As supply chains become increasingly complex, global and critical to the sustainable success of any business operating within any sector, it is arguably sudden seismic shifts that stop supply chain planners, practitioners and consultants in their tracks and force them to re-think.
For years now, world-class supply chain thinking, planning and sometimes implementation, has focused on lean and agile; the former seeking to improve continuously a company’s end to end efficiency and productivity through integration, information and process excellence and the latter demanding responsiveness to changing demand and market conditions. These two primary forces have, arguably, dominated and dictated strategic supply chain thinking. And then, along came the Japanese tsunami, other extreme weather conditions and political / military upheavals, all adding risk to established and often lean and agile supply chains.
One might argue that good planning and forecasting, those drivers of supply chain infrastructure and good supply chain execution, should have and could have predicted such events, at least by location if not exact timing and so companies should have been more prepared. Indeed, arguably, by adopting the right approach to risk management, a major disruption can also be turned into a competitive advantage, as shown within the table below:
The third ‘must have’ primary feature of any supply chain, especially when sourcing from all parts of the globe is resilience. Too often, companies feel that they have de-risked their exposure by dual sourcing – a fine approach, until both suppliers are found to be sourcing from the same, single factory hit by a natural or political disaster! Equally, initiatives taken for purely silo economic reasons, such as off-shoring certain back-office functions can often ignore wider, inherent supply chain risks.
The impact on any business from such supply chain disruptions can be substantial and long lasting. From research carried out during 2011, some very interesting statistics emerge:
- 85% of companies experienced a minimum of one supply chain disruption, usually without being prepared for its severe impact
- Natural disasters have increased almost three-fold during the past 30 years (Centre for Research on the Epidemiology of Disasters)
- There is an average 10% fall in shareholder value after supply chain disruptions (Chainlink Research)
- There is an average 14% increase in inventories, 11% increase in costs and 7% fall in sales the following year (IBM)
- Only 9% of companies claimed high confidence in mitigating their supply chain risks and only 15% have detailed assessment models (McKinsey & Co.)
- 90% of companies think supply chain and transport risk management has become a greater priority (World Economic Forum)
So, new models are required that, as has always been the case, trade-off and seek to balance these now three components of leanness, agility and resilience. As always, the devil is in the detail. Product segmentation, which is so critical to supply chain network designing and planning, now needs to incorporate such risk assessment and so drive more informed decision-making. Arguably, high-risk supply products need a different solution from what is designed for the rest of a company’s product mix.
Risk mapping can highlight some very interesting exposure, which can only be partially covered by often very expensive insurance premiums. Risk can and should be broken down into a number of areas, covering physical geography such as the examples above, commercial including supplier reliability and sourcing, security and delays.
These are the bare minimum, but act as a start point. Once identified, then good supply chain planning and design must incorporate them with as much importance being placed on these issues as the more traditional segmenting by physical size, fragility, rate of sale and handling needs.
As with all facets of supply chain consultancy, design and implementation, the use of real-time, integrated and accurate information across the end to end international supply chains is crucial for informed decision-making, including risk management. Complex supply chains draw data from a range of disparate systems and are too often left as ‘islands of data’, when modern solutions can handle and integrate huge amounts of data and when configured correctly, contribute hugely to the daily management of de-risking supply chains. Early warnings of possible supply chain disruption or delay of any kind, full drill-down capability for detailed scrutiny and using ‘what if’ scenario planning techniques that incorporate real, high volume data sets facilitate and underpin supply chain solutions that are lean, agile and also much more resilient, thereby allowing CEOs, COOs and CFO’s to sleep more comfortably at night.