Assessing and managing risk: interview with IBM's Louis R. Ferretti
Five years ago, IBM went in search of a tool to help it better assess the vulnerabilities of its vast global pool of suppliers. When the company couldn't find what it needed, Lou Ferretti and his team built their own.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
As supply chains have become more global, the complexities of managing risk across vast and varied physical and political geographies arguably have grown by orders of magnitude. That's a lesson that IBM, one of the world's largest technology companies, has taken to heart. Beginning in 2009, the company undertook the task of building a complex supply chain risk management tool, now deployed globally, that provides managers with a way to examine supply risk in a much more robust fashion than ever before.
The team that developed the tool was headed by Louis R. Ferretti, the project executive who leads global and strategic programs within IBM's Integrated Supply Chain business unit and across its global supplier network on environmental compliance, supply chain social responsibility, conflict minerals, business continuity planning, and sustainability as well as risk management. He is also a member of IBM's corporate crisis management team.
Ferretti recently spoke to Editorial Director Peter Bradley about the development and rollout of the supply chain risk management tool.
Q: Companies have been talking about risk management for a long time. What led IBM to develop a supply chain risk tool? A: IBM, like others, has always assessed supply chain risk. Typically, we would look at whether our supplier was a single or sole source supplier and whether there was a financial risk associated with that supplier, and maybe we'd look at some logistics aspects. That was the sum total of what was done for our suppliers across the board.
But our supply chain has become global in nature. We are sourcing in probably 80 countries, and we are sourcing many times in countries where the risks are much higher. So our senior leaders asked our [chief procurement officer] what we were doing. Quickly, our CPO responded that we would work to address supplier and supply chain risk in a much broader, holistic fashion. We would cover political, financial, economic, logistics, and climatic factors. Our CPO listed probably a dozen factors that we would consider in a newer approach to risk. That was the mission that was handed over to me in 2009.
Q: Give me a sense of the timeline of the process to make that happen. A: I needed to step back. I thought that there was a supply chain risk industry, and what I would do is go find a subscription and get someone to provide me with all the information I was looking for as far as disruptions to the supply chain. After interviewing large companies and even small companies, they told us at the time that this was interesting but that nobody else was asking for it.
I figured that if they didn't have it and would have to build it, that we could probably do an equally good or better job of building it for ourselves and customizing it to our specific risk profile. We had a small core team, maybe a half-dozen people, and we started examining how we would put this together. It probably took us a little bit over a year to put our concept in place, to develop the requirements, and actually do the coding. The end result is what's known as our "Total Risk Assessment Tool and Process."
When I got this assignment, I wasn't told to build a tool. I was told to put a process in place that would assess supplier and supply chain risk and all these factors. Once we started examining the scope of risk and then looking at the data that we would need, we realized very quickly that this was not a spreadsheet tool, but it really had to be a much more sophisticated database and analytic tool [for] developing an algorithm that would look at this information and produce, as a result, the level of risk. But that is not where I started out.
Q: Prior to developing this tool, how did you assess supply risk? A: Our procurement councils—what most companies call category management groups—would look at their suppliers, and they would make a determination of the level of risk, typically based upon one or two factors: single source and financial risk. Now, the interesting thing is that comparing council to council, there was really no definition of risk. There were no criteria. Each council—we had dozens of councils—would make, I want to say, a subjective call. They really didn't have a benchmark in order to compare one with another.
Q: Let's go back to the development of the tool. What did it take to build and get this tool in place? A: We assembled a small team from procurement, engineering, GBS [IBM's Global Business Services consulting division], business integration and transformation, and the CIO's office. We determined what risks we needed to consider, what data we would need to evaluate the risks, an algorithm to assess the impact versus likelihood of an event occurring, who the users would be, what kind of training they would need, and how often to run the tool. We had to develop thresholds and metrics as well as a management system around the process. Gathering the tool requirements, tool development, and testing took about a year.
Q: Tell me a little bit about the rollout. A: Prior to the actual rollout, we built a prototype and then ran a pilot with several users. We got excellent feedback and made changes. The CPO was a very strong proponent of using the tool. And within just about a year from the initial deployment, the Fukushima earthquake and tsunami struck Japan. The teams found the tool invaluable in gaining insight as to which suppliers we had in Japan, what commodities were made there, etc. Then later that year came the Thailand floods. After those two events, all of the procurement team members were in.
Now, this is clearly extra work for the sourcing team. We did a couple of things to ease into this. We had extensive education on not just why we were doing this but also on how the tool works; the purpose of the questions; why we would look at the country, region, suppliers, supplier sites, and the commodity—and why we chose those particular things; and then how the algorithm would take that information, weigh it, and produce a result. Then, when we had a result, what we would do with it.
Q: There must be some way for the tool to adjust to changing conditions. A: The factors that are considered in the tool are not ones where you would typically see dramatic changes from week to week, month to month, and so forth, and we don't run the tool that frequently, though we could. What really changes are situations, whether it be the Thailand floods, issues with Ukraine, the protests in Hong Kong. Those things are real time. To augment the tool's calculation on the high-risk, medium-risk, low-risk slider, you rely quite heavily on the real-time alerts. So we have a system in which we collect information around the clock, and we look at the data, the alerts, and we make a determination very quickly whether or not we think it is going to impact the supply chain only in the short term or if it is a fundamental issue that is going to change the supply chain for the longer term.
Q: What has the tool done for IBM? A: Well, overall it has raised the level of risk awareness and sensitivity. Sourcing people around the world understand that sourcing the product and getting the best price and getting it delivered on time are all necessary, but understanding the level of risk that the supplier brings as well as the part's supply chain is something that is equal to the other items.
In the Japan situation, the tool immediately told us how many suppliers we had in Japan, whether they were tier one or two, what commodities they provided, etc. The executive team could reach out to the suppliers right away and determine if the factories would be up and running and if not now, when. We had an abundance of information at our fingertips that we eventually would have gotten to, but the sooner you get this information, the more options you have to deal with the crisis because for the most part, competitors are going to the same suppliers, the same manufacturing lines, the same capacity.
Q: Do you have plans to expand the tool's scope and features? A: There are really a couple of things here. It would sure be nice if we could see a picture of the factory when our executive is talking to that top executive in Japan. Actually, we developed what we call a risk app and tested it, and we have it in play now. We are going to be using it for other aspects of IBM, so this gives us the ability to communicate on the spot.
The next thing that we have done is [a result of] the Thailand flooding. About 50 percent of the hard drive business is in Thailand, so that situation was very, very acute. We were asked to look at supply clustering. So we looked around, and we found that we do have suppliers in several sites around the world that are clustered in different geographies. So we started to look at the potential of flooding. We actually have this now; we've got a prototype that is up and running, and we are using it.
For the past seven years, third-party service provider ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.
Photo courtesy of Dematic
For the past four years, automated solutions provider Dematic has helped support students pursuing careers in the STEM (science, technology, engineering, and mathematics) fields with its FIRST Scholarship program, conducted in partnership with the corporate nonprofit FIRST (For Inspiration and Recognition of Science and Technology). This year’s scholarship recipients include Aman Amjad of Brookfield, Wisconsin, and Lily Hoopes of Bonney Lake, Washington, who were each awarded $5,000 to support their post-secondary education. Dematic also awarded $1,000 scholarships to another 10 students.
Motive, an artificial intelligence (AI)-powered integrated operations platform, has launched an initiative with PGA Tour pro Jason Day to support the Navy SEAL Foundation (NSF). For every birdie Day makes on tour, Motive will make a contribution to the NSF, which provides support for warriors, veterans, and their families. Fans can contribute to the mission by purchasing a Jason Day Tour Edition hat at https://malbongolf.com/products/m-9189-blk-wht-black-motive-rope-hat.
MTS Logistics Inc., a New York-based freight forwarding and logistics company, raised more than $120,000 for autism awareness and acceptance at its 14th annual Bike Tour with MTS for Autism. All proceeds from the June event were donated to New Jersey-based nonprofit Spectrum Works, which provides job training and opportunities for young adults with autism.
The logistics process automation provider Vanderlande has agreed to acquire Siemens Logistics for $325 million, saying its specialty in providing value-added baggage and cargo handling and digital solutions for airport operations will complement Netherlands-based Vanderlande’s business in the warehousing, airports, and parcel sectors.
According to Vanderlande, the global logistics landscape is undergoing significant change, with increasing demand for efficient, automated systems. Vanderlande, which has a strong presence in airport logistics, said it recognizes the evolving trends in the sector and sees tremendous potential for sustained growth. With passenger travel on the rise and airports investing heavily in modernization, the long-term market outlook for airport automation is highly positive.
To meet that growing demand, the proposed transaction will significantly enhance customer value by providing accelerated access to advanced technologies, improving global presence for better local service, and creating further customer value through synergies in technology development, Vanderlande said.
In a statement, Nuremberg, Germany-based Siemens Logistics said that merging with Vanderlande would “have no operational impact on ongoing or new projects,” but that it would offer its current customers and employees significant development and value-add potential.
"As a distinguished provider of solutions for airport logistics, Siemens Logistics enjoys a first-class reputation in the baggage and air-cargo handling areas. Together with Vanderlande and our committed global teams, we look forward to bringing fresh impetus to the airport industry and to supporting our customers' business with future-oriented technologies," Michael Schneider, CEO of Siemens Logistics, said in a release.
I recently came across a report showing that 86% of CEOs around the world see resiliency problems in their supply chains, and that business leaders are spending more time than ever tackling supply chain-related challenges. Initially I was surprised, thinking that the lessons learned from the Covid-19 pandemic surely prepared industry leaders for just about anything, helping to bake risk and resiliency planning into corporate strategies for companies of all sizes.
But then I thought about the growing number of issues that can affect supply chains today—more frequent severe weather events, accelerating cybersecurity threats, and the tangle of emerging demands and regulations around decarbonization, to name just a few. The level of potential problems seems to be increasing at lightning speed, making it difficult, if not impossible, to plan for every imaginable scenario.
What is it Mike Tyson said? Everyone has a plan until they get punched in the mouth.
It has never been more important to be able to pivot and adjust to challenges that can throw you off your game. The report I referenced—the “2024 Supply Chain Barometer” from procurement, supply chain, and sustainability consulting firm Proxima—makes the case for just that. The company surveyed 3,000 CEOs from the United Kingdom, Europe, and the United States and found that the growing complexities in global supply chains necessitate a laser-sharp focus on this area of the business. One example: Rightshoring, which is the process of moving business operations to the best location, means companies are redesigning and reconfiguring their supply chains like never before. The study found that large numbers of CEOs are grappling with the various subsets of rightshoring: 44% said they are planning to or have already undertaken onshoring, for instance; 41% said they are planning to or have undertaken nearshoring; 41% said they are planning to or have undertaken friendshoring; and 35% said they are planning to or have undertaken offshoring.
But that’s not all. CEOs are also struggling to deal with the rise of artificial intelligence (AI) and its application to business processes, the potential for abuse and labor rights issues in their supply chains, and a growing number of barriers to their companies’ decarbonization efforts. For instance:
Nearly all of those surveyed (99%) said they are either using or considering the use of AI in their supply chains, with 82% saying they are planning new initiatives this year;
More than 60% said they are concerned about the potential for human or labor rights issues in their supply chains;
And virtually all (99%) said they face barriers to decarbonization, with 30% pointing to the complexity of the work required as the biggest barrier.
Those are big issues to contend with, so it’s no surprise that 96% of the CEOs Proxima surveyed said they are dedicating equal (41%) or more time (55%) to supply chain issues this year than last year. And changing economic conditions are adding to the complexity, according to the report.
“As inflation fell throughout last year, there were glimmers of markets stabilizing,” the authors wrote. “The reality, though, has been that global market dynamics are shifting. With no clear-set position for them to land in, CEOs must continue to navigate their organizations through an ever-changing landscape. Just 4% of CEOs foresee the amount of time spent on supply chain-related topics decreasing in the year ahead.”
Simon Geale, executive vice president and chief procurement officer at Proxima, added some perspective.
“It’s fair to say that the complexities of global supply chains continue to have CEOs around the world scratching their heads,” he wrote. “The results of this year’s Barometer show that business leaders are spending more and more time tackling supply chain challenges, reflecting the multiple challenges to address.”
Perhaps the extra focus on supply chain issues will help organizations improve their ability to roll with the punches and overcome resiliency challenges in the year ahead. Only time will tell.
Investing in artificial intelligence (AI) is a top priority for supply chain leaders as they develop their organization’s technology roadmap, according to data from research and consulting firm Gartner.
AI—including machine learning—and Generative AI (GenAI) ranked as the top two priorities for digital supply chain investments globally among more than 400 supply chain leaders surveyed earlier this year. But key differences apply regionally and by job responsibility, according to the research.
Twenty percent of the survey’s respondents said they are prioritizing investments in traditional AI—which analyzes data, identifies patterns, and makes predictions. Virtual assistants like Siri and Alexa are common examples. Slightly less (17%) said they are prioritizing investments in GenAI, which takes the process a step further by learning patterns and using them to generate text, images, and so forth. OpenAI’s ChatGPT is the most common example.
Despite that overall focus, AI lagged as a priority in Western Europe, where connected industry objectives remain paramount, according to Gartner. The survey also found that business-led roles are much less enthusiastic than their IT counterparts when it comes to prioritizing the technology.
“While enthusiasm for both traditional AI and GenAI remain high on an absolute level within supply chain, the prioritization varies greatly between different roles, geographies, and industries,” Michael Dominy, VP analyst in Gartner’s Supply Chain practice, said in a statement announcing the survey results. “European respondents were more likely to prioritize technologies that align with Industry 4.0 objectives, such as smart manufacturing. In addition to region differences, certain industries prioritize specific use cases, such as robotics or machine learning, which are currently viewed as more pragmatic investments than GenAI.”
The survey also found that:
Twenty-six percent of North American respondents identified AI, including machine learning, as their top priority, compared to 14% of Western Europeans.
Fourteen percent of Western European respondents identified robots in manufacturing as their top choice compared to just 1% of North American respondents.
Geographical variances generally correlated with industry-specific priorities; regions with a higher proportion of manufacturing respondents were less likely to select AI or GenAI as a top digital priority.
Digging deeper into job responsibilities, just 12% of respondents with business-focused roles indicated GenAI as a top priority, compared to 28% of IT roles. The data may indicate that GenAI use cases are perceived as less tangible and directly tied to core supply chain processes, according to Gartner.
“Business-led roles are traditionally more comfortable with prioritizing established technologies, and the survey data suggests that these business-led roles still question whether GenAI can deliver an adequate return on investment,” said Dominy. “However, multiple industries including retail, industrial manufacturers and high-tech manufacturers have already made GenAI their top investment priority.”
Regardless of the elected administration, the future likely holds significant changes for trade, taxes, and regulatory compliance. As a result, it’s crucial that U.S. businesses avoid making decisions contingent on election outcomes, and instead focus on resilience, agility, and growth, according to California-based Propel, which provides a product value management (PVM) platform for manufacturing, medical device, and consumer electronics industries.
“Now is not the time to wait for the dust to settle,” Ross Meyercord, CEO of Propel, said in a release. “Companies should approach this election cycle as an opportunity to thrive in the face of constant change by proactively investing in technology and talent that keeps them nimble. Businesses always need to be prepared for changing tariffs, taxes, or geopolitical tensions that lead to unexpected interruptions – that’s just the new normal.”
In Propel’s analysis, a Trump administration would bring a continuation of corporate tax cuts intended to bolster American manufacturing. However, Trump’s suggestion for spiraling tariffs may benefit certain industries, but would drive up costs for businesses reliant on global supply chains.
In contrast, a Harris administration would likely continue the current push for regulatory reforms that support sectors like AI, digital assets, and manufacturing while protecting consumer rights. Harris would also likely prioritize strategic investments in new technologies and provide tax incentives to promote growth in underserved areas.
And regardless of the new administration, the real challenge will come from a potentially divided Congress, which could impact everything from trade negotiations to tax policies, Propel said.
“The election outcome is less material for businesses,” Meyercord said. “What is important is quickly adapting to shifting policies or disruptions that address ‘what if’ scenarios and having the ability to pivot your strategy. A responsive manufacturing sector will have a significant impact on the broader economy, driving growth and favorably influencing GDP. One thing is clear: the only certainty is change.”