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 | With Navi Radjou |
Forrester Research Principal Analyst Navi Radjou advises companies around the world on a wide range of supply chain issues. Here, he shares his insights about minimizing the risks associated with supply chain disruptions.
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How has supply chain security changed in recent years? |
We’ve experienced major events — including 9/11, the San Francisco port lockout, Hurricane Mitch, and the recent blackout in the Northeast — that have dramatized the uncertainty of supply chains. Companies that are doing a lot of outsourcing and/or are very dependent on far-flung business partners have seen the impact of these events on their businesses. The vulnerability of supply chains can be exacerbated by the “just-in-time” techniques companies use to optimize their operational efficiency. If you’re not maintaining contingency inventory, you’re obviously more vulnerable to an interruption in your supply.
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Does legislation such as Sarbanes-Oxley augment the potential adverse impact of supply chain interruptions? |
Heightened scrutiny of corporate governance makes executives more directly responsible for forecasts of performance and the protection of shareholder value. In other words, when something goes wrong you can’t just say “Oops!” So if you tell everyone that your big holiday promotion is going to generate a lot of revenue for the quarter, and some unforeseen disaster freezes your supply chain, you now have a “triple whammy.” First, you suffer the loss of your expected revenue. Second, you’ll be punished by investors for under-performing. In fact, a Georgia Tech study showed that the market devalues stock prices by 9% on the day of a supply chain disruption. Third, you now have to answer to regulators who will investigate your failure to live up to your predictions.
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So what do you suggest companies do to secure their supply chains without undermining their hard-won operational efficiencies? |
One key to success is having security initiatives championed at the highest executive level. That championing is critical, because another key to success is changing the attitude of your people — which is only going to happen if you have top-level executive support. Most people assume that everything is going to run tomorrow like it did yesterday. That kind of thinking doesn’t make for very good contingency planning. Also, many people try to think in terms of specific types of disasters. But they should really think in terms of impact on the supply chain: What happens if this node in the chain fails totally? What happens if this shipment of goods is contaminated or destroyed? Process is another critical success factor. You can’t just wait until an interruption hits. You need processes in place to track compliance with your supply chain protection measures and that give you as early a warning as possible if a problem is about to occur.
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And what role should technology play in securing the supply chain?
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It should play a big part. Unfortunately, more than half of all companies don’t use technology in any direct way to secure their supply chains. But there are all kinds of technologies that can be very useful — including biometrics for securing access to facilities, GPS systems for tracking shipments and vehicles, and sensors that can tell you whether or not your goods have been tampered with while in transit.
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What can organizations do today to jump-start their supply chain security initiatives?
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As with IT security, it’s a good idea to have an outsider do a vulnerability assessment. There are also some government-sponsored programs, such as the Customs-Trade Partnership Against Terrorism and the Container Security Initiative, that provide good “ready-made” solutions to top supply chain security challenges. Another smart move is to take a look at what companies like Nokia and Chiquita have done to maintain the integrity of their supply chains even while other companies in their respective industries have suffered interruptions.
