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.
The next time you buy a loaf of bread or a pack of paper towels, take a moment to consider the future that awaits the plastic it’s wrapped in. That future isn’t pretty: Given that most conventional plastics take up to 400 years to decompose, in all likelihood, that plastic will spend the next several centuries rotting in a landfill somewhere.
But a Santiago, Chile-based company called Bioelements Group says it has developed a more planet-friendly alternative. The firm, which specializes in biobased, biodegradable, and compostable packaging, says its Bio E-8i film can be broken down by fungi and other microorganisms in just three to 20 months. It adds that the film, which it describes as “durable and attractive,” complies with the regulations of each country in which Bioelements currently operates.
Now it’s looking to enter the U.S. market. The company recently announced that it had entered into partnerships with South Carolina’s Clemson University and with Michigan State University to continue testing its products for use in sustainable packaging in this country. Researchers will study samples of Bio E-8i film to understand how the material behaves during the biodegradation process under simulated industrial composting conditions.
“This research, along with other research being conducted in the United States, allows us to obtain highly reliable data from prestigious universities,” said Ignacio Parada, CEO and founder of Bioelements, in a statement. “Such work is important because it allows us to improve and apply academically driven scientific research to the application of packaging for greater sustainability packaging applications. That is very worthwhile and helps to validate our sustainable packaging technology.”
It’s probably safe to say that no one chooses a career in logistics for the glory. But even those accustomed to toiling in obscurity appreciate a little recognition now and then—particularly when it comes from the people they love best: their kids.
That familial love was on full display at the 2024 International Foodservice Distributor Association’s (IFDA) National Championship, which brings together foodservice distribution professionals to demonstrate their expertise in driving, warehouse operations, safety, and operational efficiency. For the eighth year, the event included a Kids Essay Contest, where children of participants were encouraged to share why they are proud of their parents or guardians and the work they do.
Prizes were handed out in three categories: 3rd–5th grade, 6th–8th grade, and 9th–12th grade. This year’s winners included Elijah Oliver (4th grade, whose parent Justin Oliver drives for Cheney Brothers) and Andrew Aylas (8th grade, whose parent Steve Aylas drives for Performance Food Group).
Top honors in the high-school category went to McKenzie Harden (12th grade, whose parent Marvin Harden drives for Performance Food Group), who wrote: “My dad has not only taught me life skills of not only, ‘what the boys can do,’ but life skills of morals, compassion, respect, and, last but not least, ‘wearing your heart on your sleeve.’”
The logistics tech firm incubator Zebox, a unit of supply chain giant CMA CGM Group, plans to show off 10 of its top startup businesses at the annual technology trade show CES in January, the French company said today.
Founded in 2018, Zebox calls itself an international innovation accelerator expert in the fields of maritime industry, logistics & media. The Marseille, France-based unit is supported by major companies in the sector, such as BNSF Railway, Blume Global, Trac Intermodal, Vinci, CEVA Logistics, Transdev and Port of Virginia.
To participate in that program, Zebox said it chose 10 French and American companies that are working to leverage cutting-edge technologies to address major industrial challenges and drive meaningful transformations:
Aerleum: CO2 capture and conversion technology producing cost-competitive synthetic fuels and chemicals, enabling decarbonization in hard-to-electrify sectors such as maritime and aviation. Akidaia (CES Innovation Award Winner 2024): Offline access control system offering robust cybersecurity, easy deployment, and secure operation, even in remote or mobile sites.
BE ENERGY: Innovative clean energy solutions recognized for their groundbreaking impact on sustainable energy.
Biomitech (CES Innovation Award Winner 2025): Air purification system that transforms atmospheric pollution into oxygen and biomass through photosynthesis.
Flying Ship Technologies, Corp,: Building unmanned, autonomous, and eco-friendly ground-effect vessels for efficient cargo delivery to tens of thousands of destinations.
Gazelle: Next-generation chargers made more compact and efficient by advanced technology developed by Wise Integration.
HawAI.tech: Hardware accelerators designed to enhance probabilistic artificial intelligence, promoting energy efficiency and explainability.
Okular Logistics: AI-powered smart cameras and analytics to automate warehouse operations, ensure real-time inventory accuracy, and reduce costs.
OTRERA NEW ENERGY: Compact modular reactor (SMR) harnessing over 50 years of French expertise to provide cost-effective, decarbonized electricity and heat.
Zadar Labs, Inc.: High-resolution imaging radars for surveillance, autonomous systems, and beyond.
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
There’s a photo from 1971 that John Kent, professor of supply chain management at the University of Arkansas, likes to show. It’s of a shaggy-haired 18-year-old named Glenn Cowan grinning at three-time world table tennis champion Zhuang Zedong, while holding a silk tapestry Zhuang had just given him. Cowan was a member of the U.S. table tennis team who participated in the 1971 World Table Tennis Championships in Nagoya, Japan. Story has it that one morning, he overslept and missed his bus to the tournament and had to hitch a ride with the Chinese national team and met and connected with Zhuang.
Cowan and Zhuang’s interaction led to an invitation for the U.S. team to visit China. At the time, the two countries were just beginning to emerge from a 20-year period of decidedly frosty relations, strict travel bans, and trade restrictions. The highly publicized trip signaled a willingness on both sides to renew relations and launched the term “pingpong diplomacy.”
Kent, who is a senior fellow at the George H. W. Bush Foundation for U.S.-China Relations, believes the photograph is a good reminder that some 50-odd years ago, the economies of the United States and China were not as tightly interwoven as they are today. At the time, the Nixon administration was looking to form closer political and economic ties between the two countries in hopes of reducing chances of future conflict (and to weaken alliances among Communist countries).
The signals coming out of Washington and Beijing are now, of course, much different than they were in the early 1970s. Instead of advocating for better relations, political rhetoric focuses on the need for the U.S. to “decouple” from China. Both Republicans and Democrats have warned that the U.S. economy is too dependent on goods manufactured in China. They see this dependency as a threat to economic strength, American jobs, supply chain resiliency, and national security.
Supply chain professionals, however, know that extricating ourselves from our reliance on Chinese manufacturing is easier said than done. Many pundits push for a “China + 1” strategy, where companies diversify their manufacturing and sourcing options beyond China. But in reality, that “plus one” is often a Chinese company operating in a different country or a non-Chinese manufacturer that is still heavily dependent on material or subcomponents made in China.
This is the problem when supply chain decisions are made on a global scale without input from supply chain professionals. In an article in the Arkansas Democrat-Gazette, Kent argues that, “The discussions on supply chains mainly take place between government officials who typically bring many other competing issues and agendas to the table. Corporate entities—the individuals and companies directly impacted by supply chains—tend to be under-represented in the conversation.”
Kent is a proponent of what he calls “supply chain diplomacy,” where experts from academia and industry from the U.S. and China work collaboratively to create better, more efficient global supply chains. Take, for example, the “Peace Beans” project that Kent is involved with. This project, jointly formed by Zhejiang University and the Bush China Foundation, proposes balancing supply chains by exporting soybeans from Arkansas to tofu producers in China’s Yunnan province, and, in return, importing coffee beans grown in Yunnan to coffee roasters in Arkansas. Kent believes the operation could even use the same transportation equipment.
The benefits of working collaboratively—instead of continuing to build friction in the supply chain through tariffs and adversarial relationships—are numerous, according to Kent and his colleagues. They believe it would be much better if the two major world economies worked together on issues like global inflation, climate change, and artificial intelligence.
And such relations could play a significant role in strengthening world peace, particularly in light of ongoing tensions over Taiwan. Because, as Kent writes, “The 19th-century idea that ‘When goods don’t cross borders, soldiers will’ is as true today as ever. Perhaps more so.”