Plus ça change? Not any more!

Well, not any more. Despite a world that’s seemingly changing day by day, factory, warehouse and store fires still happen; we still get machines breaking down; unexpected surges creating bottlenecks are still a fact of life; quality remains a ‘life-or-death’ issue for almost every business; natural disasters still occur; strikes happen; Customs delays are still ever-present; and ours has become a world characterised by infinite variability in place of stability and order.

So despite the adage, it strikes me that things will never again be allowed to stay the same.

And the chief driver behind it all? Complexity caused in the main by Globalisation and expansion into low-cost countries. The net effect of supply chains is staggering, extending them by thousands of miles and many weeks

The Big Shift means that most supply chains have become inherently unstable – and it doesn’t even end there… of the few cast-iron certainties left, one is that from here on in, is supply chains will forever continue to suffer from disruptions, and the other is that when those disruptions happen, they will happen outside of your control and they’re going to happen several thousand miles away.

The problem can be traced right back to source, and it’s blindingly obvious, really: when most companies design their supply chains, they do so with cost in mind - but it’ll be a rare day indeed when lowest cost suppliers, lowest cost transporters and lowest cost distribution centres equate with the lowest risk…

Globalisation in itself carries all manner of hurdles in its wake - distance between customer and suppliers, poor visibility, increasingly complex communication issues, time-zone differences, language barriers, longer lead-times, greater degree of product-handling, ver increasing consumer choice and competition, shorter product life-cycles, complex customer and supplier relationships, brought about by mergers and acquisitions. This is futher complicated by the threat of natural disasters such as hurricanes, Stock Market corrections, terror attacks, labour relations, Government policies and on-going legislation issues like carbon emissions - the impact of any single one of which is now an infinitely more serious affair carrying far wider implications than ever before.

The answer lies in having a resilient and responsive supply chain underpinned by effective R-I-S-K management. Those companies that employ early warning and detection systems will be the first to recover from any disruption, the sooner we know about it the sooner we can fix it. Those that have planned recovery procedures will recover fastest and minimise the impact of a disruption and these that learn from the event and redesign their supply chains to make them more robust to the disruptions will be more resilient in the future. The cost of not doing this far outweights the cost of putting these systems and procedures in place.

Take the case of the major retailer that imported the majority of its products from China but was devastated by the West Coast Port strike causing many of its products to be out-of-stock during the critical Christmas season. Not only did he lose millions of dollars due to ‘out of stocks’ when customers failed to find the items they wanted and went elsewhere, but worse… the cost of recovering containers and shipments that were lost in the melee also ran into millions of dollars.

Or the major textile/chemical company, whose lead-time for raw materials from a sole source supplier in Japan was six months. The raw material was ‘designed-in’ by the customer, and subcontracted for manufacture, but when the final customer abruptly decided to discontinue the product, the company was stuck with a six month inventory of material that could not be allocated to other products, resulting in a multi-million dollar write-off for the company.

Some disruptions will hit you out of the blue but many of them can be predicted and alternatives planned to reduce or cope with risk and there are some key factors to look out for…

Clustering of Supplier in one area or region of the world means that if something goes wrong in the region you will be at huge risk. Single-sourcing means that if that supplier has a problem with their supply chain you will be heavily impacted with very few options. A single port of entry means that congestion will slow or cripple the time it takes to get your product to the customer.

Supply chains need to be viewed in this light and alternatives modeled and understood even if they are not implemented until the disruption occurs.

So, taking all the elements into account, and bearing in mind the fatal cost of ignoring the warning signs, a pattern of ‘must ask’ questions begins to take shape…

Have you identified the weak links within your supply chain? Do you incorporate the element of risk when making strategic or tactical decisions about your supply chain? Is your supply chain nimble and flexible so that you can take advantage of both supply chain risks and opportunities? Have you fully captured your enterprise-wide risk profile? Have you fully integrated your business contingency plans and emergency response plans into your supply chain management initiatives? And above all, do you have the necessary tools, skills, and resources to model the risks and vulnerabilities in your supply chain, in order to understand the financial impact?

Risk Assessment needs to be part of the S&OP Process. Although Software tools cannot easily asses unforeseen risk, they can model the effects if asked to, and one of the prime in-built features of CINO, our new Combined Inventory Network Optimisation tool is the ability to build complete and compare ‘what if? Scenarios – a really useful sidekick when you consider the cost of the Nokia-Philips-Ericsson Case Study when a 10-minute, seemingly petty fire in a manufacturing plant escalated all the way up the supply chain to result in a staggering $1.68billion loss in Ericsson’s mobile phone division.

If that doesn’t focus the mind on managing risk, I’d be hard-pressed to see what will!

In my experience, the best way ahead is to use the scenarios to create a damage-control plan and to determine the cost trade-offs for different risk mitigation strategies in the light of other strategic and tactical considerations. Then, once translated into a robust strategic, tactical and operation supply chain plan, regularly review suppliers for potential supply chain risks

Where do you start?

Well first, you make sure your existing network structure is appropriate. Model and identify risk and cost savings; make sure you have the appropriate inventory in the network to mitigate against as much known risk as possible; make sure you have taken all the possible variables into account before making decisions, and make sure you have modelled and have an action plan for when disruption occurs – not ‘if’

Don’t be blinded by ‘business as usual’ leaving you unprepared for the journey ahead, just because you are not planning to make wholesale changes to your supply chain, because understanding the risk in the supply chain and the costs of buffering for the risk to protect service levels will add the missing dynamic to your supply chain to give you competitive advantage.

Performance and financial measures can also pave the way to rewarding optimisation results. Typically, if your company has started to fall short of its on time delivery targets, take it as a sign that your supply chain is long overdue for an optimisation.

Similarly, if you suddenly find your transportation costs getting out of hand, consider conducting a network optimisation to examine how adding, subtracting, or changing-up distribution centres could help keep costs more under control.

Finally, many companies find optimisation incredibly helpful for increasing the productivity and throughput of their individual distribution centres. Facility layout and design, route and carrier selection, and load-building are just a few of the potentially rewarding applications.

Optimisation is equally useful for the tactical as well as the strategic. It can help you find the right site, or it can help you make an existing site that you’re tied into that much more workable for you.

Either way, your company wins – and at the end of the day, that’s what business is all about, right?