Retail and Consumer Products Industry

1.1. Supply Chain Risk

In the Retail and Consumer Products (RCP) industry, it is critical to have an efficient and effective supply chain. Presenting opportunities and risks, the supply chain is one of the last, best areas from which to reduce costs in a company's operations. Beyond that, flexible supply chains enable greater connectivity and collaboration between business partners. Done right, this can improve operational effectiveness, customer service and, ultimately, profitability.

But with greater connectivity comes greater risks. Data and application security are obvious risks, as is the risk of maintaining the availability, accuracy, and integrity of the data that is transferred between partners. Ensuring continuity in the event of business disruptions is another major risk area. Companies also take on financial risk when they invest in supply chain management tools and technologies, and they assume tax risk when they choose where and how to manufacture, distribute, and transport goods. As supply chains become more complex, as has been the trend in recent years, exposure to risk also increases.

As retail and consumer products companies continue to target the supply chain for cost savings and strategic advantage they increase their exposure to risk in several areas, including data integrity. To achieve the full promise of supply chain management, companies should consider the opportunities presented by such initiatives, while focusing more of their efforts on governance and measurement. In today's increasingly challenging global marketplace, it is extremely important for retail and consumer products companies to align their tax planning with their evolving business operations.

Supply chain risks are many. They include supply interruption risks, purchase price risk, regulatory and compliance risks, customer dissatisfaction and service risks, process inefficiency risks, product introduction and cycle time risks, information integrity and availability risks, planning and integration risks, inventory and obsolescence risks, information privacy and security risks, contracting, compliance and legal risks, employee and third party fraud risks and many more.

1.1.1. Supply chain risk assessment

Effective supply chain management ensures that customers can buy goods when and where they wish. As such, difficulties and delays in supply chains can have a direct impact on company profits. Increasingly companies source their products from many different countries and global businesses need to route products around the world. This has resulted in many retailers relying on suppliers that manufacture or assemble goods in locations with a high level of political risk.

Disruption to supply chains is often caused by political events, security incidents or concerns, and other unforeseen occurrences. Control Risks Group has conducted a number of supply chain risk assessments. This work has focused on assisting our clients to understand the political and risk environments that affect their supply chains. The aim has often been to identify "triggers" and time-line sequences that precede supply chain disruption so that the company is able to implement pre-determined contingency plans to minimize the impact.

1.1.2. Specific elements of supply chain risk assessment:

* Supply chain mapping - Control Risks works with clients to map the local and external inputs that form the various parts of the supply chain. Risks to each point in the supply chain are then identified. A critical points analysis can also be performed to identify the critical risks to the supply chain.

* Risk evaluation - the identified risks are assessed with regard to impact and likelihood. This builds up a picture of the supply chain vulnerability. Particular focus is devoted to assessing hidden risks.

* Risk management - the controls in place to manage the critical and major risks are assessed. Where there is a potential gap in the effectiveness of the controls, new and more comprehensive risk management strategies need to be developed.

* Collective action plans - not all risks can be controlled. Political and major events can impact a supply chain with little regard for existing supply chain management strategies. In these instances, clients need to have a collective action plan in place that will prioritise certain goods over others and ensure that those items that are the priority for the end consumer are available.

* Monitoring and reporting - an effective system needs to be established to ensure that contingency plans can be activated with sufficient time. Pre-agreed trigger points need to be identified objectively.

* Supplier audit - some of the risks identified in the supply chain may be associated with a particular supplier. Further investigation and due diligence may be required.

1.2. Potential Pitfalls

1.2.1. Pitfalls in Inventory Management

Based on knowledge and experience from supply chain management in electronics, computer, and automobile companies, Lee and Billington identify 14 pitfalls in inventory management. Eight of which are found relevant to this project:

Pitfall 1. No Supply Chain Metrics:

In a supply chain with multiple sites, each site will often have its fairly autonomous management team. The objectives of the various teams may differ, and even be conflicting. Inventory may for example be reduced at a Site A of a supply chain, and thereby, seen from a local perspective, the performance is enhanced. But the inventory decrease may also decrease Site A's flexibility. Because Site A now responds more slowly to changes, Site B, which is Site A's customer will have to increase its inventory (of Site A parts) in order to maintain its flexibility and level of customer service. The lack of supply chain metrics has prevented managers at Site A to see that their local improvements has not lead to improved overall performance of the supply chain. The objective of supply chain metrics is to give the basis for evaluations of the performance of the whole supply chain as one system.

Pitfall 2. Inadequate Definition of Customer Service:

Too few and in-concise metrics for customer service. The evaluation of performance becomes difficult, and certain aspects of customer service may be overlooked.

Pitfall 3. Inaccurate Delivery Status Data:

Customers are not correctly informed of delivery dates of orders and of late deliveries. Companies can often not readily retrieve the information