Even before COVID-19 focused your attention on your supply chain, you considered how disruptions of a supplier may have caused a disruption to you. This is basic risk management.
Of course, you have had robust conversations with your primary suppliers and there is a clause in each contract to assure the continuity of service to you. Perhaps you have even undertaken joint planning and testing to validate those arrangements. After all, that supplier is critical to ensure your customers’ service expectations are met.
Today you may be thinking about adjusting your “Just In Time” approach to increase the volume of inventory you hold. Perhaps you have even considered moving to a “Just In Case” approach to stock. What is the right answer?
There are a number of factors that influence the answer.
Consider this simple case study:
Reach into your pocket or wallet and pull out a credit card. That 85mm long, 53mm wide and 1mm thick piece of plastic we tap, swipe and dip onto various devices to pay for our many and varied purchases.
Let us assume your card provider (I will say ‘bank’ for clarity) offers a digitally-enabled self-service function on its app. You log onto the app, click on ‘Request replacement card’ and receive a ‘Request confirmed – your card should arrive in the mail in 5-7 working days’ message. In 5-7 days the card arrives in your mail box. Simple.
Have you ever thought about what goes into the ‘magic’ between the digital acknowledgement of your card replacement request and the arrival of your shiny new piece of plastic? Neither had I until I was responsible for delivery of over 1 million cards annually to a major Australian bank’s customers. At that time they had over 300 distinct card designs?
Obviously to get the request from your device through your bank’s app there are several technology interfaces. Then the request goes into the core system and the credit card specific system. Your bank then batches a daily (perhaps even multiple daily) output file to send to their card fulfillment provider.
Already we have a network of suppliers. Let’s ignore the technology hardware and software providers for the moment and focus on the supplier who will emboss the card, activate the EMV chip, attach it to a letter, fold the letter, insert the letter into an envelope and lodge that envelope in the mail. Apologies….I’m getting ahead of myself but please remember that detail.
The card fulfillment provider probably should be a Tier 1 supplier. After all, if that supplier is disrupted, some customers of the bank will soon be affected by a disruption to the card fulfillment provider.
Let us consider the card and its manufacture process. What are the components and from where are they sourced? First let me give you a simplified and basic view of the card manufacturing process.
Think of the card as a plastic and ink sandwich. The card front (obverse) and card back (reverse) of the card are printed on the base plastic stock using, depending on the design, a 4 colour, CMYK offset press for basic colours and/or screen press for metallics. Once printed, the ‘sandwich’, comprising obverse clear laminate, card observe, card reverse, magnetic stripe, and reverse clear laminate, is placed into a laminating machine where heat and pressure create the blank. 40-60 blanks are generally present on a sheet and then punched out of that sheet using a punch and die machine.
Once punched out, the individual cards are fitted with the signature panel and security hologram. After a quality check, the cards are fitted with their smart chip. Each card is milled out and the EMV chip glued in place.
Completed blank cards are then gathered and ready to be provided as a completed order to the Tier 1 supplier.
Questions:
Does the card fulfillment provider also manufacture the blank stock? If not, then the card manufacturer is a supplier to the card fulfillment provider and, consequently, a Tier 2 supplier to the bank.
What are “Just In Time” stock alert levels agreed between the bank and the card fulfillment provider?
Is the card manufacturer located in the same country as the card fulfillment provider?
Consider the card manufacturer’s suppliers.
The items marked with an asterisk (*) are controlled items. Prior to placing an order, the manufacturer must obtain permission from the relevant card scheme.
So, the suppliers to your Tier 2 supplier are Tier 3. What is not considered here is the plant, equipment, and people the card manufacturer relies upon in their production facility.
What is the most critical component? Dare we suggest that all components are important? The question for the bank is how deeply and diligently their Tier 1 suppliers collaborate to assess the resilience of the Tier 2 and Tier 3 supplies. Looking at this example, the EMV chip is the component with the greatest lead time from, potentially, a single provider. I would recommend that the bank deliberately considers potential disruptors to that EMV chip provider. In this example a prudent risk manager in the bank might maintain and regularly update their situational awareness regarding chip supply and actively seek early warning of potential disruption.
Earlier in this article I asked you to remember some of the steps involved in making the magic happen. While I concentrated predominantly on the manufacture of blank card stock, the envelope you receive containing your shiny new card is a fulfilment pack. All of the components of that pack including card, letter, mandatory compliance brochures, activation sticker and envelope all had to be sourced from different suppliers. Before Australia Post could deposit your pack in your mailbox, someone had to collect your completed card and transport it to a mail sorting centre for lodgement.
And, again, I have not touched on the various technology employed to move, treat, and manage the data necessary to manage your transaction. The same principles apply to determine which tier of supplier requires diligent examination and assurance.
What you might consider doing is:
Examine your supply chain from your customer all the way back to raw material
Deliberately assess the components of your product and potential disruptions to suppliers of those components
Decide where you will apply enhanced diligence to gain assurance that your supply chain is resistant to disruption
Actively test that your supply chain can withstand disruption
Perhaps in reading this you thought “too easy – make the decision have at least one year of stock of blank cards at the Tier 1 card fulfillment provider.”
Of course, you can do that if you have the desire and budget, and your Tier 1 has the storage capacity.
However, what happens if a catastrophic event occurs at that facility and that bulk stock is either destroyed or unsalvageable? What if the Tier 1 ceases operations and you find that your step-in rights and/or right of entry contract clauses are unenforceable?
Sound like something you need to work on? Tigertail has a team of experts that can work with you to identify and manage sources of disruption.
Protecting your people, operations, assets, and reputation is paramount in a crisis or emergency. With more than 150 years of combined experience we cover everything – from prevention and preparedness to response and recovery. The Tigertail team includes Crisis and Emergency Management Leaders, Business Continuity Specialists, Risk Management Advisors, Planners, and Trainers to equip your organisation with the skills to confidently and effectively manage risk, crisis, and emergencies.
Author: Craig Moroz
W: www.tigertail.com.au T: +61 2 8097 1900 E: craig.moroz@tigertail.com.au
TIGERTAIL AUSTRALIA: CONFIDENCE / CLARITY / CONTINUITY
