Tuesday, 25 August 2015

Profiting from risky global supply chains

It is a certainty that world trade will continue to expand, albeit with hiccups, but to what extent will global businesses realize that the growing key role of effective supply chain management will be the prime battleground to keep ahead of the competition in an ever-more competitive and risky world? How should they prepare to meet the new challenges and sidestep the growing complexity of risks? Does it call for a new generation of logisticians more skilled in future proofing than the mundane tasks of managing supply chain flows at every level? And what are the exciting new supply chain investment opportunities looming on the world stage and how best to exploit them?

In a jargon-free 263 pages Mark Millar's new book: "Global Supply Chain Ecosystems --Strategies for competitive advantage in a complex world* admirably deals with these interdependent issues, though in certain areas there is some room for improvement he could consider for any revised edition he may plan.

Based in Hong Kong as a visiting lecturer at Hong Kong Polytechnic University, he has completed over 350 speaking engagements at corporate events and industry conferences across 23 countries so he has an inside track on the crucible of momentous logistics changes based in the Far East, which comes through strongly in his book, being regarded as one of Asia's top 50 influencers in supply chain and logistics. He has no doubts that Asia, for example, will not suffer from the trend beyond globalization to more regional supply chains. He says that re-shoring or near-shoring formerly outsourced manufacturing to Asia back to Europe and America for a host of good reasons will not lead to a mass exodus from manufacturing in Asia largely because of a well-established, finely tuned and highly efficient and global supply chain ecosystems that service the Asia-Europe and Asia-America trades, but also because the potential of the domestic consumer markets in the economies is so enormous. One can only hope that will be true but there are significant risks that could upset the apple cart. A more immediate problem, however, that exists for multi-national brands who are following the expansion of Asian consumer markets closely is which means they need to review and reconfigure how their supply chain ecosystems operate to reach and service these markets.

What companies often do not know is what is happening throughout their supply chain ecosystems, which includes information on trends, costs, performance metrics and other measurements essential for continuous improvement and development, says Mark. "In order to sense a problem it must be visible," but I would aver that it is also important to sense the as yet invisible problems by observing much more than the trends. A 2014 Economist Intelligence Unit/KPMG international report said 49% of global manufacturing executives admitted that their companies do not have visibility of their supply chains beyond their tier 1 suppliers. Only 9% said they had complete supplier visibility and visibility is probably the biggest challenge to their businesses and it will almost certainly worsen in the near term.

The author agreed with this writer that boardrooms are seriously lacking in their assessment of moral hazards and political risks to the global supply chains, and he gives a warning note on this. "More so than ever before is a need for detailed due diligence in the evaluation and selection of supply chain partners, processes that involve not just assessment of their capabilities but also scrutinizes their reputations, track record and background, including their finances. Since the world's consumers became netizens the power of social media can destroy in seconds the diligently developed and carefully nurtured reputations of companies, brands and products." Yet in my view global corporations seem little fazed by these threats, hoping they will blow over and be soon forgotten. But a seemingly new threat is looming on the horizon that could be a game changer. A Californian woman is suing Costco for selling farmed shrimp from Thailand, where slave labour and human trafficking in the fishing industry are widespread, and allegedly misleading US consumers. The degree of slavery, torture and murder among the migrant workers on board Thai-owned trawlers can be seen by Googling my blog: "Thailand's trawlers of terror shame food supply chains." If the law suit succeeds it could open the floodgates for an ocean of similar actions.

One area where the book seems to be lightweight is the problem of JIT-oriented global supplies and how to acquire robust disaster recovery plans before a disaster hits. A case study offers some limited advice on spreading contract awards among several suppliers, which provides flexibility of supplier choice and enables one to switch to another supplier who already knows your product. There is no mention how global companies with manufacturing plants spread around the world, like General Motors, have bred flexibility through commonality by replicating their factories and standardising manufacturing processes. None of GM's flexible plants has fixed conveyor lines and each plant can be reconfigured over a weekend. Such capabilities, however, will require flexible supply contracts and flexible distribution capabilities. Standardising manufacturing processes is not the only way to create flexibility through interchangeability. One can redesign products to use standardised parts so that several factories within one corporate group can contribute when problems loom.

The degree of global exposure to JIT-oriented parts supplies was eminently highlighted by the 2011 Japanese sub-sea quake and resulting tsunami, which led to multi-billion dollar losses around the world, with the auto industry particularly hard hit. It prompted one US logistics company chief executive to proclaim: "In many cases tightly stretched global supply chains do not make sense anymore." The degree of dependence on Japan for electronic components at the time was alarming, and Japan was home to nearly 100 manufacturing choke points that could affect business worldwide. But how well prepared is global business post 2011? Not much, it seems. As Mark Millar points out, some 50% of the world's laptop chips and 65% of iPads are produced in the capital of Chengdu, Sichuan province, a known high risk earthquake zone.

There is one risk that is still being largely ignored, says Millar, and it is like a ticking time bomb, but one amenable to prevention -- management of human capital. As the author rightly points out, managing a vast, varied pool of human capital is probably the most important topic in the book. This is because every other aspect of operating a productive supply chain is "utterly dependent on how well staff carry out their tasks." In Vietnam as in many other countries there are not enough young people choosing logistics as their career. An ageing population within the logistics sector could undermine long-term economic growth. There are tips on how to attract and retain the right form of talent. Not least of the problems, it seems, is the low salaries offered.

The final chapter on supply chain innovation devotes only one page to warehouse robotics while giving no mention to the power of WMS to cut storage costs drastically. A good stock forecasting program, for example, that can react in real time to, say, daily weather forecasts can trim inventories by up to 30% while leaving customer service levels unharmed. Given that the cost of holding inventories can dwarf all other warehouse running costs combined, these programs can deliver a 2-week payback.

Despite these few lightly touched areas that deserve more prominence the book presents a well-rounded view of the problems, solutions and opportunities that lie ahead in the fast-changing, global supply chains and deserves to be on every logistician's bookshelf.

*Published by Kogan Page.

                                                         Mark Millar


Monday, 10 August 2015

British justice's darkest hour looms?

More cuts to Britain's legal aid budget due to come into force next January paint a bleak picture for the principle of affordable access to justice for all, which has been the envy of the world, so what can and should be done to meet the challenge effectively to prevent what Lord Justice Neuberger fears could lead to defendants "taking the law into their own hands," and is the legal profession partly to blame for its parlous prospects?

The Government's additional cut of 8.75% to the amount paid to litigators in legal aid services, as well as a cut in advocacy fees of £10 million per year will mean that over the past two years legal aid solicitors representing people accused of crimes have seen their fees cut by 17.5%. According, however, to solicitors specialising in criminal legal aid cases, in some areas fees will fall a further 25-30% next year, with rates for some categories dropping by more than half. The Government also intends to press ahead with the new duty solicitor contracts due to begin on January 11, 2016 which will see a reduction in the number of law firms providing 24-hr cover at police stations from 1,600 to 527. By any measure these are draconian cuts. It will also mean that accused defenders would lose the right t choose the solicitors they want to represent them in legal aid cases.

The apparent perception among much of the public that lawyers do protest too much because, like insurance companies, there are no poor ones, has undoubtedly been fanned by a sensationalist Press highlighting the very costly, but relatively few, cases where fees for solicitors and advocates have been seemingly astronomic. Such recent cases include the collapsed trial of a vicar and six co-defendants accused of conveyor belt sham marriages that left the taxpayer with an immediate £600,000 bill that is likely to run into millions and the child killers, Mick and Mairead Philpott, racking up a £350,000 legal aid bill. In the former case prosecution barristers netted £76,834 and lead counsel £44,469, while in the latter each of the lead barristers earned over £55,000. In short, it could be said that the few notoriously costly cases give the whole legal profession an odious name in the public's eye.

                                           Fat Cat myths

The reality for most lawyers and advocates, however, is far from the image of widespread fat catery. To give a recent example take the case of young Mr X who pleaded guilty at his first court appearance on advice from his lawyers which meant the offender had to sign the Sex Offender's Register. The case involved a young couple in an online, consensual relationship that turned sour after several years, in which there were explicit pictures of his ex-girlfriend found on his mobile phone. He was charged with possession of indecent images of a child because she was under 18 at the time the pictures were sent. Worried at the prospect of listing on the Register he than approached the law firm of Bindmans, who engaged Sara Williams from Doughty Street Chambers. She returned to the magistrates' court, arguing that the guilty plea should be withdrawn and a not guilty plea entered. She succeeded and the trial date was set in the Crown Court. Bindmans quickly requested that the Crown Prosecution Service (CPS) review their decision to prosecute but it was six months after taking on the case and almost 11 months since the charge before the CPS finally did so, citing that it was not in the public interest to continue. Now here is a clear case where the defendant's lawyers saved the taxpayers relatively considerable sums because no 'trial fee' was incurred, and Bindman's earnings for all this? A derisory £4.66 per hour and the barrister only £1.50 per hour, hardly fat cat earnings.

Now it is true that Britain's legal aid bill dwarfs that of every other country in Europe -- or is it? At £2 billion a year it is 20 times the European average and more than seven times the amount spent by France and Germany, yet in the National Audit Office Report of 2012 the UK was exactly average in comparison with world-wide spend on the criminal justice system (0.33%). But to what extent does this apparent great disparity in UK and European spend on criminal legal aid reflect a difference in legal systems? The British legal system is an adversarial one in which the State must prove the accused's guilt beyond all reasonable doubt but most other criminal justice systems work on an investigative basis where investigating magistrates do not limit themselves to deciding upon the evidence presented to them. They go forth and seek as much information about the case as they can. It is this that leads to the UK having a higher legal aid bill. It is not so much that defence in a criminal trial costs more in the UK system but rather it is that these costs are differently apportioned. Far more of crimes in the UK system turn up on a specific citizen's account for his defence rather than in the general running costs of the courts as a whole.

Rather crassly, it appears, "asylum" seekers are to be excluded from the proposed cuts of £350 million, despite the legal aid bill for asylum seekers between 2003 and 2010 totalling £824 million, and that does not include the cost of manning the immigration courts. In the light of the current European migrant crisis that bill could soar unless firm measures are taken, like refusing any appeals after appellants have failed a fair immigration hearing. This could be part of a wider approach to the problems of legal aid cutbacks, which risks throwing the baby (justice) out with the bath water. What is needed is an honest debate about legal aid. One option would be to develop a system where legal aid is given as a loan payable only on conviction of the guilty and recovered through existing tax and benefit systems. Another mooted solution is to ask the City to pay for the cost of fraud trials that result from negligence on its watch because fraud trials consume a large amount of the legal aid bill.

Time is running out for many lawyers and public justice because any more cuts will force lawyers to abandon worthy cases as they become financially worthless causes. The legal profession must now show stiffened, united, national and sustained resolve by withdrawing their services until the Government has been persuaded to change tack.