Good visibility, planning, and mitigation can go a long way to eliminating, or at least circumventing, a large number of internal and external risks in an organization’s supply chain. It can improve quality, smooth transportation, and minimize production line downtime and stock-outs in situations where the risk – such as product contamination, risky transportation routes (due to piracy), and possible port closings (due to impending strikes) can be recognized in advance. However, even though we know some regions are high risks for natural disasters such as hurricanes, earthquakes, tsunamis, and volcanic eruptions, we are generally unable to predict such events with more than a few days warning at best. These risks will never go away – and in situations where only a few suppliers can supply a given raw material or component – and can’t be easily mitigated.

So what is an organization to do? Well, it should start by making sure it has a good Contingent Business Interruption (CBI) insurance policy in place that covers supply chain interruptions, but that doesn’t solve the problem. It can proceed by making sure it knows every backup source of supply, but if the disruption results in a worldwide market shortage, someone is going without and this doesn’t necessarily solve the problem either. It can do its best to identify alternative designs that can work with different, more easily obtained, raw materials – but if such alternate designs are considerably more expensive or less rugged, this doesn’t help either.

As per the title of this posts, some risks can’t be squashed. So how does an organization maximize its resiliency? Co-opetition, short for cooperative competition, might be the answer. Generally speaking, in most markets with constrained supply, there are only a few big companies that represent most of the demand. Think hard drives – how many hard drive manufacturers are there? Cell phones? Motion sensors for game consoles? And every company in the market knows who the other big companies are. And, at any given time, some of these companies will be overstocked and others will be understocked as the market demand sways from one product to another, in ways that are not always predictable.

What if these companies took a lesson from the BRIC, which just banded together to create a $100 Billion buffer to help protect their economies from shocks when G20 leaders warned that the global recovery is still at risk from volatile capital flows. China is contributing 41 Billion to the fund, Brazil, Russia, and India will provide 18 Billion each, and the new BRICS member, South Africa, is coughing up 5 Billion. The fund — called the Contingent Reserve Arrangement — is being designed to provide member countries with an emergency cushion of cash during times of crisis.

Instead of creating monetary funds, the companies in the co-opetition could create virtual emergency raw material / component pools where member companies affected by a disruption could obtain a limited supply from their competitor or their competitor’s supplier agains the reserve locked up by their competitor. Each of the companies would share in the pain caused by the disruption. And although this means that some companies would, as a result, feel the result worse than they would otherwise as they would be giving up some supply to their competitors, they could take comfort knowing that the next time a disruption hit them severely, they will feel the blow a lot less than they would otherwise as all of the co-opetition members will be sharing the pain. Done properly, each company in the collective could insure that, no matter what, it would be able to keep operating at a baseline and the risk of a severe or catastrophic disruption would be minimized for all members.

Thoughts?

Are you in the top tier of organizations who actively monitor the global news for potentially disruptive events and that identifies those events that will likely disrupt the organization’s supply chain before the shockwaves disrupt the chain and cause shipments to be late or missed entirely in first, second, and even third tier suppliers, or do you wait until a shipment is late, Sales is screaming, and then figure out what happened?

Be honest. Even though SI readers are the most intelligent, progressive, and sexy Supply Management professionals in the world, the reality is that many work for organizations who are still stuck in 1699 with respect to making the most of modern technological solutions.

And while automatic event monitoring software is, relatively speaking, quite new, as the underlying news monitoring and semantic processing technologies they are built on are quite new, the technology has been around for a few years and is maturing nicely. For example, Resilinc‘s^* new’s release, called EventWatch Processional, monitors over 25 different types of disruption events ranging from catastrophic global crisis and natural disasters (such as earthquakes, hurricanes, and floods), to isolated incidents (such as factory fires, labour strikes [at the port], and plant meltdowns), and government regulatory actions (such as border closings and economic sanctions). And while the software can’t pick up on every type of possible disruption (because a single truck getting hijacked inside China carrying your microprocessors might not make the news), if you look at the most costly disruptions over the last two decades, most were due to natural disasters, labour strikes, and port/border closures — and these are all picked up by the EventWatch solution. From a coverage perspective, it’s an 80%+ solution and most of what it misses (such as the theft example above) will be picked up by appropriate collaborative supply chain solutions that track shipments, delivery dates, and milestones. (For example, if your second tier supplier was supposed to get a shipment of microprocessors on the 5^th, and they still aren’t there on the 7^th, communicates the potential delay to the first tier supplier, who incorporates those microprocessors into power regulator units for your engines, and who knows that every day of delay will delay their production and shipment to you, communicates the potential delay to you, and that’s a problem, and the communication of such problem flows back from you through the first tier supplier to the second tier supplier, the second tier supplier can begin looking into the problem immediately. If the second tier supplier then calls the logistics company who says that the truck can’t be located, a theft can be reported, the information can be communication back up the chain, and mitigations can immediately be investigated in a collaborative effort between all parties).

A good event monitoring solution, like EventWatch, will provide email notification of identified threats that can potentially disrupt the supply chain along with

• event details,
• industries and geographies potentially affected,
• links to further information, and
• potential impacts to the organization’s supply chain based upon
  information provided by the organization.

This will allow an organization to quickly identify potential supply chain impacts from significant disruptions and, if necessary, begin to work on mitigation plans immediately. Identifying disruptions early is critical given the potential ramifications of a prolonged disruption event. For example, consider the Chilean port strike in 2012. This strike, which first made the global news on March 20, prevented Codelco, Chile’s largest copper mine that was also suffering from an internal strike, from sending shipments — a reality that was identified by Resilinc’s monitoring software on March 28th. Four days later, on April 1, the mine declared a critical force majeure. Since force majeure events result in an unavailability of supply from one or more sources, knowing that they are likely to occur, even four days in advance, gives an organization a significant edge as it can lock in supply from the lowest cost competitor (with excess supply) before that supply, and other sources, becomes unavailable as everyone scrambles to find alternate sources of supply once the unavailability of the primary supply makes the global news.

This is just one example of the importance of disruptive event monitoring. Where supply chain disruptions are concerned, knowledge is power — and the first to know have the power to take actions while there are still actions to be taken. Once all remaining supply is locked up, it’s locked up — and unless the organization can find a substitute product, material, or service (which is not always possible due to regulatory and/or material requirements of the product being manufactured or service being delivered), the organization is, simply put, screwed.

^*Just in case you haven’t been paying attention, in full disclosure, Resilinc is an SI sponsor.