"One on One: An Interview with Joseph A. Yacura" By Jill Schildhouse, Winter 2005, Vol. 41, No. 1, p. 2
Journal of Supply Chain Management Copyright © February 2005, by the Institute for Supply Management, Inc.
Interview by Jill Schildhouse, writer for Inside Supply Management®
Joseph A. Yacura is chief strategist and co-founder for Supply Chain Management, LLC, headquartered in New York, a consulting firm that specializes in providing "Total Cost and Supply Chain Management Solutions" to mid- and large-scale companies. Yacura has held numerous senior executive management positions — including operations, manufacturing, production control, strategic planning, finance, and supply chain management — at IBM, Pacific Bell, American Express and InterContinental Hotels Group. He is past chair of CAPS Research in Tempe, Arizona, and is involved with the advisory board for the State University of New York at Oswego Foundation Board. Yacura has appeared on "The Nightly Business Report" program. He earned an MBA in finance and an MS in accounting from Binghamton University, along with a master's degree in quality management from Loyola University. He has also completed the Senior Executive Program at Stanford University.
The Journal of Supply Chain Management: How do you define risk? How has the definition of risk changed in recent years?
Joseph A. Yacura: Risk, within the supply chain, can be defined as any variable that can affect the continuity of supply of a product or service. As a result, there are many variables that effect overall supply chain risk. In recent years the list has grown beyond the traditional supply chain concerns to include information security, product/service liability, etc. As companies become less and less vertically integrated, they have begun to outsource critical elements of their business processes and sources of their supplies. A company's risks are now compounded by the number of external providers they rely on to keep their businesses running and their customer needs satisfied. A significant amount of outsourcing of both manufacturing and services has been to low labor cost regions of the world. While companies benefit from lower labor costs, their risks increase substantially due to the political and economic instability in some of these regions. As a result, constant monitoring of political and economic conditions in these regions must occur in addition to the regular risk metrics.
The Journal: How has the way supply chain managers need to think about and assess risk changed?
Yacura: Most companies, whether in manufacturing or the services sector, have re-addressed their views on risk. Today, there is an increased focus on operations risks. Sarbanes-Oxley has contributed to the focus by requiring senior managers and boards of directors to achieve a deep understanding of all significant financial/nonfinancial risks threatening their businesses. As a result, companies either have started to reassess their thinking about managing supplier risk or will be thinking about this in the near future. Supply chain risk assessment and mitigation are now critical tasks performed within most companies' supply chain management organizations. While risk was always an issue, at the companies that I have worked for, it has only recently been elevated to a critical task that, if not properly managed, can totally disrupt a company's ability to meet its customers' needs and place at risk the company's very existence. One example is the increased deployment of "lean" manufacturing strategies. While extremely beneficial in helping a company manage its use of capital, "lean" manufacturing strategies have added a new level of exposure with the reduction of any buffer stocks of inventory throughout the entire supply chain process. This process has added another element of risk that needs to be managed. Another driver of improved supply chain risk management is the stock market. A recent study by a major U.S. university showed that a supply chain glitch could negatively impact a company's stock price by nearly 20 percent. The study stated that supply chain glitches had more of an impact on a company's stock price than any other corporate event including new product introductions, IT investments, plant closings and even stock splits. (This study was completed just before several of the recent corporate financial scandals.) Interestingly, I have found that a company's risk tolerance is also significantly impacted by the stock market's perception of a company. An easy measurement of the market's perception is its stock price relative to other firms in an industry and its recent volatility. Past negative experience with risk is also a major contributor to a company's risk tolerance.
The Journal: Speaking of tolerance, how do you determine a company's supply chain risk tolerance?
Yacura: A company's tolerance for risk is dependent upon several factors. One factor is the company's overall exposure to risk. Does the company operate on a global basis? If so, it could have geopolitical risks, logistics risks, currency exchange risks, etc. Competition is another risk determinant. A company facing aggressive competition in a more commodity-based business is at greater exposure than one with unique capabilities.
The Journal: Is it in the best interest for a company to eliminate all risk?
Yacura: Risk can never be totally eliminated. The best anyone can do is to try to identify, assess, interpret, manage and mitigate risk. Historically, this was performed more on a subjective basis than with a refined analytical approach. As the risks get larger, a company's ability to ensure continuity of operation becomes more at risk and can no longer tolerate its exposure based on someone's intuition. Most stockholders and major investing institutions seek stability in their investments. Any volatility that was not projected usually causes considerable concern.
The Journal: How prepared are most companies to manage their risk?
Yacura: There are a few companies that have adequately assessed their total supply chain risks. Even fewer companies have adequately planned and/or implemented corrective action to manage these risks. As a result, this is a significant area of potential growth and leadership for the supply chain management functions in most companies.
The Journal: Are there techniques that supply chain managers can use to mitigate and/or better manage risk?
Yacura: I feel that the need to manage risk at a much more sophisticated level will continue to be a major responsibility of the supply chain management function. There are several techniques that I have deployed in the past to mitigate supply chain risks. Risk, if defined in the early stages of the contracting process with a supplier, can be either absorbed, deferred or shared through specific language in the contract with the supplier. While not necessarily eliminating the risk, which is almost impossible to do, you can minimize the financial impact of risk on your company through this process. Constant communications with your suppliers around specific metrics can provide early recognition of any risk, along with constant monitoring of specific industries and any news and/or SEC filings by your suppliers. Legal filings of lawsuits and tax decisions should also be monitored through various commercially available services. A well-defined and documented contingency plan should exist for all critical/essential suppliers, products and services. The plan should include various scenarios of varying duration of time. A company should also validate, on an annual basis, its disaster recovery plan and validate all the information systems and databases a disaster recovery plan would need to ensure successful deployment. I would also recommend that you have a clearly identified owner of your disaster recovery plan who is authorized and empowered to make the necessary quick decisions required at such times. Create a "risk awareness culture" that provides an easy means for all employees to raise questions/concerns regarding risk and recognize these individuals for taking such actions.