Tips to Manage Demand and Compliance Risk
Over the last month or so, Supply & Demand Chain Executive ran a couple of articles that had some good tips to manage demand and compliance risk.
The first article, Supply Chain Strategies to Manage Volatile Demand, notes that managing volatile demand in a cost effective manner can lead to significant benefits for a company but that it is a significant challenge and requires companies to employ robust supply chain strategies.
It presents four strategies to manage volatile demand efficiently:
- Supply Buffer Management
Buffers, including inventory and capacity, are used to manage demand volatility. - Cycle Time Reduction Strategies
Companies with shorter cycle times can transfer information quickly and respond to changes quicker. - Postponement Strategies
Postponement strategies such as make-to-stock (MTS) and assemble-to-order (ATO) increase flexibility. - Collaborative Processes
Quick responses to change require fast information flow not only within the company but also between suppliers and partners.
The second article, 12 Steps to an Effective Compliance Program, notes that companies are obligated not to do business with illegal parties or entities, destinations, and end uses and are expected to take steps to ensure that they do not commit such violations. To this end, twelve suggestions are offered to ensure your company remains in compliance:
- Board Level Commitment
After all, the U.S. Government Sentencing Guidelines state that corporate officers and board members must be knowledgeable about the content of their compliance program. - Assess Processes
Hire outside trade experts to perform a compliance gap analysis. - Embargoed Countries
Maintain a list of embargoed countries. - Electronically screen against black lists
Select a firm that maintains the ever-changing international restricted party lists, of which there are over 50, in a centralized solution. - Establish an on-going screening process
Remain current with list updates and modifications. - Perform end-use and diversion risk screening
Collect end-use information from customers and parties that work with you. - Obtain jurisdiction and classification information
Perform jurisdiction and classification when information is not easily obtained from a reliable supplier. - Perform license determination
Perform license determination prior to each export and re-export. - Write and implement processes and procedures for each business function
Processes should be in place for IT, R&D, Engineering, Manufacturing, Sales, Order Entry, Fulfillment, Shipping, Finance, and Legal. - Train, train, train
Instill compliance across the company. - Follow ISO 9000 and Sarbanes-Oxley Standards
Use export control best practices. - Perform Audits Every Year
Insure that internal and external audits are performed at least once every two years.
Regarding the demand risk issue:
Those are all good ideas but the list misses one very important idea, which is to build appropriate requirements for flexibility into a company's sourcing efforts.
I think it's an untapped frontier in supply mangement. Everyone knows how to define and measure quality and on time delivery and price, but how do you define and measure flexibility?
It has to be something like "able to increase volume by x% in y days and to decrease volume by a% in b days without penalty."
This is particularly important when bringing new and innovative products to market. Forecasts are just a guess. If demand is unexpectedly high or low, supply needs to be able increase or decrease volume quickly. The best way to do it without inventory impact is to chose the right supplier.
There is also a cultural dimension to this as some cultures are inherently less flexible than others.
I would also recommend to use an eSourcing platform and a contract management application. It is a good way to ensure a structured, robust, auditable and ISO 9xxx compliant processes.
Jean-Philippe Massin