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Monday, June 27, 2011

Manufacturers Must Brace for Global Supply Chain Uncertainty and Risk

Smart companies build risk management into their day-to-day supply-chain management processes and prepare contingency plans.

By Mark Humphlett, director, Enterprise Resource Planning Product Marketing, Infor

Triggered by Japan's natural disaster, skyrocketing oil prices, tornadoes, floods and other global upheavals, companies are gauging the resilience of their supply chains. They're determining what processes and technologies to employ to mitigate disruptions in the flow of essential supplies when an unplanned event erupts.

This type of risk-management assessment is essential today. Much is at stake, simply in terms of the millions of dollars -- and often much more -- that flows through the supply chain. You then have the impact on long-term competitiveness through a failure to deliver, or the potential damage to brand reputation from if you fail to launch a product on time or if you end up with a product recall from a material defect.

A natural disaster or major geopolitical event can stir up major headaches for supply-chain directors. But, companies should consider other, much more mundane factors and re-examine their game plan for dealing with such disruptions rather than adopting a "We'll deal with it when it happens," mentality.

Looking Beyond a Natural Disaster
Here's a case in point. In 2005, when Hurricane Katrina devastated New Orleans and the southeast coast, it proved a disaster for Lagasse Inc., a wholesale distributor, and, specifically, its call center, distribution facilities and employees and their families. In supply-chain terms, however, the hurricane had minimal impact. Lagasse didn't record any system downtime, lost less than three percent of network capacity for a few weeks and, reflecting the cleaning products it distributes, actually recorded some of its highest sales in the weeks that followed.

Lagasse had carefully prepared for a possible hurricane and was ready to take actions that included the rapid rerouting of supply from other U.S. distribution centers, switching to common carriage from owned transport and anticipating spikes in demand for certain product lines with the ability to switch supply sources quickly.

Many companies like Lagasse accept that risks -- both predictable and unpredictable -- are a natural part of operating a business. They build risk management into their day-to-day supply-chain management processes and prepare contingency plans they can employ immediately when necessary.

And what events had a much greater long-term impact on Lagasse's supply chain than the hurricane? They were all entirely predictable and largely within its control, including:

  • Rapid growth, year over year for more than eight years
  • Expanding and opening new facilities
  • Massive increase and churn in product range
  • Adding new, large customers
  • Substantial changes in the supplier base
  • Changing or implementing IT systems

So how do you build a chaos-tolerant supply chain?

Savvy supply-chain chiefs who strengthen the agility and resilience of their supply channels first answer several key questions, which include:

  • Have the key sources of risk been identified and their impact assessed?
  • Have we built a supply chain that can absorb the disruptions?
  • Is risk management viewed as a one-off exercise, initiated after an unexpected event occurs, or are employees actively building risk mitigation into their everyday activities?

They also develop a plan that can be turned into a competitive weapon allowing them to take an unplanned event and turn it into an opportunity. Here are some strategies for doing just that:

  • Develop networks that endure potential upheavals.
  • Software tools and other technologies are available to analyze the sources of risk for your company. In the process, they can help determine where and when to make, buy, store, and move products through your networks. These tools help to evaluate different sourcing, production, transportation and inventory strategies to match changes in the business environment, such as the impact of supply disruption, single sourcing versus dual sourcing and alternate parts, for example. Companies can then make use of their assets most effectively, trim costs, reduce inventory levels, and improve customer service.
  • Employ advanced supply-chain tools to assess all risks.

Companies should construct various what-if situations and test them extensively.
For instance, determine how the company would cope with, say, a three-month disruption in supply of a critical part or product. You can assess where you can obtain supplies from different vendors, and at what cost. You can figure out how much the changes could affect costs and profits and customer deliveries. These and other real-life scenarios can be tested in advance allowing you to make contingency plans.

Establish a companywide business process that takes risk into account.
Ensure the process assesses the risks and the impact to your supply chain. Involving your sales, operations and financial units in this strategic planning process will help identify and flesh out the issues. Using a comprehensive sales and operations planning process involves more than simply demand-supply balancing because it takes into consideration alternative demand-supply situations as well as their effect on profit margins and sales.

Include risk identification into your operations.
Managers should recognize what potential sources of risk could impact their part of the business and identify new ones that emerge. Risk management should be as pervasive as your quality management or your sustainability strategy. Otherwise, the assessment of risk will fail to deal with those sources of risk where the impact may prove the highest.

Developing sound risk-mitigation strategies will help you build an agile supply chain.
These strategies can deliver a huge competitive benefit and greatly diminish your supply chain risk. You should consider all the potential sources of risk to a supply chain and what to do should an unplanned event occur is no easy task. But, it's the only way to mitigate risk proactively rather than after the fact. And today's software tools and other technology make the evaluation and execution process much easier.

Wednesday, June 1, 2011

Using The Cloud To Weatherproof Your Financials

Good Clouds and Bad Clouds
Recent weather events including flooding along the Mississippi and Missouri Rivers, tornados from Northern California to Oklahoma, thunderstorms from Illinois to New York, and heat alerts in the Southeast have demonstrated the impact of ‘bad clouds’ on business and data availability.

I’ve often heard the phrase “you have to fight fire with fire.” Today many businesses are fighting clouds with The Cloud. In the case of one Oklahoma manufacturing firm, the solution to business problems involved using the Cloud to centralize data in a secure location that is impervious to the impacts of local disasters. By using the Cloud, DDB Unlimited ( was able to automate financial processes, streamline operations, eliminate accounting costs, and process orders faster.

Building a Cloud Solution
AIM Solutions in Dallas, TX helped DDB Unlimited, a rugged enclosure manufacturer, take advantage of Cloud technology. The solution was designed to automate business processes while simplifying infrastructure requirements.

Prior to moving to the Cloud, DDB Unlimited utilized QuickBooks for accounting and Profit 21 for CRM. Having disparate systems for different purposes created extra work including dual order entry, manual import and export processes, manual accounting, and offline reporting. In addition, the solution was susceptible to local power outages and other issues caused by ‘bad’ clouds. The accounting solution was scheduled to be replaced by a Sage MAS 90 solution, but during implementation, DDB Unlimited noticed that processes became slower and more confusing when using MAS 90.

After some investigation, DDB Unlimited determined that the Cloud could unify several operations in a single system. The Cloud eliminated manual accounting practices, providing an out-of-pocket savings of $80,000/year. In addition, the Cloud ERP solution did not require client software so installation was fast and maintenance does not require touching each computer or mobile device.

The Cloud solution came with import and export tools so existing data – including the chart of accounts, current account balances, customer, active orders, and much more could be easily imported. The solution was up and running in about one month.

Weatherproofing Financials
By replacing papers and forms with electronic orders, businesses such as DDB Unlimited have become much more efficient. However, when installed locally, a computer driven solution is just as susceptible to natural disasters as papers stacked in a filing cabinet. In addition, a faulty hard drive can have the same impact as a tornado when not properly backed-up.

The Cloud enables businesses to store their critical data offsite in a fault-tolerant datacenter with multiple sources of power and bandwidth. Data is replicated in different fault zones so a single disaster does not hinder business operations. DDB Unlimited’s manufacturing plant can still be impacted by local weather conditions, but it’s financials and business operating data are secure in a weatherproof electronic vault.

Documents as well as transactions
In addition to company financials, the Cloud can store critical business documents. Intellectual property, business processes, sales list, and company records can be maintained in a safe location. These documents can be linked to transactions to provide an audit trail and simplify the auditing process.

Don’t wash away the technical experts
The Cloud does not eliminate the need for technical experts. Access to the Internet and application configuration are still required.

The cloud allows technical experts to spend less time managing servers and more time helping solve business problems and analyzing business data. This allows IT employees to shift from being an unwanted expense to become an integral part of company profitability.

Are financials useful if your plant is impacted by a natural disaster?
If a natural disaster destroys your plant, does it really matter if your financials survive? The answer of course is yes. Insurance frequently covers your plant and allows you to rebuild in the event of a disaster. Putting a value on your financials, sales lists, customer orders, and critical business data is difficult, so it is frequently not insured. Often this uninsured data is what adds value to your business (many companies are purchased for only their customer lists and intellectual property). By using the cloud, you can effectively “insure” this part of your business. In the event of a natural disaster, you can still access your information using a computer from any Internet connection.

Contact us if you want a copy of the 2-page DDB Unlimited case study.

By djohnson
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