Imagine your automotive manufacturing facility is based in the US and the majority of the parts needed for you facility are sourced from Japan. An earthquake strikes Japan and in its aftermath a tsunami occurs destroying the facility that made the parts you need for your facility. How long will your inventory last?
This Black Swan event actually occurred in 2011, disrupting the flow of parts for some cars assembled in the US and thus questioning the ‘just-in-time’ inventory concept. Because of this event, there were idled facilities and as a result, a negative blow to many financial ledgers.
Anticipating for the Impossible
Such one-off disruptions are almost impossible to anticipate let alone plan. However, disruptions and other risks are on the rise due to the growing complexity and expanding supply chain. As a result, global supply chains that rely on multi-tier suppliers tend to offer less end-to-end visibility. This lack of knowing what is occurring in your supply chain can be very dangerous in times of disasters. In addition, lean operations such as those found in the automotive industry utilize just-in-time inventory practices and as such can also be adversely impacted when disaster occurs.
Who’s in Your Supply Chain?
Going back to the automotive parts example above, do you have a backup plan?
If not, some suggestions to consider:
- Know the plant locations and inventory levels for each facility in your supply chain.
- Have a range of alternative suppliers in place or maybe source from more than one location.
- Create a multidisciplinary response team
Besides Black Swan events, other risks occur. For example, in late 2014-early 2015, US West Coast ports experienced labor disruptions that resulted in a slowdown in freight movement. Shippers experienced delays in inventory replenishment, agricultural goods rotted before delivery and higher transport costs were incurred to reroute goods.
In addition, operating in emerging markets presents its own unique risks such as possible corruption, political instability and infrastructure issues. Businesses will need to not only understand the risks involved when moving into a new locale but also determine the level of risk it is willing to undertake in such conditions.
To learn more about preparing for Black Swan events and other supply chain risks, check out Yossi Sheffi’s latest book, “The Power of Resilience: How the Best Companies Manage the Unexpected.” In addition, Zurich Financial offers a host of supply chain risk insights on their website.
Develop a Plan
Having a plan in place to help mitigate risks is important. According to MIT professor Yossi Sheffi, technology is also playing a role in mitigating risk. Such technology solutions are able to gather data about events and then translate the data into recommended actions for a company.
Be prepared and create a supply chain risk plan that anticipates, prepares for, and responds rapidly to all types of events.
What happens if an earthquake strikes Japan and in its aftermath a tsunami occurs destroying the facility that made the parts you need for your facility? Do you have a backup plan? Read more to see how best to manage the unexpected!