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Supply Chain Risk Maturity Leads to Performance Gains

by APICS staff | N/A 2013 | 13 | 16

A majority of companies give only marginal focus to risk reduction, according to a report by PwC and the MIT Forum for Supply Chain Innovation. The report, “Making the Right Risk Decisions to Strengthen Operations Performance,” based on a survey of 209 large, global organizations, examines the companies’ supply chain and risk management practices and their effects on resiliency and performance. For example, the study also reveals that 60 percent of companies surveyed experienced their key performance indicators dropping by 3 percent due to a supply chain disruption in the past year.

Key discoveries in the report include the observation that supply chain disruptions have significant effects on business performance and finances; that companies that invest in risk management, risk segmentation, and supply chain flexibility are more resilient to supply chain disruptions; and that companies with mature supply chain and risk management capabilities perform better in every surveyed operational and financial performance measurement.

The report’s authors conclude that supply chain risk management is beneficial to all parts of the business, including product design, product development, operations, and sales. Through a capability maturity model, it’s possible to benchmark a company’s ability to respond to risks and increase maturity to gain competitive advantage.

Auto Parts Suppliers Feeling the Squeeze 

As new car and truck sales reach a post-recession high and automakers seek to release new models, many parts suppliers are overwhelmed, the Detroit Free Press reports. Ford, for example, is boosting production at its North American facilities by investing in people, equipment, and processes, says Jim Tetreault, vice president of North American manufacturing, adding that his company increased line rates at nearly every factory.

While Federal Reserve Board data shows auto suppliers are operating at 79 percent capacity, about 25 percent of suppliers are nearing 100 percent, which leaves little margin for error. The power train and electronics sectors are experiencing the most shortages, especially for highly machined parts.
Some suppliers have the ability to press underused plants in other parts of the world to meet demand in North America, says Staci Kroon, president of Eaton Automotive. However, this increases transportation costs and disrupts automakers’ strict delivery requirements.

The majority of auto suppliers are making investments in people and plants as well as providing overtime to their employees, says Neil DeKoker, CEO of the Original Equipment Suppliers Association. Companies not investing risk losing business to competitors, he adds.

Many automakers have a different perspective. “We need suppliers to cooperate to maximize production opportunity,” says Bill Krueger, a purchasing and manufacturing manager at Nissan Americas.

Speculative Development at a Major Distribution Hub

In the Inland Empire, the region of Southern California located about 40 miles east of Los Angeles, new logistics and distribution facilities are under construction, many of them without tenants, the Wall Street Journal reports. This type of building is known as speculative development, which was common before the economic downturn but fell out of favor as a high-risk strategy often requiring large loans. Now, spurred on by the desert region’s proximity to busy ports and highways, developers are hoping the facilities will pay off, aided by the relatively low cost to construct distribution centers as opposed to office buildings and consumer malls.

About 75 percent of all goods imported through the ports of Los Angeles and Long Beach are handled in the Inland Empire. Yet more than 68 percent of the 13.8 million square feet of warehouse space currently under construction there is speculative. The earliest speculative developments there began in 2011, as a surplus of 36 million square feet of distribution space in 2008 slowly became absorbed.

Vacancy rates have dropped to 5.4 percent this year from a high of 9 percent in 2009. The area’s high degree of access and low rental rates are attracting many major companies, including Home Depot, Samsung, BMW, and Best Buy.

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