Looking back over the past few years there are clearly some supply chain disruptions in the past few years that have raised the bar for companies looking to answer this question. For instance last year’s devastation from the Tohoku earthquake and tsunami plus the following nuclear reactor issue created a mess that impacted global supply chains for days. In fact the OEDC has estimated this Japanese crisis has cost 16 trillion to 25 trillion yen ($192 billion to $302 billion), but may be higher as it continues to plague the economic recovery of the Japanese economy due to reduced economic output. From a supply risk perspective, Japan has always been prone to natural disasters, and therefore the risk of doing business in Japan may be higher. As a result it makes sense that those doing business in these types of regions should have adequate contingency plans to manage against these risks.
But how about something more global? A recent example of this is the eruption of Eyjafjallajökull in Iceland in 2010. According to the International Air Transport Association (IATA) it estimated that the Icelandic volcano crisis cost airlines more than $1.7 billion in lost revenue in the week following the initial eruption. While this is dwarfed by the Japanese situation a year later, the rate of loss to businesses globally was no less severe during the short period when the eruption was happening impacting any business trying to get their wares across the Atlantic via airplane. It is also not likely any of the businesses the day before had contingency plans for this scenario once the volcano erupted.
The point I am trying to make here is the following: For those that think they have an answer to every scenario should take some advise from Mike Tyson who said – “Everyone has a plan – until they get punched in the face.”
Therefore until someone invents a fortune telling machine, the best we can do to mitigate a supply chain disruption is collect the most accurate data to predict an event, but more importantly have the flexibility to quickly react if you weren’t exactly right about the nature of the event.
In fact recent research from a leading insurer suggests that the top three areas organizations react to after an event or crisis is a 1. Reassessment of their business continuity planning, 2. Communication planning, and 3. Safety and emergency planning.
Central to this improving these areas is not only knowing your supply chain for rerouting, but in having the good data and established processes that allow for reacting quickly, particularly for something unexpected. Here are top suggestions for building that better mousetrap to prevent the impact of a future supplier disruption –
- Qualify, measure and assess key supplier across your most important KPIs
- Map out the most critical supply chains based on these suppliers and their respective tiers
- Map critical stakeholders/decision-makers if/when to be brought into the fold
- Design contingencies based on likelihood of disruption where would it be; what is Plan A, Plan B, Plan C, or even Plan D
- Collect data on most critical suppliers as well as 2nd and 3rd tier suppliers on a quarterly basis
- Automatically extract data from systems (PLM, ERP) for maintaining up to date record of the KPIs
- Automate the integration of critical third party data (financial information, incident tracking, insurance, bankruptcies, etc.)
- Dynamically adjust weights and scores across various KPIs you’ve identified
- Classify risk alerts based on severity (green, red, amber)
- Analyze KPIs and supplier performance scores on multiple levels (commodity, geography, size)
- Automate the process for instant notification and communication to all stakeholders associated with the disruption in multiple formats