When disaster strikes, strength in supplier networks helps businesses take action. By Kurt Cavano
Unforeseen events can have a devastating impact on supply chains, sending companies into a spin as they work to keep production going and supplies moving in the face of difficult circumstances. Disruptive events come in many forms. The financial turmoil in Greece will have caused businesses reliant on Greece’s exporting community to assess their level of exposure and, in some cases, look to alternative sources to counteract the risk of an impact on supply. The devastating explosion in the Chinese port of Tianjin resulted in goods lost and frozen shipping.
Faced with such disasters that throw supply chains into disarray, companies scramble to assess impact, replace supplies and re-route, often at considerable cost.
Companies understand the risks around supply chain disruption and put time, effort and resource into plans to assure supply in the face of a crisis. Unfortunately, the exact nature of a disaster is impossible to predict and, in the event of one occurring managing the problem isn’t always as slick as businesses would like. It often comes down to shuffling papers, scouring Excel spreadsheets and calling trading partners one by one in an effort to determine the best course of action. Through this process, business leaders often discover that an accurate view of current inventory, production, and availability of alternative transportation providers and suppliers is hard to come by quickly. The cost of such a reactive approach to disaster can be greater than the potential lost revenue.
The most effective mitigation against supply chain risk is to have a supply chain management system and processes that allow businesses to be agile, transparent and collaborative when working with trading partners and service providers. As well as understanding the processes in their own plants, manufacturers need to understand all the processes that their outsourced manufacturers and suppliers go through if they are to have a predictable outcome of supply. A starting point when considering how to mitigate the impact of supply chain disruption is to consider the following points:
- Get networked – companies are interdependent on their partners, suppliers and customers. Those with the most connected and informed network will have the most effective contingency plan and lose the least from disruption. Cloud technology can optimise the way this network functions. Often vast and international, supply chains where partners pool their data gain the benefit of all parties being updated on changes, progress and events in real-time. Through a cloud platform a company can handle supply chain disasters by executing its plan with the help of others on the network.
- Collaborate for greater visibility – in the past, companies relied on in-house legacy software to store information about their supply chains. However, these systems were not designed to manage data outside the four walls of a single company. One of the most important factors today in dealing with supply chain risk is the ability to share information collaboratively with outside partners. Tapping into a common, unified source of information, a company can make quick decisions when the pressure is on – having information in the right format, at the right time is central to making the best decisions for the benefit of the business.
- Keep communicating – supply chain risk mitigation starts well before disaster hits. It’s true that each disaster is different and required actions and solutions are likely to be different each time too, but there’s still no excuse for not thinking ahead and preparing. Plans will have limited benefit if they’re contained intra-company. Prepared companies know this, and communicate with their supply chain partners on potential risks and contingency plans. A company looking to strengthen its planning process should begin by assessing its environment and addressing possible threats to supply chain excellence well before a disaster strikes.
- Assess suppliers with contingency in mind – in the procurement phase companies have a chance to evaluate possible providers based on different scenarios and should assess pricing and routes in the context of a possible major disruption. While a bid typically asks for prices from carriers based on estimated demand and allocation, those numbers won’t be sufficient to create a contingency plan. Companies that run complex ‘what-if’ scenarios can decide if a seemingly low-cost carrier is worth it under more precarious circumstances.
- Continuous assessment to keep improving – best practice dictates that partner performance levels should be continuously monitored and evaluated – this allows for a continually improved supply chain and a strong network of vetted partners to provide support when it’s needed the most. Supply chain disruptions are unavoidable – but the operational and financial havoc wreaked by them needn’t be.
Companies that make technology work for them stand the best chance of being prepared to deal with supply chain risk. Globalisation and the concept of a lean supply chain exposes companies to more risk from major disasters than ever, so businesses are searching for the most effective way of planning for, and acting on, problems when they arise. The price they can pay for not doing so is a heavy one – their reputation and bottom line. Natural disasters, extreme weather, political conflict, sudden demand shocks and export/import restrictions will continue to test those in the supply chain business. The best-prepared companies will strive to make, and keep, their supply chain collaborative and agile, and therefore more resilient to risk.
Kurt Cavano is founder and chief strategy officer at GT Nexus. GT Nexus, an Infor company, operates the world’s largest cloud-based business network and execution platform for global trade and supply chain management. Over 25,000 businesses across industry verticals, including adidas Group, Caterpillar, Columbia Sportswear, DHL, Levi Strauss & Co. and Sears share GT Nexus as their standard, multi-enterprise collaboration platform.