A story in the UK Telegraph caught my attention the other day: Nasa warns solar flares from 'huge space storm' will cause devastation. So maybe the old Mayans were not too far off in their calculations of the date the world ends - and 21.12.2012 or thereabouts is maybe not so hoax after all? Perhaps the world will end in 2013 instead? For sure, 2013 is destined to a year that is likely to test business continuity plans worldwide, if NASA is to be believed.

 

We could face widespread power blackouts and be left without critical communication signals for long periods of time, after the earth is hit by a once-in-a-generation “space storm”, Nasa has warned. Scientists believe it could damage everything from emergency services’ systems, hospital equipment, banking systems and air traffic control devices,  It will disrupt communication devices such as satellites and car navigations, air travel, the banking system, our computers, everything that is electronic. It will cause major problems for the world.

 

If this is true, the paralyzing effect on supply chains by the volcanic ash cloud this Spring will be like a mild Summer breeze in comparison. Perhaps, as DK Matai notes in his reflections, we will be going back to 5000 BC?

 

Solar flares can damage satellites and x-rays can disturb radio and other wireless communications. Although there have been big sun storms before in history, we have never been this dependent on the technology they can disrupt. Small microprocessors and chips that power our vehicles; the Global Positioning System (GPS) that helps us navigate; Internet, satellite and mobile phones can all be affected. Immediate cash sources such as Automated Teller Machines (ATMs) and credit card transactions may also malfunction. In the event of an EMP nothing using electrical or electronic systems may function correctly.

 

This means no power for:
i. Pumping fuel into vehicles;
ii. Recharging batteries for flashlights, radios, pocket computers or communication devices; 
iii. Withdrawing cash or using credit cards to pay for food, fuel and services; and
iv. Transportation of food, essential goods and professionals for emergency and healthcare services.

 

Semi-Permanent Damage  If a truly massive Coronal Mass Ejection (CME) hits earth, it could practically take out the world's electricity distribution on a semi-permanent basis. It would take many years, if not decades, to repair the world's electrical system, even if replacement parts were immediately available.

 

Extreme weather events are a natural ingredient in any Business Continuity Plan. Including extreme space weather is perhaps not the first thing that comes to mind that you must prepare for. That said, the electric power system can go down for many reasons, solar flare or no solar flare, and being prepared for a long-lasting electric outage is probably a good investment in any case.

"The world is at risk and the supply chain is not exempt. Supply risk used to be defined as the potential for strikes by transport workers, fires at a key supplier's plant, or missed deliveries. That simple vision no longer applies." So said Jack Barry in 2004, when he wrote short a article on the risks of outsourcing for a special issue on Supply Chain Risk and Uncertainty for the International Journal of Physical Distribution & Logistics Management, or simply IJPDLM as it is known in my academic circles.

 

Is it still a true statement? Is outsourcing, while most certainly a low-cost strategy, the opposite of low-risk, and are companies who outsource their services and supplies in a sense risking it all? I am probably not the right person to answer the question, but Barry's article does raise some important issues that haven't become less significant since 2004. Globalization, for all its benefits, does come at a cost, and Barry's message is that it is about time that we acknowledge and consider this cost.

 

I think Barry is spot on when he says that effective supply risk management requires identifying an monetizing risk events, establishing the probability of occurrence, and developing contingencies for alternative sources of supply.

An  enterprise may have lowest over-all costs in a stable world  environment, but may also have the highest level of risk - if any one of  the multiple gating factors kink up an elongated global supply chain!

The Nokia-Ericsson plant fire is the classic textbook example of a gating factor kinking up a supply chain. Or rather was, as the volcanic ash cloud of Spring 2010 is perhaps slated to be the next textbook case of an unforeseen event that did not exist in any business continuity plan to that date.

 

What is the impact of the compromise of intellectual properties from global sourcing?

Another important message by Barry. What do you do when subcontractors become suppliers, then partners, and, finally, competitors - all fostered by the transfer of technology for short-term cost advantage. Is it really worth it in the long run? Remember: The wrong people can ruin a right supply chain.

What are the consequences of the lack of  seamless global e-commerce?

Current technology applications, so Barry says, are islands of digital standards surrounded by seas of non-compatibility. I guess he's right. Each supply chain consultancy firm appears to have their own proprietary software solutions, which of course are promoted as being better than their competitor's. But do we need them all? How long can the supply chain afford  the buffers of excesses required by just-in-case technology - and sold by overly zealous ERP consultants?

 

In a presentation Barry made at the Institute for Supply Management Services Group Conference in 2004, titled Global Risk: Outsourcing Services, A New Aesop's Fable of the Ant and the Termite he used these two slides to illustrate his point:

 

The benefits of globalisation:
India develops my software
Ireland manages my customer service
Taiwan does my testing
Mexico performs piece labor
Germany balances my finances
Israel does my clinical research
… my supply sources are global.
>>> I have the lowest overall cost of services
The risks of globalization:
India owns my IT process and innovation
Ireland is between me and my customers
Taiwan controls my quality control
Mexico dominates my capacity curve
Germany leverages my finances
Israel has first views of my innovation
… my supply sources may be beyond my laws and conventions.
>>> I have the highest level of risk to continued operations

I think I will let those two slides speak for themselves. Have we gone forward since 2004, or is this still the case?

 

Reference

Barry, J. (2004). Supply chain risk in an uncertain global supply chain environment International Journal of Physical Distribution & Logistics Management, 34 (9), 695-697

Jan Husdal

Supply Chain Risk Insights

Posted by Jan Husdal Sep 15, 2010

Last week I had the pleasure of attending the 10th International Research Seminar on Supply Chain Risk Management, ISCRiM, in Loughborough, UK. ISCRiM, for those of you who have never heard of it, is a network of academics and researchers working on various supply chain risk issues. The main purpose of the ISCRIM-network, in their own words, is to speed up, and improve, the research within “Supply Chain Risk  Management”. From a humble beginning in 2001, the network now spans some 35 people in more than 20 countries. Every year since then they have met for a seminar to exchange ideas and present some of the latest research and publications.

 

The ISCRiM seminars have so far resulted in several books, first Supply Chain Risk, edited by Clare Brindley, then Supply Chain Risk: A Handbook of Assessment, Management and Performance Chain Risk Management, edited by George Zsidisin and Bob Ritchie, and a soon there will be a third book, dedicated to showcasing some best practices in different industries. Managing Supply Chain Risk and Vulnerability, edited by Teresa Wu and Jennifer Blackhurst is not an ISCRiM-book per se, but many of the contributing authors are affiliated with ISCRiM.

 

The ISCRim seminar is not a public event, as attendance is for members or invited speakers only, with me belonging to the latter category. Interestingly, among this year's attendants were two representatives from Zurich Insurance, which to some may seem a bit odd, as ISCRiM in its very nature is mainly academic, but the more I thought about it, the more it made sense. As a risk insurer and also risk consultant vis-a-vis theirclients it is important for Zurich to stay at the forefront of supply chain risk research, and I think Zurich is headed the right way by linking up with ISCRIM. That way they can act as a catalyst for feeding the supply chain industry with the latest supply chain risk research and conversely, feed academia with the challenges where more research is needed.

 

Zurich does more than just attend seminars. Unbeknown to me, although I do try to keep at the forefront of supply chain risk as I find it on the Internet, they have set up a site called Supply Chain Risk Insights. Relatively new, with the oldest post dated March 2010, some of the more interesting articles I found were

 

  • Business Resilience - showing how contingency plans and logistics partners can help companies cope with natural disasters.
  • Social Responsibility - discussing how corporate social responsibility extends far into the supplier realm.
  • Assessing Risks - illustrating that disruption risks often stem from not managing your suppliers properly.

 

So far, the archive contains no more than 10 articles, but I do hope to see it grow as this site develops. Another nice feature on Supply Chain Risk Insights are a selection of short 3-minute supply chain risk insights videos with Linda Conrad and Nick Wildgoose from Zurich, who present hot topics that relate to supply chain risk management, and what you as an executive should be aware of, and how you can mitigate risk, e.g.

 

 

 

All in all, I find that Supply Chain Risk Insights is a valuable addition to my Internet resources for researching and learning about supply chain risk, particularly from a practitioner's point of view. I'm sure there are many more sites out there, run by others insurers or consultants, but I haven't come across one that specifically targets supply chain risk. If there is, please let me know, and I'll be happy to include it in my list on my own blog, and of course, mention it here on the Kinaxis Supply Chain Expert Community.

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