Globalization and lean manufacturing have made supply chain management more important than ever.
It’s crucial that materials and parts arrive when needed in the manufacturing process so that you can fulfill orders and customer expectations. But because of the minimization of inventory, your company could be more vulnerable to disruption.
Most people don’t like to think about a catastrophe striking their business, so when things are running smoothly, it’s tempting to put disruption planning on the back burner.
Unfortunately, most disasters don’t give advance notice, although today’s more sophisticated weather tracking does give some warning.
For example, Hurricane Sandy, which struck the East Coast in October 2012, was predicted five days ahead. One of the country’s biggest ports was shut down by the huge storm, as were transportation and logistics businesses operating in the region.
Would five days be enough time to make contingency plans if an important shipment was due in New York? Probably not.
In addition to severe weather, disruption might be caused by labor issues, raw materials shortages, wars, fires and terrorism. Sometimes a supplier to your supplier is the one with the problem, and the ripple effect impacts you.
While you can’t prevent these critical events, you can mitigate their impact through risk management, a key part of supply chain planning. Because of economic uncertainty on top of wild weather and political unrest in many regions of the world, risk management is rising in importance.
Almost all executives (98 percent) recently surveyed by consulting company Accenture felt risk management was more important than two years earlier. Four out of five were worried about the resilience of their supply chains.
Most companies plan out their supply chains several years in advance. Rather than regard your plan as static and set, take a hard look at your chain to find the weak spots. Which supplies or sources are most critical to your functioning? Which have the longest lead times? Where are you most at risk because of external political, geographic, weather or scarcity factors?
If currency exchange rates and fuel costs could make supplies from certain countries too expensive, include them as risks.
A useful tool to rank supply risk is a grid with low risk to high risk on one axis and low importance to high importance on the other. You can map out which supplies are both high risk and high importance, high risk and low importance, etc. This will help you prioritize disruption planning to address the most vulnerable areas first.
Once threats are ranked, the next steps are to mitigate the risk as well as create a plan to address disruption, should it occur.
Risk can be reduced in several ways. You can increase your inventory of the critical, high-risk part to create a more comfortable buffer. Establishing relationships with alternative suppliers and logistics and transportation services will give you options should the worst occur.
Strategic alliances with others in your industry might also be a viable part of your plan, either as an emergency provider of inventory or a source of intelligence.
Recognizing the complex nature of supply chains in a global economy, companies are working together to share information. The Fair Factories Clearinghouse in New York, for example, gathers submitted documentation on 30,000 factories in 142 countries.
A cross-functional team approach is key to developing and modeling your disruption plan, since it is likely all departments will need to respond in some way – from accounting to the production floor.
Running through “what-if” scenarios, your team can brainstorm and draft on paper various response strategies.
After the best options are selected, testing and dry runs will validate your plan. Your team’s roles and responsibilities during a crisis should be pre-determined so decisions can be made quickly and effectively.
A system and responsibility for ongoing intelligence gathering and situation monitoring should also be part of your plan. You can identify the critical issues – weather, currencies, fuel prices, political situations – for your most important suppliers and set up a data-gathering mechanism.
This intelligence gathering could include customized real-time data feeds watched by your team. RTT News and Reuters are examples of services that allow users to set preferences for continuous news updates.
New information should be integrated into your ongoing supply chain management process so that you can respond and adjust to changing conditions as they occur.