It sounds almost comical, but in 2012 a supply chain slip-up at Yoga apparel manufacturer Lululemon resulted in a consignment of ‘see through’ black yoga pants being distributed to stores, and in turn, to customers across the US. After a significant public relations blow out the pants were finally deemed too thin and recalled.
Published December 2014.
This decision removed $18M from the company’s bottom line, resulting in a 12% drop in stock price, the dismissal of the organisation’s chief product officer and launched a legal case by the company’s shareholders.
Prior to this event, the organisation had identified that a reliance on a small number of key suppliers was in fact a risk to their operations. However, a quickly scaling business and a lack of supply chain visibility meant Lululemon did not understand or act on the fact that one Taiwanese supplier was solely responsible for the material for one of the company’s most popular items. Since then, Lululemon and the supplier have been arguing over who was at fault for the revealing pants. This argument is largely redundant as it is clearly Lululemon’s brand that has taken the hit in the media.
The lesson here is that we need to understand the risks that lie within our supply chains. Whether we like it or not, procurement teams are responsible for what happens in their supply chain. Apple is responsible for Foxcon in the same way Lululemon was responsible for the Taiwanese supplier.
The question that remains is what can we do about these predicaments? As our supply chains continue to fan out across the world, procurement teams inherently take on more risk. Research from MIT and PWC suggests that more than 60% of organisation’s performance indicators dropped by more than 3% as a result of supply chain disruptions. Delloite University Press recently published that 48% of manufacturing and retail executives experienced an increase in the frequency of supply chain risk events that had a negative business impact in the last three years. Only 21% suggested this figure was dropping.
The risks of a global supply chain are real and they can’t be ignored. What needs to be done better is the preparation for these unforeseen events. Leading procurement teams are already doing exactly that. By coupling their internal supplier data with the vast amounts of unstructured or third party data now available, organisations are developing a deeper understanding of their supply chains.
We are already starting to see organisations profiling their supply base against third party data. Typically this analysis has focused in the following areas:
Furthermore, geographical and political mapping are gaining an increased importance within supply chain management. As organisations leverage global purchasing models the need to understand other nations from a geographical, financial and political point of view has become even more important.
With political uncertainty stretching from Venezuela to the Middle East and Africa shouldn’t your organisation have a better understanding of what is happening in the world? Would another Japanese earthquake impact your downstream suppliers? Wouldn’t it be great if you could understand the probability and proactively manage the outcome of increased shipping tariffs in China?
The secret to understanding these risks lies in big data.
By augmenting traditional internal data sources with external data, procurement teams can begin to create an understanding of what is happening outside the four walls of their organisation. Technology is the key to an informed connected procurement organisation. To further highlight this, SpendMatters reported in a recent blog that 94% of what it classified as ‘top procurement teams’ are highly effective in their use of technology. Furthermore, a 2012 study conducted by the Aberdeen Group suggested that incomplete supplier information was the top business concern expected to impact supplier management. The short message here is, get your data in order and get it working for you.
Firms that have implemented big data solutions within their manufacturing and procurement operations are now utilising detailed analytic and visual models in order proactively understand and manage the risks that lie within their supply base.
It is now possible to analyse traditional and third party data sources against up to the minute political and climatic information and overlay these onto an easily understandable interface that gives an up to date overview of a company’s supply chain.
While it is impossible to eliminate supply chain risks, the visibility provided by big data solutions allows organisations to better manage their consequences.
At the very least it could have provided Lululemon with an insight into its reliance on a sole Taiwanese supplier, saving the company a great amount of money and the women of America some grace.