If you were trying to subscribe to Sky TV in late 2011, you may have been told that there would be a delay in sending out your set-top box. The reason? A hidden dimension of the supply chain supporting that broadcaster’s growth and marketing plans which had just suffered from one of the worst weather-related disruptions in recent times.
It is fair to say that the Thailand tsunami of October 2011 was a devastating and terrifying event. Lives were lost and homes destroyed. Thai businesses also suffered their biggest set-back in living memory as factories and warehouses were flooded out. Analysing the economic impact, a surprising feature was revealed – as many as 45 per cent of all the hard drives used by technology vendors worldwide were made in Thailand, making it the second biggest supplier globally.
For Sky, that meant a serious disruption in its ability to send out the decryption boxes which are essential for subscribers to get the channels they want. Even though Thai production was offline for at least three months, the company could not simply buy-in from other manufacturers, as they all rely on the same providers. Production and shipment from alternative sources, such as China, would themselves take around 12 weeks to arrive.
Now ask yourself this critical data-oriented question – did Sky know how dependent its set-top box supply was on manufacturers in that country? For those setting the business and marketing strategy in the company – as in any other business – it is unlikely that a “Black Swan” event, like a tsunami, had been factored-in to plans and forecasts. But among professionals in supply chain management and procurement, it is precisely this kind of hit which they fear and work to avoid.
Typically, that means due dilligence during the contracting and sourcing process. Yet, surprisingly, supply chain managers do not make enough use of third-party data which would help them to understand the risks and exposures they face, as well as some significant opportunities.
During a supply chain roundtable hosted by D&B this week, the Sky box example emerged, alongside some research findings such as that 80 per cent of businesses experienced a disruption in their Tier 1 (direct, main provider) suppliers during 2013 (source: Supplier Chain Insights).
That is the moment when you get a phone call from your business partner saying they will not be able to fulfil your order, possibly for months. In 40 per cent of cases, the disruption originated in Tier 2 or Tier 3 suppliers, in other words the suppliers to your suppliers or the raw material providers right at the start of the chain (source: Business Continuity Institution). Despite this risk, 54 per cent of supply chain executives admitted in a KPMG survey that they have no visibility of risks beyond Tier 1.
So what can be done to mitigate these risks and ensure your business strategy does not have a single, upstream point of dependency? One solution is to adopt linking data which shows the hierarchies within company groups. This can reveal just how much business you are doing with suppliers and their sub-divisions. Using a link, such as a Duns number, may reveal aggregate spend with a group far in excess of what has been recognised by procurement, because it has only focused on the individual suppliers, not their parents.
Another solution is to use financial reporting on those Tier 2 and Tier 3 suppliers to flag up any financial challenges they may be facing. If the one company that makes a widget which you rely on goes bust, how do you finish making your product? That is exactly what has happened to at least one automotive manufacturer in recent years. Economic models and forecasts can also be used for scenario planning (one of the lesser-known services provided by D&B is the overlay of such models onto business data).
It is unlikely that any company will build a supply chain without risk or be immune from weather risks. But data-driven businesses can certainly gain a clearer understanding of how much they rely on upstream partners whose fortunes are more intertwined with their own than was realised.
