Over the last few weeks, we have been reading about the collapse of Hanjin Shipping Company. When the 7th largest shipping company in the world declares bankruptcy, many take notice. Hanjin is part of a chaebol in South Korea that also owns Korean Airlines. We read headlines about ships stranded in ports with goods essentially trapped on them while this all gets sorted out. It raises the specter of supplier risk.
Recently a friend told me about his experience purchasing a new phone, and I can’t help but wonder if it isn’t related. He went into his phone carrier excited to pre-order this new phone (not Samsung) and was told the lead time would be six weeks due to “delays.” What? Originally hearing that delivery was supposed to be two weeks, he was disappointed. Still eager for the phone, he ordered it anyway and prepared to wait (queue Jeopardy theme song). A few days later, he was told a mysterious high tech company stepped in and resolved the delay, and now he will get his phone by the original time. This story has a happy ending. But it makes me wonder, how many procurement professionals find themselves stepping in like a superhero to make sure ports are getting paid in order to protect their company’s revenue and the end customer’s experience?
Supplier risk can seem like a murky topic, but it is now enduring another moment in the sunlight. It is shining a light on our processes at a time when we least expected it. Time will tell if it stays in the sun or fades off to the shadows. How many in procurement are now scouring the balance sheets of their shipping providers? How many are realizing the implications of 20% industry overcapacity in the shipping industry?
Where are the lessons in this bankruptcy?
Hindsight is always 20/20, and we will hear stories along the way that this was predictable. I propose we could have learned lessons from the data. How many people were monitoring their supplier data for the signal in the noise? Did anyone recognize their own revenue that might be at risk due to their supplier? Did anyone try to factor in what was happening in the pricing in the shipping industry and use it as a precursor in predicting supplier risk? Or did we all just see obtaining the lowest possible price for shipping and try to squeeze the supplier as much as possible?
Over the last few weeks, we have been talking about a procurement revolution and expanding the conversation. I propose we also need a data revolution! This is a tall order but is also where promise in the predictive analytics world lies. We’re capturing more data than we ever have before, yet most of us aren’t utilizing that data. Analytics and new visualization technologies allow us to create new data models and see patterns otherwise not visible due to human processing limitations. We can now correlate activities along the financial supply chain and start to look at supplier risk in entirely new ways. Once we capture the data, we can combine it with external publicly available data (i.e. data or enterprise mashup) to truly reconsider how we look at risk. This is how we can truly get to providing the appropriate working capital optimization for our organizations.
What do you think? Could procure organizations have done more to predict and or prevent the Hanjin collapse? Are we doing enough to manage ongoing supplier risk?
Are you curious to hear more about how technology’s role in transforming your data? Join me at the AFP Annual Conference in Orlando, Florida during the session “Cereal Opportunities in Working Capital Management” where I will talk, as a part of a panel, on working capital optimization, people, the role of technology and big data.