Supply Chain Risk Management: Mapping Your Way to Resilience

Stephen DeAngelis

May 13, 2014

Commenting on the results of a survey conducted by APQC, Gregory L. Schlegel, founder of The Supply Chain Risk Management Consortium, writes, “The APQC survey … reinforced what our Risk Consortium has been saying for the last three years, which is, many firms have neglected to analyze their growing global supply chains and the discrete risks.” [“Supply Chain Mapping Combined with Risk Assessment,” SupplyChainBrain, 25 March 2014] Considering how many major supply chain disruptions there have been over the past decade, such results should be surprising. Unfortunately, survey after survey has shown that, despite the growing risk of supply chain disruptions, companies are not moving quickly to make themselves more resilient. Schlegel rhetorically asks, “Why?” His answer: “Basically because everyone’s supply chain has been lengthened, many have pruned their suppliers to reduce costs and many have secured new suppliers in very risky corners of the world.” What’s his solution to this challenge? He writes, “To mitigate these negative impacts and take a proactive approach to supply chain risk, the Risk Consortium continues to advocate mapping the supply chain and superimposing risk across the new supply chain map.”

 

I first wrote about the importance of mapping supply chain risks a couple of years ago in a post entitled “Risk Management: Mapping Supply Chain Risks.” I concluded that post by stating, “With so much at stake, I would think that companies would want to take advantage of every possible tool and technique to help them deal with a growing number of risks to their supply chains. Mapping is simply one of the tools in the kit.” Schlegel indicates that his group recommends “the links and nodes approach when designing or modeling a supply chain network.” He explains that “nodes are the entities within a supply chain, such as suppliers, distributors, customers, other channel members and the company’s facilities as well.” The links, he explains, “represent flows and are represented by solid or dotted lines and flows include material, services, funds and information.” Although that sounds simple, for large companies mapping can become very complex. That’s why MIT’s High-Viz Supply Chain Project is “developing a way for companies to automatically map and analyze supply chain risk.” [“MIT’s Hi-Viz Supply Chain Project Aims to Automatically Map Supply Chain Risk,” SupplyChainBrain, 17 January 2014] According to Bruce Arntzen, executive director of the Supply Chain Management Program at MIT, the project merges two capabilities: automatically drawing a flow diagram and map of a company’s supply chain using data stored in corporate databases and superimposing on that map displays of alerts and other critical information gleaned from outside sources. This visual would immediately allow companies to assess and manage supply chain risk.”

 

Arntzen told the SupplyChainBrain staff that an MIT survey revealed that the biggest risk worry that supply chain managers have is a supply failure (i.e., a major disruption in the supply chain). He told them these worries could be greatly alleviated “if companies could quickly and efficiently create a picture of their supply chain that showed them where their parts and raw materials come from, how much of the company’s revenue is connected to these parts and materials and where the most vulnerable links are.” Referring to the results of the earlier MIT survey, Arntzen noted, “Companies didn’t have this information in 2000 and they don’t have it today. That’s the need we are trying to address with the Hi-Viz Project.” The article continues:

“The concept of drawing pictures of the supply chain has been tried using manual processes, but the automatic feature is new. ‘When you try to do something no one has ever done before, you find out why it hasn’t been done,’ Arntzen says. ‘In this case, the reason is that those big corporate databases and IT systems were never designed to draw pictures and they don’t have all the right information.’ One glaring data gap is in the location of suppliers’ plants, he says, noting that most systems only have the address of suppliers’ headquarters, ‘the place they send the check. These systems don’t even have a line for typing in the factory location,’ he says. ‘When a disruption or disaster occurs, you don’t care where the headquarters is, but you care very much where your raw material is made.’ Also missing is the name of alternate suppliers and information concerning how long it would take to get another supplier up and running, Arntzen says. Both of these pieces of information are things that the purchasing organization easily could capture but they have never been asked to do so and, as mentioned previously, there is no place to enter it, says Arntzen. ‘Trying to get the IT department to add a data field and put definitions and rules around that and then trying to get purchasing to capture factory locations and make guesstimates of how long it would take to replace a supplier takes a tremendous amount of effort and cooperation’ he says.”

In the age of information, it’s incredible that there hasn’t been a system yet developed to do what Arntzen and his team are attempting to do. Last year Joel Makower wrote, “When Kara Hurst, the CEO of The Sustainability Consortium — the global group of companies working to improve consumer product sustainability — first uttered the words ‘commodity mapping’, … I more or less intuitively got it. And it was instantly appealing: a methodology for understanding the geography of one’s supply chain, or at least the commodities being purchased, and the environmental conditions of the places from where they were being sourced.” [“Assessing supply-chain risk through ‘commodity mapping’,” GreenBiz, 4 November 2013] Makower added, “Commodity mapping was the latest of what I’d seen in recent months: tools and information resources geared to provide insight into key supply-chain regions and, by implication, the risks a company might face from region to region.” Makower was spot on when he noted that risk mapping is a concept that is easy to grasp. In fact, as I noted in another post, “The marriage of Big Data and geographic information systems (GIS) provides a synergistic impact that enhances the insights gained from analysis.” [“Big Data and the Big Picture“] Makower went on to describe the commodity mapping effort:

“The Commodity Mapping Innovation Project was the brainchild of Christy Melhart Slay, Research Manager and Biodiversity Project Leader at TSC, who came to the organization three years ago while working on her Ph.D. in biology from the University of Arkansas, one of two universities that co-host TSC. One of her first meetings at the consortium was with a group of companies in the beverage and agriculture sector. ‘I was sitting there with all of these retailers and consumer packaged goods companies,’ Slay told me recently. ‘And they’re saying, “You know, we don’t understand our commodity supply chain. We want to focus on water issues, like scarcity and biodiversity, and social issues, which are really geographically specific. But when we buy from the commodity markets, we don’t know where our stuff is coming from. It’s really hard to address those on-the-ground issues when we don’t have traceability into our supply chain.”’ Slay began gathering crop data, linking it with import and export data, creating a model that takes the country where a company is located and predicts where commodities or crops are actually being grown — ‘a high probability based on the model that we’ve created,’ says Slay. Slay and her team then pulled in information about biodiversity hot spots and water scarcity hot spots — not just terrestrial biodiversity but aquatic biodiversity, too. Next came at social issues. ‘We found data on areas that have high political unrest, which is a signal for other social issues.’ They overlaid that data onto the existing crop model. The result is a tool that maps the environmental and social risks a company faces in buying commodities around the world.”

It’s not difficult to imagine how the efforts of Slay’s team and Arntzen’s team complement each other. In fact, much of the required data is the same. Schlegel notes, however, that challenges remain. “First and foremost,” he told the SupplyChainBrain staff, “most global supply chains are very complex with hundreds of tier one suppliers and perhaps thousands of tier two and three suppliers. And by adding the company’s facilities, product portfolio and customer base, the complexity becomes very apparent. Second, many suppliers are not very keen to share their product data with customers and reveal their supply sources. Yet another challenge is determining the right level of maps to develop and how to keep them relevant in a very dynamic supply chain environment.” He continued:

“Don’t forget the demand chain. You must include the geographic location information of all sites, i.e., geo-coding. Supplier corporate locations are different than shipping locations. Include more than material flows – factor in costs, revenue and margins. Don’t ignore interrelationships among firms in the supply chain. Secure visibility when possible to sub-tier suppliers and entities. And when completed, we advocate superimposing risk assessments across all the nodes and links culminating in a network map, with all the elements above, including a Red, Yellow and Green risk profile across the entire network. We expect that more companies will be advocating supply chain mapping integrated with risk assessment, especially by the insurance organizations who are extremely aware of the negative financial impacts of disruptions for their clients.”

One of the reasons that supply chain risk management isn’t included in C-level discussions is that it is a difficult subject to understand (especially when very complex supply chains are involved). That’s where the old adage “a picture is worth a thousand words” comes into play. Supply chain risk mapping can demonstrate much more effectively risks that could cause significant disruptions. If your company hasn’t considered mapping its supply chain, now would be a good time to start.