Archive for December, 2009

Who’s watching your suppliers?

In the old days, a company really only needed to worry about the credit worthiness of their customers.  The credit department would monitor the accounts receivable balances and watch the buying history to make sure the customer was able to pay for the product that they purchased.  If a customer needed more product, or there were concerns about the ability for the customer to pay, the credit department would set up some alternative financing (cash up front, letter of credit, etc.) against the customer.  It was normal business, your supplier did the same thing to your organization.

Time have changed, now days with an over optimized supply chain, a hiccup upstream will have an adverse reaction to the flow of goods and services out of your organization and in turn all the way downstream to the consumer.

One of the hiccups can be a supplier of products, raw material or services going bankrupt. 

This is happening more and more in today’s economy.  Once thriving organizations are no longer to keep financially afloat and are reorganizing or closing their doors.  To help mitigate this type of risk, many companies will multi source, with the expectation being that if one supplier has financial problems, there are others who can provide your organization with the products needed to satisfy your customers demands.  Additionally, a periodic review of the supplier’s financials (through a credit reporting organization such as D & B or Best) can help identify potential issues down the road.  Your credit manager can provide a quick analysis, or set standards for you to monitor.  If the company has financial issues, it is time for a frank discussion on the viability of the organization and a team review of the business continuity plan that would be put in place if the supplier was no longer able to provide product.

But what happens when the supplier in question is farther upstream?  If your direct supplier’s  supplier of raw or other material, or a service provider is caught in a financial bind. In many instances your supplier may not provide you with information on who their supplier is.  The visibility of a problem upstream is not as visible to you and may also cause your secondary sources to have stock outages or be unable to provide the things you need.

To minimize this risk, I suggest several alternatives.  First have an understanding of the sources your supplier may be using and monitor the industry/suppliers on a global basis.  Second, help your suppliers by requiring them to provide a copy of their risk management plan.  During the contract process you can outline the types of risks that they should monitor and the communication and contingency plan they have developed in the event one of those uncertain items arrises.  They don’t need to provide names and sources, but they should provide a general overview on how they will protect your supply chain while under their control.

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As God is my witness, I thought turkeys could fly

For those of you old enough to remember that wonderful sitcom WKRP, I am sure that these words make you chuckle. 

The premise of this  Thanksgiving episode is based on the radio station giving away turkeys as part of a Holiday promotion.  The station owner took charge of planning the entire promotion, getting the live turkeys, arranging for the give away location, arranging for a live broadcast, scheduling the helicopter. . . .  Helicopter?

Yes, it seems that Mr. Carlton privately and secretly arranged for everything and planned for a spectacular release of the noble bird, and he arranged everything based on the base case scenario.  Unfortunately there were two tiny issues that were overlooked. 

First, there were no contingency plans in the event anything went wrong. 

Second, Mr. Carlton didn’t fully research the product he was delivering.  it seems that the Turkeys do not fly.

OK, I know wild turkey’s do fly a bit, but the kind that are bred for our Thanksgiving dinner don’t, even when dropped from a hovering helicopter.  

Besides an extremely funny half hour, the show helped point out two extremely important items to take into consideration when managing your supply chain. 

A primary consideration in moving product is to understand it.  If it’s turkeys, you need to know if they can fly, how the temperature affects the birds, do they need water or food, how are they packaged and does the packaging protect them?  If it’s lettuce, you need to know the effects of temperature on the product, how it’s packaged, is there an expiration date, and other items.  If it’s a wind turbine blade, you need to know the effects of temperature, the size of the product, the sensitivity to vibration, etc.  The product factors need to be taken into consideration in the movement and delivery of the product to assure it gets to the consumer in optimum condition.  Without this knowledge you are opening yourself up for damage, claims, delays, monetary losses and other equally or more nasty problems.

Additionally you need to have a back up plan in case something goes wrong.   

While the majority of the time there are no problems, a program should be set up to provide directions or guidance in case something does go wrong.   In Mr. Carlton’s case, his spur of the moment plan was to land the copter and release the birds to the waiting crowd.  Unfortunately the birds were a bit agitated what with the noise, the people waiting to grab them once they were handed out the door, not to mention seeing their cousins tossed out of the open door and instead of  quietly going to their new homes, they began pecking at the crowd and making a break for freedom. 

A good contingency plan is worth it’s weight in gold in the event something bad happens, and help you sleep at night even better than a big turkey dinner.

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