Thursday, August 25, 2011

Supply Chain: A Crisis Waiting To Happen

Did you ever consider your supply chain a “crisis waiting to happen?”

Do you have a supply chain vulnerability or risk assessment?
Do you have a crisis operations, communication and recovery plan for your supply chain?

Even if you answered “yes” to the first question, I would be shocked out of my socks if very many of you had an assessment of what could go wrong, and even more surprised if very many of your companies had an integrated operations, communication and recovery crisis plan for your supply chain.
Professor Alan Braithwaite at Cranfield University and LCP Consulting has written a very good White Paper, published by MissionMode Solutions, focusing on “overcoming operational glitches” – his tongue-in-cheek term for crises – in the supply chain.  And he uses the term “supply chain” in the broadest possible way.

Professor Braithwaite made his point using Bear Stearns as an example.  He pointed out they bought “bad” inventory in the form of worthless mortgage securities with no possibility of the supplier making good on them.
Even with the most basic concept of supply chains, manufacturers have dramatically increased their risk of supply chain “glitches” just to save a few dollars up front.  When you bought parts from a supplier a state away, there were certain risks, but when you began buying those parts from the other side of the globe, the RISKS increased substantially.

Six years ago I was flying home from a client trip and my seatmate was visibly agitated and after we introduced ourselves and she found out I was a crisis consultant, she told me about her crisis.
She was on her way to the corporate headquarters of a major retailer that operates some of the largest and most successful outdoor stores in the United States. 

She had to tell the CEO that the entire stock of the next season’s outdoor wear had been swept off container loading docks in Southeast Asia, and many of the factories where the apparel had been made had also been washed away.  It was millions of dollars of inventory that would never reach their stores.

Of course, that paled in comparison to the more than 230,000 people who were swept away by the same tsunami.
Every business, of every size, has some kind of inventory which comes from a supply source, whether its auto parts or office supplies, electronic components or cleaning supplies.

When you review your crisis plans, next time, don’t forget the supply chain possibilities.

1 comment:

  1. After earthquake in Japan and flooding in Thailand, risk management has become a hot issue for supply chain practitioners. Operational risk can be anticipated if it's analyzed properly. But for natural disaster risk, it requires good contingency planning, this is my 2 cents.