A great deal has been written in recent months about risk mitigation and surviving supply chain disruptions because, unfortunately, the disasters in Japan this past spring illustrated just how fragile the global supply chain can be. However, even if the earthquake, tsunami and after effects hadn’t occurred in Japan, risk mitigation and supply chain disruptions would still be valid yet—in my opinion—underemphasized concerns.
An article earlier this week on SupplyChainBrain raises some interesting points. The authors, Bindiya Vakil, president & CEO at Resilinc, and Hannah Kain, president & CEO at ALOM, define supply chain resiliency as the ability of a company to recover from a disruption, as determined by the time and cost of recovery. They go on to write that resiliency is a function of everyday decisions such as which suppliers the company uses, how volume is split between sources, where manufacturing facilities are located, how much inventory and second sourcing has been put in place, and so on.
What complicates matters is that in recent years, many companies have adopted lean and just-in-time practices as well as adopted a build-to-order manufacturing model. Consequently, today’s global supply chains are overly optimized to suit operational parameters such as lead time and inventory reduction, and have low levels of buffers that would help to withstand disruptions. The result is that small disruptions now have the potential to significantly effect the supply chain.
Given those circumstances, supply chain risk management then becomes more important than ever before. However, there are a number of challenges and common mistakes. In the article, the authors outline five mistakes commonly made in managing supply chain risk, and offer suggestions regarding ways in which companies can improve the resiliency of their supply chain.
One of those mistakes particularly struck a chord with me. That is, what the authors call “subconsciously endorsing the ‘diving catch’ approach.” Essentially, this is what happens when a company applauds the efforts of a few or a department that resulted in narrowly averting disaster. In baseball parlance, somebody made a “diving catch” that ended a dangerous situation or an inning.
I’m reminded here of a situation at a previous employer that, while not a supply chain disruption, does offer some similarities. The company’s largest customer regularly changed order quantities after production had started, would add additional products to the order, and also requested delivery earlier than was originally specified. As directed by company management, the production and shipping departments always changed the order and met the customer’s delivery requirement--and of course, were considered heroes. I’m sure many of you have seen similar situations. Anyway, the practice continued for years with this customer until a new executive began to analyze the situation. It turned out that after all the overtime, additional costs for expedited shipping, and lost revenue from other customers whose orders were delayed while the company focused on the largest customer’s changed orders, the company broke even at best—and usually lost money--on those orders.
What was missing there, and what is still missing for many companies, is a post-crisis review. That’s a perfect opportunity to assess not only what went wrong, but also why it happened and how it can be prevented from happening in the future. That way, the company can take steps to be proactive toward risk management rather than constantly reacting. Considering the globalized nature of today’s supply chain, there’s no way to prevent every disruption. However, it certainly makes sense to take steps to minimize their impact on the supply chain.