Managing risk in corporate and supply chain strategy

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Dr Douglas Boateng.gifDuring uncertain times, directors’ focus must be on managing risk in corporate and supply chain strategy, Dr Douglas Boateng (FIoD, FCILT, FCMI, FIBC, FIOM), tells SmartProcurement.

The last twelve months have seen unprecedented changes in the global economy never before witnessed in the modern era. For the first time in decades, some of the best managed companies’ bottom-line results have come under severe pressure. According to the UN annual economic report (Qtr4-08), 2009 world output will reach a meagre 1% in 2009, compared to 2.5% in 2008 and global growth rates of between 3.5% and 4% in the preceding four years, says Boateng, who will be speaking at the Public Sector Supply Chain Summit later this month.

The 2009 projection includes a decline in output of at least 0.5% in developed countries, along with a much reduced growth estimate of 5.3% in the transition economies and 4.6% in the developing world. However, falling interest rates and crude oil prices, various economic stimulus packages in some of the major developing and developed economies are expected to bring some relief to the embattled global economy. Still, conditions for various businesses will remain tough and uncertain in the immediate to medium term, he notes.

Notable industries that will be severely affected include Mining and Resources, Petrochemicals, Maritime, Road and Aero Logistics, Property, Automotive, Retail, Electronic, Construction, Recruitment and Tourism.

For now, South Africa seems to have escaped having to pump money into its relatively small banking and financial services sectors. Unfortunately, prices for the continent’s key minerals and commodities (coal, manganese, iron ore, oil, cocoa, copper, platinum, gold, gemstones, bauxite, diamonds etc.) have fallen considerably and in line with global demand. A reduction in requirements from both the developed and developing world will affect projected GDP growth, which will in turn influence various commitments vis-à-vis public expenditure, job creation, infrastructure upgrades and developments. Nevertheless, these uncertain times also provide decision makers with opportunities to assess their corporate and supply chain management strategies for potential opportunities that may emerge from the crisis, says Boateng.

Managing supply chain risks in uncertain times

Undoubtedly, various local and international organisations and their associated supply chain partners will be confronted with numerous challenges and risks that need to be carefully managed. These include excess raw materials, work in progress, finished product inventories, bad debts, surplus manufacturing capacities, order call-offs at the front end and limited cash flows. Already we are witnessing the distress among local and global household names; Nortel, Arcelor-Mittal, Mercedes-Benz, Sony, Chrysler, SAA, Merck, Kodak, Super Group, Citigroup, Nissan, Samsung, Toyota, Imperial Group, BHP Biliton and Tata. A number of these organisations will categorically survive whilst others may disappear from the business landscape altogether.

To reduce business risk and exposure, business executives must ensure convergence between corporate and supply chain strategies

Boateng risk.jpgTo lessen the potential effect of the global economic meltdown on business related activities, directors must give serious consideration to using various corporate and supply chain strategy tools and operational techniques to:

1. Ensure convergence of corporate and supply chain strategies vis-à-vis continuity in protecting shareholder value.
2. Improve internal operations and productivity.
3. Have a good handle and control of cash flows.
4. Minimise exposure to capital tied up in inventories along the value chain.
5. Minimise business risk and exposure through smart and value driven strategic alliances and partnerships.
6. Co-source and outsource operations and products.
7. Hang on to strategic human capital.
8. Acquire strategic assets to complement existing business.
9. Dispose of non-core assets.
10. Seek to capitalise on the changing needs of the market and its customers.

Some of the supply chain tools that could be utilised to attain these outcomes include: demand management, to trim down overall pipe line inventories; collaborative manufacturing, to decrease capital and operational expenditure; manufacturing flow management, to ensure faster throughput in the value adding chain; strategic sourcing to procurement costs; returns management and reverse logistics; customer relationship management; and product development and commercialization, to enhance new product launches and time to market.

Boateng advises that the cautious, but visionary, and calculated risk-taking organisational executive, this may be the time to re-examine business fundamentals to ensure the:

1. Possibility of profiting from emerging opportunities emanating from the crisis.
2. Protection of shareholder value.
3. Re-examination of the core principles of the organisation’s supply and value chain strategy.
4. Readiness for the potential upswing within the next thirty-six months.

Dr Boateng is a Fellow of the (a) Institute of Directors-UK & Southern Africa, (b) Chartered Management Institute-UK, (c) Chartered Institute of Logistics and Transport-UK and the (d) Institute of Operations Management-UK. 

For further information you can email Douglas Boateng at dboateng@panavest.com

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