World Trade - April 2009 - (Page 23) STEVE BANKER Supply Chain Management Service Director ARC Advisory Group Just-in-time supply chain management was certainly a step in the right direction, but left much to be desired in real-world environments where things go wrong. For example, in several high-tech verticals, there are a small number of suppliers of certain key components. The destruction of the manufacturing or delivery capacity of one of these suppliers will greatly impact the industry. Here, a more realistic, risk-based approach to supply chain management is appropriate. A good supply chain risk management (SCRM) program will not only reduce financial impact, it will also allow the company to gain market share if such an event occurs. In our view, no high-tech manufacturer does a better job of managing supply chain risks than Cisco Systems, the worldwide leader in networking solutions. Cisco has a Vision, a Strategy, and an Execution methodology surrounding SCRM. Vision involves a five-year horizon, Strategy reflects a three-year planning horizon, and Execution reflects their program for the next 12 to 18 months. Cisco’s Vision is to deliver the most resilient supply chains in their industry; their Strategy is to deliver best-in-class recovery times by incorporating resiliency requirements in the design of products and supply chains. processed finished goods, and finished goods inventories will need to be positioned in advance at particular sites around the world. These inventories exceed what is needed to support customer demand. MIKE BELLARDINE Senior Vice President, Global Trade and International Payments Services KeyBank Cisco has a Vision, a Strategy, and an Execution methodology surrounding supply chain risk management. Their execution methodology is focused on four points: one, the use of a Resiliency index, the ability to bounce back quickly from a supply chain disruption, as standard risk metric; two, world-class crisis management capabilities; three, the ability to recover from catastrophic events for top products within a defined number of designated recovery time; four, world-class design for risk programs. From a strategic perspective, the time it takes to recover from a catastrophic event is a core focus. The metric that corresponds to this focus is “Time to Recover” (TTR). The business continuity planning must support this metric. Mitigation is not free. A company needs to invest money today in measures that, in the long run, will save them more money and improve their competitive position. In the short term, these investments put downward pressure on quarterly earnings. Companies also need to look closely at their corporate metrics to make sure the program can be supported. For example, lean manufacturing programs drive companies to reduce inventories. But a SCRM mitigation analysis will end up showing that particular raw material, semi- The premise behind just-in-time inventory is avoiding non-earning assets. Having inventory sitting on the shelf not being sold is, obviously, a negative. But how to finance this strategy in a global liquidity crunch? Today, for many large firms, their suppliers are in fact their manufacturing arm. Without the suppliers there is no product to sell. We have a customer who buys work gloves from China and then resells them to major retailers. This particular customer has been buying from three or four factories for several years, and their Chinese suppliers eventually got very comfortable with the risk of the buyer and felt that they would be paid on time based on MIKE BELLARDINE the terms they agreed on. That process of an open account sale was really very easy between the buyer and seller. Enter the credit crisis. Now the glove makers found that borrowing to fund that open account sale in China became much more expensive. One solution is moving from open account financing to traditional trade credit financing—a letter of credit. A letter of credit provides financing comfort to the buyer’s or seller’s bank because another banks is actually the committed party, handling the documents for the transaction as well as effecting the payment. When our glove buyer issues an import letter of credit for its purchase, that Chinese suppliers can take that irrevocable commitment to pay to their bank in China and get preferred financing rates. Traditional borrowing on working RICK BLASGEN capital is a line of credit on your entire f inventory or receivables. A letter of credit provides financing at the transactional level—in other words, as often as with each purchase order. It’s just-in-time financing, and it works for buyers and sellers alike. RICK BLASGEN President and CEO Council of Supply Chain Management A supply chain is very much like a shock absorber. We in the supply chain manage the difference between what was planned to happen and what actually happened. Yet the traditional just-in-time model prepares only for preWWW.WORLDTRADEMAG.COM 23 http://WWW.WORLDTRADEMAG.COM
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