There's been much buzz in the Apple community about whether Apple will be able to meet initial demand for its new iPad. Many Apple enthusiasts would agree with the statement that Apple's new product supply chains usually take time to flex to keep up with order demand (not to mention early supply chain/supplier quality issues). When it comes to early defects, it feels like Apple sometimes sweeps issues under the screen, so to speak (when the 3G iPhone came out, someone close to my local Apple store told me to hold off on buying one until they worked out the supply chain kinks, because of overheating and battery issues). After reading stories like this, which suggest potential problems with iPad suppliers such as Foxconn (AKA: Hon Hai Precision), it would seem that the iPad may continue Apple's tradition of disappointing hopeful customers who must get in the virtual (and even physical) queue for the product.

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Spend Matters would like to welcome Richard Rich back to our virtual pages to continue the conversation on supply risk management.

The Corporate Executive Board published what they consider the top ten risks facing corporate America as of January 2010. According to me, nine of these risks have a disrupting impact on a supply chain, though some are more apparent than others. All of them can stop a supply chain from functioning as an adaptive, smooth process, supporting the organization it serves. If my thinking holds logic, the supply chain is an enterprise (corporate-wide) risk.

Why is enterprise risk important? Because the risk mentioned, as it relates to the supply chain, impacts every part of the organization that buys, stores, and transports. Applying risk management tactics to the supply chain is a solution to the disrupting risks. These tactics will yield a mobile, adaptive, and light supply chain that reacts well to changing economic conditions, blips in markets and material shortages. The key is to recognize, analyze, and anticipate risks and make plans to mitigate them.

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The issue of counterfeit parts in supply chains tends to focus on high-profile cases (e.g., A&D applications) that put lives directly at risk, rather than more mundane situations involving a range of parts or components that are part of the bill of materials for everyday industrial applications, appliances, consumer electronics and devices, and a host of other areas. But a recent article in Electronic Engineering Times suggests that counterfeit electronic components (in both defense and other industries) are on the rise. According to the story, "Incidents of parts counterfeiting reported by component suppliers, including companies in the semiconductor sector, shot up 'dramatically' to 9,356 in 2008, up about 142 percent, from 3,868 in 2005, according to the Bureau, which said China, Taiwan, the Philippines, Malaysia and India were identified as the primary sources of counterfeit products by suppliers surveyed recently." Why is counterfeiting on the rise?

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In the first post on Aravo's recently introduced $50K Supply Risk QuickStart program, I provided some details on what the package includes and how Aravo integrates different data sources to present views into different supply risk elements. In this post, I'll provide additional details on how Aravo plans to go to market with this and related tools. Supply Risk is one of a number of QuickStart programs that Aravo plans to take to market in the coming quarters as a way to get customers to use its solutions more quickly. It hopes to demonstrate the benefits that targeted supplier information-management tools and packaged services can bring (and upsell to a more comprehensive SIM program and solution once it's able to prove the value in a targeted area). Aravo told me to look for a total of four QuickStart software and solution bundles in "short order" that will bundle products, services, information, and training.

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If you think Apple's development and production initiatives follow a secretive approach inside the company's four walls only, guess again. Apple takes as much interest in how its supply chain partners guard information as it does in how its own employees do. A recent Reuters exposé on the subject provides a case in point. In this article, the authors describe the employee environment at Apple supplier Foxconn, where individuals have "little reason to venture outside," which "reduces the likelihood of leaks, which in turn lessens the risk of incurring the wrath of Apple and its chief executive, Steve Jobs, whose product launches have turned into long-running, tightly controlled media spectacles." But control of employee physical location tells only part of the story. Reuters cites a source in the article who suggests, "Security is tight everywhere inside the factories … They use metal detectors and search us. If you have any metal objects on you when you leave, they just call the police." (Of course, the obvious irony is that in the US, we search employees for metal when entering certain facilities, but don't get me started on that.)

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Today, Spend Matters would like to welcome back Richard Rich, who leads his company's supply risk management efforts, to continue the discussion on this critical topic.

Risk and the supply chain will be married soon. But what happens in the interim, before the marriage? Many courtships employ dancing as a way to engage each other; our first date will be a dance at the San Diego Hilton for three-plus days in April, when the ISM 95th Annual Conference provides the first opportunity for this potential couple to dance.

ISM has opened the door to this partnership by including a supply chain-risk track in its conference curriculum. Seven workshops over the course of more than three days will bring the two potential partners together. It starts on Sunday, April 25 with Kishan Khemani, a Partner in the Risk Management Practice of ATKearney, and ends on Wednesday morning with our own Jason Busch and Sherry Gordon. Attendees will be treated to workshops that provide risk tactical applications implemented by Eli Lilly's Catherine Herr; contractual-terms mitigation strategies put in place by Laurie Brooks, Chief Risk Officer for Public Service Enterprise Group, a New Jersey based electrical utility and holding company; a workshop on how to apply risk tactics to the supply chain by Don Dixon, a Director in the Risk Practice at Deloitte & Touche; and an excellent workshop provided by Jason and Sherry on understanding software, providers, and analytical tools. Mickey North-Rizza from AMR Research will define fundamental risk drivers in the supply chain, based on AMR’s research data.

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Last week Aravo announced a new $50K Supplier Risk QuickStart program that offers one of the first affordable and integrated software/services programs to tackle multiple areas of supply risk. Having been briefed on it, and knowing Aravo's overall approach to supply risk beyond this targeted offering, I'm excited about the solution, even if it is, by design, limited in its scope and capabilities. Still, Aravo's Supplier Risk QuickStart program offers companies a lot of bang for their buck, profiling and managing risk data on up to 1,000 supplier profiles, delivering a combination of services and software to roll out a deployment in 60 days or less for an annual cost of $50K. This price tag includes all software (in a SaaS model), services, implementation, and training. In other words, for the cost of a BCG or McKinsey strategy team onsite for a day or two advising on "risk factors in the supply chain," you can implement a limited solution for a one year period. Not bad (especially considering a full risk engagement from a strategy consulting firm is likely to cost more than a bankruptcy in your supply chain).

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Earlier today, the news broke that government officials in the US, EU and Japan recently searched the offices of a number of Toyota suppliers that may be involved in cartel-like activities. According to The Wall Street Journal’s summary, “Investigators raided the offices of auto-parts suppliers tightly tied to Toyota Motor Corp. in recent days stemming from a probe in alleged anticompetitive practices.” A spokeswoman from the US Department of Justice (DOJ) quoted in the article further suggests that, “The Antitrust Division is investigating the possibility of anti-competitive cartel conduct of automotive electronic components suppliers … We are coordinating with the European Commission and other foreign competition authorities."

Suppliers said to be at the subject of the investigation include: Yazaki (whose transliterated name sounds ironically similar to “yakuza”, the name given to organized Japanese crime syndicates), Sumitomo Electric Industries Ltd., Furukawa Electric and Denso. But the important question to ask in this case is not “who” but “how” and “why” in the context of Toyota’s overall procurement and supply management strategies.

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Earlier this week, I shared how Apple is serious about supply chain security -- and some of the ends to which it goes to keep suppliers in the dark. It turns out this behavior has led some suppliers to a new degree of paranoia, which recently resulted in a reporter getting beaten up by Foxconn employees (or contractors). The post reports that a reporter was "tipped by a worker outside the Longhua complex that a nearby Foxconn plant was manufacturing parts for Apple too." After getting to the plant, the reporter "stood on the public road taking photos of the front gate and security checkpoint..." A guard then intercepted the reporter's taxi and the guards and a mob of Foxconn workers proceeded to attempt to drag him into the factory. Once the reporter was able to free himself from the melee, he was told in no uncertain terms by the police that Foxconn had a "special" status in the region, the implication being that it could do as it pleased regarding security.

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I won't ever forget the shot heard round the global-sourcing automotive world when GM told its suppliers that they'd have to meet a "world price" for given parts and components if they were to remain suppliers to the then automotive giant. Others across industries and geographies followed in GM's footsteps, looking to China, India, Brazil, Mexico and other countries to determine a "world price" for given purchases. Flash-forward to just over five years later, and in-country sourcing founded on a philosophy of total cost and supply risk appears to be coming back in vehicular vogue, at least in the UK. According to a recent study on the topic,"Britain's automotive sector supply chain received a shot in the arm … with the news that UK-based volume car manufacturers want to source more locally built components … the majority of volume car manufacturers with UK plants are showing a strong interest in sourcing more from home based suppliers."

Why do UK automotive companies want to source locally produced content? It all comes down to total cost (vs. unit cost) and reducing supply chain risk. To wit, the reasons they cited include: "the benefit of favourable exchange rates, minimising the vulnerabilities and logistical costs associated with an extended supply chain, the UK's labour flexibility and positive industrial relations, and sourcing new technology for ultra-low carbon vehicles." Labor flexibility? I'm not so sure on that one, but with an unemployment rate approaching 8% (still less than the US), perhaps UK labour is becoming more flexible than its collective-bargaining counterparts across the Atlantic.

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