The challenge of today’s ever growing supply chains is the incomplete understanding of the impact that disruptions to your operations befell one supplier’s site. To help address this issue there is a method, first introduced at Cornell University, and which is slowly gaining influence with some major American corporations. It is a system to aid in the prioritizing the financial and operational impact of risk – company cannot function properly if the former is not tied to the latter. It will allow companies to allay risks on their most important suppliers.
The system is called time to recovery (TTR) and time to survive (TTS). Time to recovery is simply the time it takes for a specific supplier facility, distribution center or a transportation center to restore to full tasks after a disruption. In order to accomplish TTR must be combined with the following company functions or valuations:
- Details of firms supply chain.
- Bills of Materials
- Sales volume
- Profit margin by product line
- Pipeline inventory
Time to recovery works in this fashion. Using all the above roles TTR identifies the risk linked with an interruption at each and any of the supplier sites for the entire time of recovery.
For TTR to be a success must acknowledge that some suppliers may be too optimistic about the true time to recover – supplier realize that too long of a time that they remain out of action will not sit well with their customers or manufacturers. Thus, part of TTR is to identify bottlenecks at suppliers to ensure the accuracy of TTR information and to discern them from other suppliers whom face little or no disruption in their services.
In order to measure this possible situation companies have adopted time to survive (TTS). This is the time a supply chain can continue to match demand after a facility disruption. Using pipeline inventory and TTR data from supplier one can determine the time that a company will be able to serve customer demand without that particular facility. If the time to survive is better than it’s time to recovery it is safe to say the exposure to risk will be held in check during the recovery period. In addition, the ability to match supply with demand will not be seriously impeded. Of course, if the reverse is true the firm’s financial and operations can be at risk.
These new metrics led to a building of a model that will assess the levels of strategic inventory – inventory used in response to an interference in the workings of the supply chain. TTS and TTR must be combined for two reasons:
- How much strategic inventory the firm requires
- Where to position this inventory for maximum affect
These two calculations will lead to a strong supply chain for every facility will have a TTS greater than its TTR, saving a firm the cost and time involved in the implementation of strategic services.
TTR and TTS, like any system, must be continuously monitored and adjustments made where and if necessary based upon changes in location and environments. For example, if inventory levels change then risk exposure changes in proportion. When the risk reaches a certain level the procurement managers need to review those drivers to ascertain the risk modifications.
Time to survive and time to recovery measurements should complement each other. Together, they allow an organization to work with its suppliers to build strategies to allay supply chain risks.