It is no secret that globalization has increased supply chain risk.  Along with that risk comes the opportunity to manage it.   The opportunities are: site facilities in safer locations or environments, educated overseas personnel, set up of production centers closer to the sources of vital raw materials and expansion of suppliers and vendors in the supply chain.

One secret of supply risk management is to ensure that the alternative supplier’s facility is detached from your primary supplier’s facility.  What would happen if a company procures semi-conductor chips for use in their product and both the primary and secondary suppliers were located in exactly the same area – the same earthquake, power failures, same political upheaval would put both suppliers out of operation at the same time.

A prime example of this was in 2005 with Hurricane Katrina.  Prior to this companies who were dependent upon the Mississippi River and New Orleans for ocean shipments with multiple shippers thought they were ‘safe’.  Katrina exposed the fallacy of that thought process – nothing moved through the port of New Orleans.

So while choosing alternative suppliers is important, it must be accomplished prudently. Questions like these must be asked and hopefully answered in the affirmative.

1. Do these suppliers receive their electrical power from a different source than the  primary supplier?
2. Do they rely on different transportation systems?
3. Do they purchase raw materials from different places?

If these questions like these that are answered positively, then supply risks can be mitigated with the secondary supplier.

When calamitous supply chain disruptions do occur, a quick response will mitigate the consequences.  In order to accomplish this, the company must have the following in place:

1. Business continuity plan – covering a range of contingencies such as disaster recovery program, employee safety program, technology retrieval program, emergency communication capabilities, a relocation plan to sustain operations and maintain the flow of raw materials.

2. Insurance program – Over the past two decades, starting with the Kobe, Japan earthquake on through to Hurricane Katrina – we usually underestimate the effects that disasters can have on a business’s supply chain.  After the Kobe earthquake one of the companies forced to scramble for alternative production locations and transportation was Toyota who could not produce 20,000 cars on schedule due to damage to important parts suppliers.

This is not to say that putting these plans into action is easy.  We have a tendency to downplay the magnitude of these disasters due to the fact that many people have not experienced them.  Thus, few professionals have the requisite know-how to manage overseas supply chains.   According to a Deloitte survey, many companies who did not provide either or both continuity plans and insurance program lost more than 20% of market value immediately after the event.  Furthermore, it took more than a y ear to recapture that portion of market.

Consulting with experts in these two fields will help prepare to prevent, control and lessen the consequences of a ‘black swan’ event.  However, many companies fail in these tasks by taking a narrow view of the issue.  They simply put into place an IT business continuity plan and fail to immunize the balance of the company.

INSURANCE PROGRAM
As far as the insurance program, a company needs to know the following:

1. Does the insurer have the financial wherewithal to pay for the losses?
2. Does the insurer demonstrate stability?
3. Does the insurer have a history of paying claims promptly and fairly?
4. Does your company have enough insurance coverage?
5. Is the coverage in line with the actual replacement value of goods and materials?

While all this may seem and sound logical, it is not always common practice.  Have a conversation with your insurance manager to see how the insurance is structured and will the present policy make the company whole again.

AN OUNCE OF PREVENTION IS WORTH…….

Bio:

Expertise in lean six sigma manufacturing systems, inventory systems and process improvements functions. Accomplished in use of optimization models to determine least cost facilities and drill down to workflow details in support of process and profit management. Oversaw all Inventory Collaborate effectively with business managers to resolve variances, refine forecasts and identify opportunities for improvement.  While at Reckitt Benckiser, Linde Gas and Johnson & Johnson wore several hats including inventory manager, implementer and trainer of benchmarking and dashboard analytics, leader of cost optimization projects such as Lean and Lean Six Sigma, created and implemented cost and inventory metrics, collaborated across functional silos such as production, receiving, plant personnel and shipping to ensure inventory and cost systems integrity, wrote and implemented and trained staff on new Procedures to align with projects and continuous improvement leader.

Member of various accounting and operational trade associations such as; The Council of Supply Chain Management Professionals, The International Supply Chain Education Alliance and The Society of Cost Management.  My interests outside of my work are mostly outdoor activities like hiking, camping, tennis, etc., with a slight lean to gourmet cooking.