Confronting Supply Chain Disruptions

Stephen DeAngelis

August 17, 2017

“Even the biggest players in manufacturing are not immune to supply chain disruptions,” writes Kasey Hall. “Severe weather, factory fires, political upheaval, labor strikes, even heavy traffic conditions are all supply chain disruptions that have the potential to completely shut down manufacturing operations. For every idle hour of production, millions of dollars are lost.”[1] Katherine Barrios (@Barrios_talk), chief marketing officer at Xeneta, agrees no company is immune to disruptions. “One cannot manage all risks 100 percent,” she writes, “instead one should strive to mitigate as much of the risk as possible.”[2] That advice is good advice. The big question is whether companies will take it. The late Harper Lee once said, “Many receive advice, only the wise profit from it.”

Preparing for Supply Chain Disruptions

“What do you do when a wrench is thrown in the works,” asks Yolanda Graham (@yograham). “Scrambling for solutions puts you at risk for being left behind your competitors. What you need is a supply chain that is designed to be resilient in the face of disruptions.”[3] Resilience by design should be the motto driving every company. Scott Robinson, director of analytical services at Analogica, asserts, “Any supply chain, big or small, simple or complex, can be disrupted.”[4] He adds, “Planning for those disruptions and the associated risks can require getting past some wrong assumptions.” Those faulty assumptions include:

  • Supply chain disruption risk just happens; we don’t bring it on ourselves. “The risks associated with disruption are generally assessed after a supply chain has been implemented. Too often, disruption planning is reactive, rather than proactive. … The fact is that some supply chains run a greater risk of some kinds of disruption based on how the chain is set up.”
  • Supply chain disruption can’t happen to us. The longer and more geographically diverse a supply chain is the greater the risks involved. Robinson writes, “It’s a statistical reality that when the supply chain expands beyond a single region or country and into several, the probability of … disruptions will significantly increase; even dramatically so. To fail to plan accordingly is to take on equally significant risk.”
  • If we can’t prevent supply chain disruption, there’s nothing we can do. “The distinction between supply chain disruption prevention and disruption protection is underappreciated and too seldom acted upon. Disruption prevention means creating systems and processes to anticipate and avert potentially negative effects of events that might interrupt the supply chain. Protection against disruption means equipping the chain to respond rapidly and effectively to disruption. Though it is impossible to fully achieve disruption prevention, it is not only possible, but fairly simple (and potentially not very costly) to implement effective disruption prevention.”

I’m guessing many supply chain professionals would argue that supply chain disruption protection is better described as supply chain disruption mitigation. Graham insists, “The foundation of a resilient supply chain is end-to-end visibility. While most businesses already have some sort of visibility, end-to-end visibility helps planners detect problems that could happen at second- and third-tier supplier levels.” The more complex a supply chain is the more difficult it is to achieve end-to-end visibility. Graham also insists supply chains must be agile because no contingency plan can cover all eventualities. Barrios cites an article by Dr. Madhav Durbha, Vice President of Industry Strategy at Kinaxis, in which he outlines steps businesses should take to manage supply chain risk. They are:

  • Identify. “Collaborate with teams to identify risks that could potentially affect your supply chain.” I recommend conducting “what if” exercises in areas in which a disruption could originate. Although every potential risk is impossible to identify, general areas of concern can be addressed.
  • Quantify and Mitigate. “Assess the probability of each risk occurring and build them into your business justification as you make outsourcing decisions.” Graham adds, “There is a Malay proverb that goes something like this: ‘Prepare an umbrella before it rains’. … Supply chains need several contingency plans that can be put into place when something unexpectedly goes wrong.”
  • Monitor. “Utilize technology and big data to monitor potential threats.” I recommend leveraging the capabilities of cognitive computing platforms. They can gather, integrate, and analyze both structured and unstructured data. They also learn as they work. In some cases, cognitive computing platforms can even take autonomous actions to help mitigate the consequences of a developing disruption. Dave Killebrew (@DaveKillebrew) notes, “New and exciting cognitive systems are launching that can literally take data that would take a team several days to review and offer solutions within seconds.”[5]
  • Respond. “Establish processes and systems that support the speed of response and collaboration.” The military is fond of noting that no plan survives first contact with the enemy. In this case, disruption is the enemy. Contingency plans need to be exercised so employees are equipped to deal with unforeseen situations.
  • Learn and Improve. “It is important to understand how one respond to risks. Take these learnings and add to your risk recovery playbooks or contingency processes.” Contingency plans and continuity of business plans should not be static. They should be constantly evolving and improving as a result of exercises and/or real world experiences.

Robinson observes, “In planning, causes of disruption must be decoupled from mitigation. When disruptive events are random and unpredictable, recovery plans must be independent of them.” In other words, you can’t count on a supplier to provide the solution to a disruption in which it is involved. Robinson adds, “This requires meticulous effort in identifying alternate suppliers, transportation alternatives and other band-aids, as well as the development of rapid deployment processes for each.”

Summary

The staff at Material Handling & Logistics notes BDO’s 2017 Manufacturing Risk Factor Report reveals manufacturers are confronting a wide array of risks. However, “the number one risk for the past two years has been supplier, vendor or distributor disruption.”[6] Hall reports, “According to MIT Sloan Management Review, ‘Most managers know that they should protect their supply chains from serious and costly disruptions — but comparatively few take action.’ All efforts to mitigate risk are undermined by the weight of the supply chain’s financial performance.” This is a case of being penny-wise and pound-foolish. Graham concludes, “When disruptions occur in an environment that is already so competitive and unpredictable, businesses can’t afford to scramble for solutions at the last minute. A resilient supply chain is key to nipping problems in the bud, minimizing damage, and staying ahead of competitors in times of trouble.” Supply chain risk management is a 24/7 job. A cognitive computing platform can provide a good foundation upon which a resilient supply chain risk management process can be built.

Footnotes
[1] Kasey Hall, “Supply Chain Disruptions don’t have to be a threat,” Maketime, 19 November 2015.
[2] Katherine Barrios, “Hanjin’s Collapse: Preparing for Supply Chain Disruptions,” Global Trade, 29 September 2016.
[3] Yolanda Graham, “How can you prepare your supply chain for disruptions?” Quintiq, 17 February 2015.
[4] Scott Robinson, “Three misconceptions about supply chain disruption risks,” TechTarget, 10 November 2016.
[5] Dave Killebrew, “New Ways to Battle Supply Chain Disruptions,” IBM Retail Industry Blog, 17 July 2017.
[6] Staff, “Number One Risk for Manufacturers Is Supply Chain Disruption,” Material Handling & Logistics, 25 July 2017.