience and persistence to work through the challenges. “Understand the issues you could face through scenario planning, share information among your key stakeholders to have common understanding and build a trusted partner network to develop necessary action plans. We live in a world where how we made money in the past 20 years is not the same way as we will be making money in the next 20 years. There will be different dynamics, different opportunities as we go forward.” He estimated that emerging markets could grow at double the speed of more developed markets. Looking ahead to 2020, Al-Saleh forecasted emerging markets to account for about 2/3’s of global growth, emphasizing that the U.S., long the world’s largest economy, may not hold its leading position by 2030-35. “What I do see today is a customer base that’s becoming more global. There’s much more information sharing, more recognition that there is a dependency on each other. I think that to be successful you can’t go it alone, you have to partner up (with a logistics provider), you have to plan, and you have to prepare in doing business in these markets.”
Strategic and tactical planning and preparedness in the event of global supply chain disruptions were top of mind amongst the delegates. Tom Sekowski, a Mississauga ON-based supply chain professional with project experience in manufacturing, distribution, 3PL, and export compliance, commented that he views resiliency as the ability of a supply chain to reduce the probabilities of disruptions and to recover normal performance as quickly as possible. “There are many ways that can make even the simplest project fall apart before it has a chance to get off the ground,” he said. “The key point is that placing planning ahead of rushing through a project pays dividends in the end. I realize that risks are evident throughout an entire supply chain – from schedules, to vendor qualifications, to customs, export, packaging and nuclear compliance. What these sessions have made crystal clear is that the earlier the project leaders identify the scope of probable risks and the quicker these risks are managed, the less riskier the supply chain will become in the case of an unforeseen event that could put a deadly end to a phase of the project or the project as a whole.”
To bolster that argument in his presentation, consultant in organizational preparedness, Irvin Varkonyi, President of SCOPE (Supply Chain Operations Preparedness Education), located in Fairfax, VA, emphasized to delegates that resilience preparedness among the international trade community must become more proactive in the event of possible manmade and natural disasters. “While risk has been factored into global activity ever since people started trading with each other, risks have greatly expanded when global supply chains seek to build components in multiple countries which must eventually find their way into finished products. Further, we note that the evolution of supply chain risk has gone beyond simply reacting to dramatic events such as the tragedies of 9/11 or the earthquake/tsunami in Japan. Now, we must consider disruptions of all kinds whether we see them on CNN or we hear a critical supplier going bankrupt half way around the world. So now the real work starts. Organizations must take advantage of globalization while recognizing the vulnerabilities that globalization creates. the task now is for companies to optimize their operational performance while minimizing their operational vulnerability.”
Varkonyi sent on to say that the discussion should not just focus on resiliency and business continuity. “What we are trying to do is reduce variability. We are trying to improve service levels to our customers, we want to have operating efficiency, we want to have collaborative platforms.” From an operational point of view, he continued, a business can’t be competitive if it has risks that should a disruption occur those risks may damage the enterprise somewhat, or even put it out of business. “Our primary focus is on operating a business efficiently and responsibly. Decreasing variability to your customers is the main goal. If you can do that, you’ve got something going…imagine if you could guarantee to your customer you’re going to give them 99.9% of what they ask for in terms of deliverable goods…customers do value that.”
To help smooth out possible bumps in supply chains for those looking to go global, Varkonyi recommended they adopt specific international standards. He pointed to ISO9000 as the leading standard used by most companies. “It’s a big one, but how about adopting standards in resilience in supply chain security (ISO28002), or supply chain security management systems (ISO28000), or risk management systems (ISO31000), as this area continues to evolve these will become as important as ISO9000 to global organizations.”
Sheet metal fabrication and welding services leader, Pegen Industries, located in Stittsville, an Ottawa suburb, deals with risk and resilience daily as it expands its supply chain network around the globe. Its President, Fergus Groundwater, provided Conference attendees with practical approaches to managing risk in international business. “International business brings opportunity, but with that comes real risks, including corporate risks and transaction risks,” he opined. “Our approach is that we seek to act like a supply chain partner to our clients. To make these relationships work efficiently, you need to plan for risk, and particularly develop a risk management system that can be deployed at all levels. You need to empower your people to understand risk and make decisions based on a risk assessment of transactions.”
International business is really no different than domestic business, Groundwater said in his wrap-up of the Conference proceedings. “But when you start to play in different markets, currencies differ, things take a lot longer, people pay you differently, people have different cultures so they deal differently. You need to understand those things and make sure you have considered them as you enter into these transactions. I can’t emphasize enough how much time needs to be spent in processes and technology, these have allowed us to de-risk the business to grow that business.”
Sekowski described the Risk and Resilience Conference as an eye-opener for him. “We were walked through corporate risks —- T&C’s (Terms and Conditions) and insurance, through transactional risks, contractual risks, all the way through currency risks, all of which could pose severe risks on the company’s bottom line unless these are properly managed. Compliance factors such as rules of origin, classification and valuation were clearly identified. Integration with vendors and importance of quality standards were brought to light as well. I found all these aspects of supply chain risk management very enlightening and made this conference a stand-out.”