Risky Business?!

So, you really enjoy being a supply chain professional? Part 4

How resilient is your supply chain?

Let’s face it, managing a global supply chain is a fascinating and pressure-filled profession. We learned a long time ago that chains are only as strong as their weakest link. If it weren’t for the myriad ways that your supply lines could be disrupted without a moment’s notice, we’d all sleep a lot better! Don’t you wonder sometimes how and why you got into this field?

This fourth article will look at the challenge that is managing risk – from systematic solutions to the unintentional roll of the dice we often take.

Chains are only as strong as their “weakest link.” Telecommunications has it right. Fault-tolerant networks rarely fail. Do you have a supply chain or supply network?

True, chains are only as strong as their weakest link. Why do we even call what we have a supply “chain?” Do we ever settle for a supply “chain” without understanding the risks to our business without some level of protection of a “network?”

Fault-tolerance is a concept that has been used in telecommunications, airplanes, and space missions for many years. Even the simple spare tire in your automobile is some degree of risk management and fault tolerance.

Procurement professionals ponder the merits of multiple source strategies from both a pricing and supply risk perspective. But there are times when a sole-source is the only practical path. In many electronic devices, there are sole-sourced parts that are critical to the function of that device – just consider “Intel Inside” of the PC market for years, with few viable options, if any. Can your supply chain tolerate that risk?

With a multiple source strategy, there are fewer individual disruptions that, when they occur, can affect your company’s supply. This is one degree of redundancy that provides some fault tolerance. Supply chain professionals need to look up and down their entire “chain” from raw material inputs to their suppliers, through all levels of manufacturing, warehousing, and global distribution to ensure the right level of end-to-end risk avoidance is in place.

As a long-time cyclist, I always carry at least two spare tubes, a patch kit, and plenty of CO2 cartridges to repair any possible flats during the ride!

Supply disruptions will always occur at the worst possible time to your most important customer on your least flexible product when you least expect it. Think Boy Scouts – “Be Prepared!”

The 18-month stretch from mid-2010 through the end of 2011 was “one for the ages” when it came to uncontrollable and “unknowable” global supply chain risks.

It began (not so) innocently with the eruption of the Eyjafjallaj?kull volcano in Iceland in 2010. So, what impact can a silly volcano in Iceland have on the global supply chain?

Well, quite a lot. Most European air shipment channels were shut down for a week or more. It was rough sledding for my company during that stretch as our sole-sourced critical supply node was in Germany. It took a few days, but we got trucks to head southeast and eventually get shipments. Thankfully, we had buffer inventory in place.

Not to be undone, the massively devastating earthquake followed by the deadly tsunami in Japan hit in early 2011. The damage to the automobile industry just before the summer selling season was significant for several months.

Later on, after supply resumed, who had actually thought about and prepared for the fallout from radiation due to the damage at the nuclear power plant and the need to have materials inspected for radioactivity?

Last, but not least, in late summer, the monsoon rains in Thailand created floods that eclipsed the 100-year benchmarks that most flood plains are based upon. This disrupted nearly 40% of the global hard disk drive market for months as many of the supply nodes were under water, literally.

One very interesting juxtaposition of supply chain efficiency, just-in-time inventory policies, and overall supply chain risk played out during the latter two events.

A concentration of suppliers for the two industries developed over time – automobile components in the northern part of Japan and hard disk drives in central Thailand. This looks great from a supply chain efficiency angle as transit times between steps in the process are reduced, inventories can be kept leaner, and a pool of talent is developed (no pun intended).

However, the impact of the uncontrollable and unknowable was dramatic. An efficient supply chain on one day and a dramatic impact to global supply on the next. Both industries have done some major upgrades in their overall practices to reduce the potential impact in the future.

How lean is too lean when it comes to supply chain risk reduction and overall resilience? Are you prepared?

Don’t be an ostrich. Just because you can’t see it doesn’t mean it won’t affect you!

Visibility is an essential element in risk planning and avoidance. Even events or risks that can be considered “unknowable” (like the exact timing of a devastating natural disaster) can be modeled and that intelligence deployed to your supply chain’s risk resilience assessment.

Sometimes, even internal practices that are very visible, when left alone, can open the door for a catastrophic impact due to an untimely event.

I’ve experienced some very skewed end-of-quarter delivery profiles in my career – very high risk when it comes to disruption susceptibility.

More than once we were faced with major typhoons running around Southeast Asia during the last week of our quarter. Timing-wise, we had to have all shipments out of the region by the end of the day on Friday in the US to have any real chance of revenue attainment for the quarter, which ended on Saturday at noon in the US (midnight in eastern continental Asia).

While I have no disastrous results to share, it did wake us up and probably had more of an impact to affecting the linearity in our quarterly shipments than any whining our supply chain and logistics group could muster. Even the CEO brought the topic up during the next end-of-quarter review.

Inflection points are only visible in the rear view mirror.

You don’t know until you know and then you know. Especially when it comes to a change in the curve – an inflection point in the trends.

Even with all the big data stories and the tremendous growth of analytics in supply chain, sometimes things change and you don’t know it until you know it.

The resilience of the supply chain depends considerably on the ability to detect and respond (react) to an inflection point. The strategies put in place to protect business are called into action when the need arises. The better prepared and more agile your supply chain is, the less the damage.

Written off as a fad in 2010 when Apple introduced the first iPad, two years later, the entire PC industry was reeling from the damage. The lack of serious attention given to that inflection in the personal device or computing market hit PC manufacturers and the rest of their supply chain very hard.

Further, the entire software model was disrupted. While “apps” had debuted with the iPhone (even the iPod Touch) a few years earlier, the entire software industry was impacted. Did anyone prepare for the impact of Angry Birds?

In the end, it’s all about preparation and detailed analysis of your entire supply network risk to determine whether or not you can weather the storm.

As the Boy Scouts of America have said for years, “Be Prepared!”

What story do you want to share about your trials and tribulations in the world of risk management?

What strategies do you employ to reduce risk in your supply chain network and how do you calculate ROI?

ciao…mam

Michael Massetti is an executive who really does enjoy being a supply chain professional! Lucent Technologies once took a risk on Michael and he’s been in supply chain ever since. Thanks to my former colleagues and partners in supply chain crime Joe Carson and Chris Armbruster for their ideas.

Other articles by Michael …

• So, You Really Enjoy Being a Supply Chain Professional?
• Are Supply and Demand Driving You Crazy?
• Having Fun Managing Your Suppliers?
• Be Careful When You Say the “A” Word
• Multi-Dimensional Supply Chain Innovation
• Supplier Remuneration – Sometimes You Just Have to Ask
• Don’t Be Afraid to Say “No!” to a Bad Contract
• Relationships Do Affect Sourcing Decisions
• Your Next Career Step – Anticipate or Fear “The Fork in the Road”?