Daily Archives: March 5, 2012

Supply Chain Disaster Management

Earlier this year, EBN Online ran a good article on Managing the Variables in a Supply Chain Disaster that outlined the basic steps a global company can use to get started on planning for a disaster.

It’s obvious, with all of the recent natural disasters, political disasters, and economic disasters, that a supply chain natural disaster is coming your way. It’s just a question of what, when, and how it is going to impact your supply chain. That’s why you need to plan. So where do you start?

According to the author, start by getting all of the departments together — IT, operations, sales, warehousing, administration, and management — to help map out the entire upstream and downstream supply network and determine where the different risk points are and what risks are most likely to materialize. And, as Jim Lawton points out in this Industry Week article on Country Risk — What You’re Overlooking, you have to not only focus on your suppliers and the countries they are located in (whch contribute to the political, economic, and commercial risks that are faced by your organization), but your suppliers’ suppliers and the countries they are located in.

Then run a variety of “what if” scenarios to see how the company could recover if supply is interrupted, a warehouse goes up in smoke, a supplier becomes unavailable, freight rates or tarriffs rise substantially, preferred raw materials or components get banned for regulatory reasons, or something else possible, but not predictable, happens. If there is no way to recover, something has to be done now before it’s too late for your suppy chain, and maybe your entire organization. For example, if all of the company’s supply for a certain component is from South Korea, and supply from South Korea gets cut off, there would be no recovery. The company either has to find a secondary source of supply from another country, or a way to use a slightly different component to accomplish the same task.

If a moderate increase in freight rates or tarriffs would prevent the company from being able to source a raw material at a price that would allow the company to turn a profit on the finished product, then the company has to identify alternate, cheaper, transportation methods, a way to further save on raw material costs, or a way to increase the value, and thus the selling price, on the finished product. If a raw material gets banned from usage in the product the organization plans on importing into Europe, then the organization has to have a way to produce the component using a different raw material, which could require a different design or manufacturing method, which could add cost as well.

The short of the story is that disaster planning is more than just identifying the upstream supply network and more than just identifying what could go wrong, but also identifying how a recovery could be initiated if necessary.