Okay, so week 4 and week 5, we're going to cover Risk Management in two parts. Probably one of the most important topics, particularly in light of some recent activities, as you're well aware, in the world around COVID-19, and shortages of toilet paper, and personal protection equipment, those types of things. So it's, as you'll see, a lot broader than just a supply chain management issue, but it's well worth to do this for all major commodities, and even smaller ones. You'll hear, if you want to look through a, it's going to be a YouTube video by David Schimke Levy. He'll even talk about how you have to do this kind of work for smaller items because they can bite you just as hard as the bigger ones. So let's go ahead and get started. So start off by saying risk management, sometimes a picture tells a thousand words, if you've heard that saying. And let's just assume that you're a matador in a bullfight here, and you can see how this guy just barely lets the bull by, right? And this is how we want to approach risk management. We want to do things that are right for the business, but certainly don't want to have any risk problems. But if it does, we want it to just kind of slide by, and through continuous improvement make sure the bull's a little further away. But all too often, risk management ends up, as you can see from this picture, catching us off guard, and it's really not a pretty sight when it does, or worse. So the moral of this little story here is you gotta be prepared to grab risk management by the horns before it grabs you. So again, I always have a question here in many of these of courses. This one is, what are some supply procurement risks that have occurred or potentially will occur in the future? So might want to think about your own business or maybe things you read in the paper. Just take about 30 seconds and jot a few things down and we'll come back and review a few of them. Okay, so here's a list. This is not meant to be an all-inclusive list, but I'm going to use a couple examples here. The point of this particular list is you really need to think more broadly about risk because there's many different types of risks. Let me just mention a few, if I could. You might remember a hurricane that went through Louisiana, Katrina came through. And when I was at Colgate, we had strategically sourced using this strategic sourcing model, resins. Resins are little bitsy pieces of plastic that you use to heat up and blow it into bottles. So we had very smartly contracted with 65% of our source with a small company called ExxonMobil. Well, the hurricane came through. I remember seeing the pictures to this day. It looked like this huge plant was sitting in a bathtub. So we did a lot of things that we're going to talk about in a couple of minutes, but we put a team together. We worked very quickly to find other sources, etc., etc., and basically we came out okay, and we never shut down any of the facilities. Some of our competitors did. So there are other things, I'm just going to hit a few of them. We touched a little bit on single sources. There are benefits to having single sources, but also if that single source goes down, what's your backup plan, what's your contingency plan, right? Global sourcing, many, many things in the United States now are sourced, and other countries are sourced from all over the world. So when you go to this global sourcing, it's a lot riskier. So you need to have very good plans in place, management plans, to address when issues come up. Environmental, things like, for example, you have a spill, a chemical spill, maybe in one of your supplier's plants. What's that going to do? What's your contingency plan? And child labor, you probably don't think much about it, but it still occurs, unfortunately. Suppose that you're just purchasing 1000 gym bags with your name on the outside, says Colgate, let's say. This didn't actually happen, by the way. But it says Colgate, and you find out that there's a 12-year-old kid working there, and let's say he's chained to the piece of equipment, and the New York Times comes and takes a picture of it. Well, I don't care if this is the supplier's problem or not. This is going to be your problem for child labor. So you need to think about a lot of these things. The point of the list here is you really gotta think more broadly. And I think COVID-19, while it was a very extreme case, I think it's important to at least use that as some lessons learned. And certainly, there's been supply issues on the medical side. There's been supply problems on the personal protection side. We had strategic stocks that were long. So there are a lot of lessons learned there. So that might be some good lessons learned coming out of there that we can approve for. Hopefully we don't have it, but if we have another type of COVID-19. So my point on this list here is that you really need to think broadly. It isn't just about suppliers. Sometimes there's some external things that happen to you that can shut your facilities down and certainly cause a lot of havoc. So I'm going to give you ten things to consider in your risk management plan. I'm going to go through each one of these. So again, as usual, I'm not going to read the list here because we're going to go through each one, half in the first week, week and a half, and the second week in risk management. So almost all of these, with the exception of number 10, are what we call proactive strategies. That's always the preferred method. You want to be proactive so when things occur, you can react. And then there are issues that happen that you really don't expect, like the Japanese earthquake, and you gotta be able to react quickly to it. And there's things like that, that when it happens, you want to be able to act quickly. And we're going to give you a case on that later. So let's go through it. The first one, you got to incorporate risk management into your strategic sourcing planning. Remember we chatted about this, both in the strategic sourcing course as well as the supplier selection and evaluation course. So you want to build it into your thinking as you're doing strategic sourcing. So again, you remember the seven step process very well. And as you're generating strategies and as you're generating which way you're going to head, one thing you want to do is take a look at the risk. And if you're going to use supplier A, he's from overseas, versus supplier B that's down the road. It's no problem using the one from overseas. But just what is your plan, contingency plan of what are you going to do, if for some reason, that supply chain is disrupted? Number two, you want to have some sort of comprehensive supplier audit and certification program. Most businesses do. I mentioned earlier about you can also use third parties sometimes. But be it as it may, you want some sort of consistent thing. And I'm just going to show you a couple examples that we used in Colgate, but people have these kind of things. So you'll take a cross-functional team, generally for large items, or even if it's yourself and maybe you and the quality person, and you're going to go in and do a supplier audit. So here are two, the chemical supplier audit list, and a packaging supplier audit list. So this is both for direct materials we talked about. And you have an audit tool. It's hard to read here, but it basically says, was it sufficient, deficient, does it require some sort of action, and if so, by when? So you'll come out of these audits with a lot of things that need to be done immediately, some things to be done in 30 days, 60 days, 90 days. And you have a written record of it, and you want to go back to your supplier to make sure that he completes those things. You want to have a well-defined risk management process. So let me just show you a simple one, but it works very well. You want to have a risk identification, all right, you want to assess it. Then you want to have the contingency plan, and you want to implement that plan. So there's three things you need to do. You need to assess and prioritize risk. You can't work on all of them. And you want to be able to develop contingency plans if they do occur, and you also want to monitor your execution when you're trying to overcome that risk. So here's one basic approach. This is happens to be red, yellow, green, like a stoplight, right? This one happens to be red, yellow, blue. But the point would be here is that you can take a look at the business access on the bottom versus the likelihood of occurrence, and you can determine where the risk is. And obviously, the red you're going to want to address first. Less or so with yellows, and probably the blues, you're probably just going to monitor infrequently. So this is a good way to prioritize your risk. We are Colgate actually had a similar model where we used stoplight approach. So the ones that were red, we looked at first, and then the yellows, a little less work, and green, we didn't present back to the committees. Talk about that later. So this fourth thing is you want to be able to have a contingency plan if things do occur. So you remember this chart from before? You've identified the risk, you made an assessment, and you have a plan in place if something occurs, critical. Fifth, you want to look at having some sort of reviews. This could be within your own department, or if the company thinks it's important, it could be senior management. And so this would be some sort of quarterly or monthly review of these risks. And hopefully, have come back with some things to overcome the risk and change it from a red to a yellow and etc., etc., but you want to have somebody reviewing it, not just you. So you come through and you say, who should be in this? So let me just tell you what we had at Colgate, it's just one example. We thought we were a very global company, 75% of our sales outside the United States. And so we thought this was something very important. So we had senior management people, we had the chief financial officer. We had the supply chain head was there that I worked for, I was there, people from communication, all key people that were in the business. The CEO always there, and we would present these things, and it does two things. One, they know what the risks are, and they can determine then what action we want to take. So an example would be if we talked about this ingredient called triclosan in toothpaste. It was a bottleneck supplier for a long time. What we did basically, was to carry inventory of that ingredient, about six months in a warehouse so if there was a problem, we could overcome it. Later on, as I mentioned, when I talked about portfolio analysis, we found a second source, and it was a better way to mitigate the risk. So you might want to think about who's in that meeting and who's going to review. I think the important thing is you should have some sort of review process to keep people talking about it. So here are the first five and we're going to stop there, and next week we're going to cover six through ten.
