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    Creating and Maintaining Resilient Supply Chains
    Creating and Maintaining Resilient Supply Chains
    Creating and Maintaining Resilient Supply Chains
    Ebook244 pages1 hour

    Creating and Maintaining Resilient Supply Chains

    By Andrew Hiles, Hon FBCI, EIoSCM

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    Creating and Maintaining Resilient Supply Chains

    Will your supply chain survive the twists and turns of the global economy? Can it deliver mission-critical supplies and services in the face of disaster or other business interruption? A resilient supply chain can do those things and more. In Creating and Maintaining Resilient Supply Chains, global expert Andrew Hiles applies the principles of risk and business continuity to enable a reliable flow of materials and information that is a “win” for everyone involved.

    From over 30 years of experience working with companies like yours, the author of Creating and Maintaining Resilient Supply Chains helps you to:

    • Understand the criticality of procurement and supply chain management to the health of your organization.
    • Relate the time-tested principles of good business continuity planning to constructing a reliable supply chain.
    • Apply risk management principles to evaluate vendors and create effective contracts.
    • Create the specifications that will result in a good tender or bid.
    • Anticipate contract issues when you are dealing with other legal systems, including International Commercial Law, Anglo Saxon Law, Civil Code, Sharia Code, and European Law.

    In one short book, Hiles distills the knowledge of a lifetime to prepare you to handle risks, pitfalls, and potential ambiguities. As a result, you will know how to carefully plan and negotiate supply chain relationships that benefit all the organizations involved.

    LanguageEnglish
    PublisherRothstein Publishing
    Release dateJun 30, 2016
    ISBN9781944480073
    Creating and Maintaining Resilient Supply Chains
    Author

    Andrew Hiles, Hon FBCI, EIoSCM

    Andrew Hiles, Hon FBCI, EIoSCM, is an internationally renowned practitioner, consultant, and trainer of two generations of Business Continuity rofessionals. He is founding director, First Fellow, and Honorary Fellow of the Business Continuity Institute. In 2004, he was inducted into the Business Continuity Hall of Fame by CPM Magazine for demonstrating consistent high standards over time and global reach. He has authored, edited, or contributed to 15 books and has written over 250 published articles on business continuity topics for leading international magazines. Hiles’ dedication to training new generations of BC leaders is evidenced by his being among the first to provide truly international training in enterprise risk management, business continuity, and IT availability management in some 60 countries, as well as successfully pioneer BC training in Africa, the Middle East, China, Pakistan, and India. He has consulted globally for some 35 years, advising blue chip companies and major public sector organizations, including European Community institutions.

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      Book preview

      Creating and Maintaining Resilient Supply Chains - Andrew Hiles, Hon FBCI, EIoSCM

      Introduction   

      In times of economic downturn, risk assessment of the supply chain – all the suppliers and resources involved in meeting customer and organizational requirements -- has never been more important. High profile failures like the 2002 bankruptcy of KPNQwest and fraud-inspired 2002 collapse of Worldcom have highlighted financial weaknesses, while mergers of corporate giants like Compaq and Hewlett Packard and Oracle and Peoplesoft have challenged their customers’ carefully thought out strategic directions. Wide area disasters such the 2005 Buncefield Oil Terminal explosion and fire; the Christchurch, New Zealand, earthquakes; the Japanese tsunami; and widespread floods in the US and elsewhere disrupted distribution networks. The 2010 Deepwater Horizon oil spill in the Gulf of Mexico on the BP-operated Macondo Prospect has also shown the difficulties in trying to transfer risk to suppliers. And a recent survey from the Aberdeen Group showed over half of its respondents had suffered supply chain failure:

      56% said supplier capacity did not meet customer demand

      49% suffered raw materials price increases or shortages.

      45% experienced unexpected changes in customer demand.

      39% experienced shipment delays/damage/misdirects.

      35% Suffered fuel price increase/shortage.

      Another survey conducted by Genysis/Ovum/Datamonitor found that 25% of customers changed utility vendors for poor customer service, costing each industry £2.6 bn. Increasingly, procurement functions are consolidating contracts into a few, large contracts involving fewer, strategic, suppliers and closer electronic links. Moreover, the trend to outsourcing is still gathering momentum. The two trends mean that an enterprise has considerable dependence on its suppliers, with consequent supply-side risk. Moreover, supply chains may be long and opaque – for instance, up to 30 different companies could be involved in providing an internet based service.

      For convenience, the following text refers to outsourcing; however, most points apply equally to other types of service and supply contracts. One word of caution: beware partnerships. Legally, a partnership involves sharing risks, profits and losses jointly and severally: this is not what most vendors mean when they refer to a partnership.

      The words of one senior manager make the point: Whenever I hear the word ‘partnership’ I know I am going to be shafted! If it is genuinely a joint venture, breaking new ground, then sharing risk and reward may be appropriate. Even then, however, each party may have (or develop) different motives and objectives with consequent breakdown of the relationship.

      Studies by Birkbeck College of University of London and Bank of International Settlement (BIS) indicate that over half of outsourcing contracts suffer serious dispute between supplier and customer, and 70% of IT outsourcing users hit problems. Half of the disputes are resolved by changing vendors, while 22% are terminated by customers bringing the service back in house.

      0.1 Outsourcing Issues

      The cause of outsourcing problems lies in a few key areas:

      Sometimes the solution to a problem area is seen as outsourcing. Often, cost data is inadequate to put a real cost on each element of the service and the service quality is not adequately measured. In this case, when the service provider has cleaned up the operation, it will be reaping high rewards, while providing mediocre service.

      In the public sector, the main driving forces are political and cash saving: if outsourcing does not have strategic and operational logic as well, the real benefits will not be achieved. Emphasis on cost saving forces cut-throat competition and, all too frequently, profit has to be sought from anything which has not been clearly specified (known to the cynical as value added sales). This can mean that the expected cash savings are made on the prime contract, but anything not clearly specified is a chargeable extra. In one case, the (unspecified) ad hoc payroll reports cost more than running the payroll!

      In our experience, details of the service to be provided and the service quality expected can be woefully inadequate or ambiguous in many contracts (even in those valued in excess of $50m). Expected service levels are not achieved; contracts are sloppy. Sometimes this is a result of drafting these documents without reference to the existing specialist operational staff who really know the detail; however, even if existing technical staff members are consulted, they may not be sufficiently expert in drawing up specifications and service levels. Historically, in the public sector service culture, the emphasis has been on service provision rather than on service measurement. The proliferation of customer charters that define standards and service has led to concentration on quantification at macro level; rather, to manage service, detail is often required at much lower levels.

      Changing requirements, sometimes not able to be anticipated at the time of contract, but often able to be mitigated if the contract had been better thought out.

      So how can we make sure an outsourcing deal does not hit the rocks?

      0.2 Getting Outsourcing Right

      By benchmarking the in-house service, it is possible to get a reasonable idea of its competitiveness before going out to tender. If the service is a problem area, it is usually cheaper to get it right before outsourcing: otherwise cost savings and quality improvements will (rightly) be credited to the supplier. It sometimes happens that a conscious decision is taken to outsource for a limited time, have the supplier reorganize and improve the service, and then to bring it back in house: if this is the objective, the contract duration needs careful consideration. A short contract is likely to carry a heavier annual price tag than, say, a three- or five-year contract.

      By focusing on mission achievement and the critical success factors (CSFs) that determine this, we can more clearly identify priorities and strategies for outsourcing. All scenarios of service provision can be considered and all options evaluated -- including in-house options. We can ensure that the customer maintains control of the strategy. Giving strategic direction of a service to a supplier can be a little like appointing a chocaholic as manager of the candy store! The risks associated with outsourcing, as well as the benefits, need to be carefully evaluated. If outsourcing is the solution, what is the basis: contractor, partnership, or something in between? It is the experience of many customers that so called partnership arrangements are often insufficiently explicit and leave too much ambiguity, raising expectations on both sides which cannot be fulfilled.

      That is why many customers are moving from partnership to more of a contractor relationship the second time around. Tight service specifications and service levels do not necessarily mean that the supplier cannot be proactive and creative.

      0.3 The Importance of Service Level Agreements

      We can tighten up the contract, the service specification, and the service level agreement(SLA). Sometimes, service specifications, invitations to tender, contracts and SLAs are drafted in isolation from each other and by different people: if these activities are fully coordinated, we can ensure all documentation is complementary, consistent, comprehensive and unambiguous. Often the SLA is drawn up after the contract is placed -- by which time it is too late. If it forms an integral part of the contract (possibly as an appendix) then expectations of both parties are clearly set. If the supplier is allowed flexibility to deliver the result rather than prescriptively describing the process, the supplier can be creative, flexible -- and maybe even make a reasonable profit without prejudicing service quality. Unless there are legislative, regulatory, health, safety, or environmental issues, we should not necessarily be concerned about how the results are achieved, as long as they are. It is difficult to over-emphasize the importance of effective SLAs and service specifications. If in doubt, there are standard reference books on the subject that may be consulted.

      If the contract identifies a charge for every service provided by the supplier (whether apparently included in the service specification or not), then there should be no hidden surprises in the event that additional services are required. The contract term (which should rarely be more than five years) should reflect the stability and anticipated life span of the customer’s activities and frequent review of contract and service levels should be built in. It is most unusual for a contract or service level agreement to remain valid for the entire duration of a contract, and so change should be anticipated.

      At the outset, consideration should be given to what can go wrong. We have seen too many important contracts in which a termination clause provides only one month’s notice to the supplier – although it has taken up to six months to negotiate the initial deal and could take much longer than a month effectively to find a replacement supplier. Equally, the termination clause should require the outgoing supplier to maintain service quality and facilitate an orderly handover to their successor. In contracts, insist that the supplier:

      Takes daily backups and these are checked for content/readability.

      Has tested, maintained and effective contingency and recovery plans (you might wish to audit their plans and be present at tests).

      Nominates you as an additional insured to prevent a protracted battle between your and the supplier’s insurance companies.

      Has a waiver of subrogation clause (the right of the insurer to step in and take over legal proceedings – they could sue you).

      Allows you choice of law provision (e.g. for maritime or internet services).

      If insured on a knock for knock basis (each party accepts its risks for its people, property), that this is appropriate.

      Has back-to-back contracts with sub-contractors.

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