Disruption Management through Social Collaboration

Transcription

1 HiTech White Paper Disruption Management through Social Collaboration Effectively managing risks across the supply chain

2 About the Author Munish Consultant Munish is Consultant at TCS and part of HiTech Supply Chain Consulting group. He has over 13 years of experience in Supply Chain and Technology consulting across industries. He is an MBA by education. His areas of expertise include Sourcing and Procurement, Logistics and Distribution, Cost Optimization and Risk Management. Munish is based out of New Delhi and can be reached at

3 Abstract Unpredictable and catastrophic natural disasters often create disruptions in supply chain management (SCM). It is important to have risk mitigation strategies whether proactive or reactive in place to combat interruptions in the supply chain. During such crises, traditional approaches, which are often focused more on prevention, are unable to mitigate the resultant losses and delays unless the crisis is managed well. Social collaboration is fast emerging as a tool with great potential in enhancing the quality and quantity of information available to teams dealing with disrupted supply chains. This paper discusses a model for disruption management through social collaboration, which can be followed to recover faster and with greater success from supply chain disruptions.

4 Contents Introduction 5 Managing Disruption Through Proactive Strategies 6 A Proposed Model for Social Collaboration 7 1. Event and Impact Analysis 8 2. Identify Mitigation Alternatives 8 3. Define and Execute the Mitigation Plan 9 4. Learning and Feedback 9 The Optimum Organization Structure 10 Conclusion 10

5 Introduction With businesses continuing to expand their geographic reach and supply chains becoming global, supply chain risk management is becoming an increasingly pertinent issue for business leaders. Risks no longer confined to enterprise boundaries are now associated with the extended supply chain, and could be geopolitical, environmental, legal, social, natural or operational. Eliminating risks is neither possible, nor practical; rather, companies that have invested in preparing themselves to combat risk have been more successful. This investment can be classified into two broad categories: the first is based on proactive strategies and consists of the identification and assessment of risk in the supply chain, and the implementation of the necessary steps according to a suitable plan of action to avert those risks. The second is based on reactive strategies, and focuses on recovering from a disruptive event in the most efficient and effective way possible. Several companies, falling under the first category, have invested significantly in analytical and visualization tools to gather and assess data, and map risks across the supply chain. While identifying risks and developing mitigation plans is very important for any organization, the ability of the organization to recover from a disruption is even more critical. Every minute wasted during the crucial recovery period translates into millions of dollars lost. A firm's success depends on how quickly it normalizes operations. According to an APQC survey of around 190 large enterprises (refer to figure 1), the top three obstacles that undermine supply chain disruption management are poor visibility among tier2 and tier3 suppliers, lack of a unified process and platform for disruption management, and lastly, lack of risk assessment.¹ Poor visibility among tier 2 & 3 suppliers Lack of risk assessment Lack of unified process and platform for disruption management 14% 21% 11% 12% 41% 47% 45% 44% 65% Don t Know No Yes Figure 1: Top 3 Obstacles in Disruption Management The bottom line is that despite the support extended by supply chain partners, traditional supply chain technology systems and operating structures have fallen short of expectations. Recent technology developments aim to address this deficiency. The digital five forces - mobility and pervasive computing, Big Data and analytics, social media, cloud computing, artificial intelligence and robotics - are maturing and precipitating the shift from the internet to the digital consumer economy. These technologies have evolved over the last few years, and have now reached a level of maturity that makes them compelling business change agents. While the individual forces are great change agents, these technologies, when used in combination, offer far greater capabilities in marketing, selling, manufacturing, distribution, service and innovation than each could offer in isolation. This paper explores why some companies perform better at recovering from supply chain disruption than others, and recommends a framework that can be adopted for mitigating disruptions. It discusses how the digital five forces can come together to create an enabling infrastructure than can be uniquely leveraged to manage supply chain disruptions much better. [1] APQC, Managing the Risk of Supply Chain Disruption, June

6 Managing Disruption Through Proactive Strategies In Japan, the earthquake of 2011 was followed by a tsunami and a nuclear disaster. The series of natural disasters severely affected the economy of the country, and disrupted nearly every chips-to-ships supply chain. While established businesses in Japan are aware of the fact that it is a highly earthquake-prone area, and have risk mitigation action plans in place, the 2011 disaster forced companies like General Motors (GM) and Citroen to shut down their plants in Europe and the United States due to the unavailability of components from Japan. Sunpower, an American solar power company, faced severe supply issues for weeks as it sourced 20 percent of its solar panels from a single supplier in Japan.² The company was unable to switch to alternate suppliers or identify new ones within a short timeframe. The scarcity of alternate components and material was compounded by the incapability to divert the cargos already lying in the supplier's facilities. This cost Sunpower millions of dollars in lost sales. On the other hand, a large European manufacturer of semiconductors reacted quickly to manage procurement risks. Within four days of the tsunami, the company was able to secure a supply of substrates from alternate suppliers in Taiwan and Korea. They identified and qualified alternate cores and secured the supply in a very short span. With no plant shutdown due to material shortage, the company was successful in minimizing the impact of the tsunami on its supply chain very efficiently. Even earlier, during the 2010 volcano ash cloud disaster over Northern Europe, the company had successfully diverted customer shipments quickly for ten days through Singapore, Barcelona, and Italy routes, saving nearly USD 50 million and moving 132 tons of freight efficiently.³ This business' successful handling of the disruption was due to its active collaboration and communication with suppliers, customers, employees, and third-party logistics (3PLs) to gain better insights, utilize diverse knowledge sources, identify options, assess feasibility, and monitor implementation. The company broke traditional boundaries and worked with tier 2 and 3 suppliers during the crisis, in order to gauge the impact on the supply chain. Through social collaboration, they empowered local people to join the core action team and contribute to decisions. Cross-functional teams were formed to collect updated information, prioritize actions, and monitor plans. Collaboration was enabled through conference calls, meetings, s, and bulletins to keep everyone updated about the situation and progress. Social collaboration with suppliers made it possible for the company to quickly identify alternate suppliers and material, and implement alternate freight transportation routes which further enabled the company to restrict the impact of disruption. Figure 2 depicts key elements of successful supply chain disruption management. Successful disruption management rests on boundless communication. Other actions and enablers such as governance, diverse knowledge, efficient monitoring, risk mapping and information exchange all depend on this central theme of communication without boundaries and social collaboration. Risk Assessment Information Exchange Quick Execution Diverse Knowledge Communication without boundaries Governance Alternate Sourcing Technology Monitoring Figure 2: Elements of Successful Disruption Management [2] Reuters, Japan quake tests supply chain from chips to ships (Mar 2011), accessed Sep 2014, [3] European CSCO Forum, Turning Supply Chain Disruptions into a Competitive Advantage,

7 Social collaboration has great potential to play a crucial role in efficient risk and disruption management. It deviates from the traditional centralized risk-management committee approach, where both authority and participation is restricted to a few selected stakeholders. Social collaboration involves people from extended supply chains, markets, the internal employee base, and external authorities, to gather correct information and take accurate and timely decisions. Everyone participates in assessing the risk and its impact and monitoring implementation of the mitigation plan. Social collaboration enables better control of the situation and helps companies recover from the disaster quickly and efficiently. A Proposed Model for Social Collaboration The following is a broad framework for leveraging social collaboration for efficient supply chain disruption management. It divides the disruption management process into four phases, wherein social collaboration can be leveraged and utilized differently to meet different objectives: Event and Impact Analysis Learning and Feedback Collaboration through Social Conversations Identify Mitigation Alternatives Define and Execute Mitigation Plan Figure 3. The Disruption Management Framework To achieve these objectives, technologies such as social media, Big Data and analytics, cloud infrastructure, and mobility can help companies to reimagine business processes and workplaces, such that they are better suited to manage disruptions. 7

8 1. Event and Impact Analysis The first step of disruption management starts with receiving prompt information regarding the disruption from any source media, suppliers, or analysts. More ground details are then collected about the event by collaborating with local people, employees, suppliers, and the local authorities. Next, the associated data available in the public domain is analyzed with other concerned people within the organization. All this can take place with the help of one-to-one or one-to-many conversations focused on information about the severity of the event, its impact, the response from authorities, similar previous events, and the probable turnaround time. After analyzing the event and determining severity, the next step is to calculate the potential impact on the company's supply chain. Relevant data about the response time to reinstate normal conditions, product demand during that time, inventory status, and products impacted is collated in conversation with various stakeholders such as facility managers, suppliers, sales teams, production managers, procurement managers, the product team, and the disruption management team. Using this data, the potential impact on the supply chain can be calculated, and the findings shared with the executive management. 2. Identify Mitigation Alternatives Once the potential impact has been calculated, various possible alternatives to recover from the disruption need to be identified and assessed. Different teams, including suppliers, the logistics team, production managers, and procurement, brainstorm and share their ideas over these conversations. Once the data has been collected from various sources such as ERP systems, accounting systems, trading partners, and individual experiences, - be it internal systems or external conversations- the alternatives are assessed for feasibility, ability to fully mitigate, cost of execution, and total cost of mitigation. The best possible solution with minimal total cost is selected for implementation. As shown in figure 4, alternative 1 can mitigate around 60% of the business disruption value whereas alternative 2 is capable of mitigating only 40%. The rest of the disruption value is the shortfall that a specific alternative cannot meet. Other costs of alternatives include cost of actually executing the alternative, for instance, transportation or production costs, and the superfluous cost of action, such as cost of quality of material, price variance, taxation and so on. In this scenario, the cost of execution of alternative 2 is higher whereas the superfluous cost of action for alternative 1 is higher. Overall, Total Cost of Mitigation for alternative 1 is lower than that of alternative 2 and so alternative 1 should be selected for execution. Alternative 1 Alternative 2 Cost of Execution Superfluous cost of Action Cost of Execution Superfluous cost of Action Shortfall Total Cost of Mitigation Shortfall Total Cost of Mitigation Business Disruption Impact Mitigated Value of Action Mitigated Value of Action Figure 4: Comparative Assessment of Mitigation Alternatives 8

9 During this entire exercise, all the concerned parties need to keep in contact with each other, and work closely even when they are located remotely. Social collaboration makes a difference by reducing decision making time and leveraging a wider knowledge base. It increases participation, which is otherwise restricted to only a few decision makers. Through these real time conversations, data from various sources is collected quickly, an exercise that would otherwise consume substantial time. People share their expertise to help make the right decisions in timely fashion. 3. Define and Execute the Mitigation Plan A detailed action plan is prepared after finalizing a mitigation alternative. People and departments required to execute the plan are identified, and a comprehensive plan with a list of activities, stakeholders, roles and responsibilities, schedule, timeline and workflow is drafted. The final plan is shared with the executive management for review and finalization. The monitoring of the action plan also takes place through social collaboration, where teams update each other on the activity status, providing reasons for unforeseen delays and ensuring that any deviation is sighted and acted upon quickly. Constant communication and updates also remove the need for formal and scheduled meetings. This mechanism proves to be ideal in time-critical situations, as it allows close and constant connect among all stakeholders. 4. Learning and Feedback Once the situation has been brought under control and operations normalized, the organization needs to deliberate on the learning from the entire exercise. All parties involved share their experiences, point out improvement opportunities and root causes of deviations, and the best practices implemented. If this information is collated and put together, it can serve as a ready reckoner for future instances. 9

10 The Optimum Organization Structure The right organization structure is key to efficient risk management in any enterprise. Each enterprise must have a dedicated Risk Management Group, reporting directly to the highest authority in the organization. The responsibility of collaborating with various stakeholders and the authority to make critical decisions lies with this group. In a matrix organization structure, as shown in figure 5, each functional group (Sourcing, Production, Logisitcs and so on) should have dedicated representatives to interface with the Enterprise Risk Management Group. This person should have wider acceptance within the function or department and have the authority to make decisions. Outside the enterprise too, the group will interact with similar representatives from suppliers and customers. Enterprise and communication boundaries should be expanded to include second and third tier suppliers and open communication channels established to enable free flow of information. This larger risk management group, extended to beyond the enterprise boundaries, will act as a single unit during critical times so as to enable quicker resolutions. CEO CFO COO Enterprise Risk Mgmt. Group Risk Management Interface BU 1 Sourcing & Procurement Production Sales & Marketing Logistics Customer Customer BU 2 Customer BU N Customer Tier N Tier 1 Figure 5: Enterprise Risk Management Organization Structure Conclusion With rapid globalization leading to coupling of markets and economies, supply chain risks will continue to remain a key concern for managers. While industry players should continue to enhance their risk prediction and contingency planning capabilities, building resilient supply networks will assume high priority in the near future. Resilience can be achieved by bringing more visibility and cooperation among supply chain partners. Social collaboration and communication offers the perfect mechanism for quickly gathering information, analyzing situations and leveraging the best possible solution when time is of essence. It helps break traditional boundaries of closed-room action teams and involves people from diverse functions and geographies to participate through conversations and take actions to achieve rapid recovery from disruptions. 10

11 About TCS' High Tech Business Unit Accelerated industry growth, rapid technological obsolescence, and the need for faster time to market compel High Tech organizations to improve business agility. High Tech solutions from TCS address fundamental industry problems, improve process efficiency, and enhance productivity and collaboration across businesses, while optimizing overheads. Addressing end to end product engineering, supply chain and leveraging Internet of Things, digital re-imagination, cloud, Big Data, mobility and others, our solutions empower industry players - computer platform and services companies, software firms, semiconductor and electronics companies, and professional services firms to compete effectively. Complementing our comprehensive service portfolio of IT solutions, business consulting, product engineering services, infrastructure services and business process outsourcing, are our partnerships and alliances with leading industry vendors. Combined, these enable us to offer our clients access to cutting edge technologies, advanced systems engineering methodologies, storage optimization, and convergence solutions. Contact For more information about TCS High Tech services, visit: HiTech.marketing@tcs.com Subscribe to TCS White Papers TCS.com RSS: Feedburner: About Tata Consultancy Services (TCS) Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and TM assurance services. This is delivered through its unique Global Network Delivery Model, recognized as the benchmark of excellence in software development. A part of the Tata Group, India s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India. For more information, visit us at IT Services Business Solutions Consulting All content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here is correct at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted, posted or distributed in any form without prior written permission from TCS. Unauthorized use of the content / information appearing here may violate copyright, trademark and other applicable laws, and could result in criminal or civil penalties. Copyright 2014 Tata Consultancy Services Limited TCS Design Services I M I 10 I 14