SCRC Meeting Update: What We Learned About Supply Chain Risk

The latest SCRC meeting proved to be a resounding success.  We enjoyed great presentations from MBA students, as well as a new poster session forum for our undergraduate students who presented a number of great projects.   The theme of the meeting, “Reducing the Impact of Black Swan Events”, was a timely and relevant one covered by our guest speakers and in my overview of the problem.

Dan Hanback, Director of Cat’s Production System, provided insights into how CAT is dealing with these issues.  He noted that Jim Owens, their CEO, had included a specific element in is Vision 20/20, which included “Trough” – planning for the downturn.  Dan also expressed the fact that no one, not even Dr. Owens, was expecting the volatility of the massive downturn and how quickly it occurred.  Other Black Swan events at CAT included a tornado in Oxford, Mississippi that leveled a plant that produced couplings for every single one of CAT’s products.  He also emphasized the challenges around the financial impacts of the recession on CAT’s supply base, and discussed their new emphasis on “Power Up!”, the initiative to understand how to ramp up production in 2010.

Phil Priest, as the former Head of International Logistics, discussed the role of GSK during the H1N1 pandemic virus event.  .  In June 2009 WHO declared a global pandemic.  But when H1N1 broke out, it caught industry executives completely by surprise

Within 5 months GSK had a vaccine available on the market.  Also, its primary anti-viral, Relenza, was being slowly discontinued due to slower demand, but suddenly orders began pouring in from governments all over the world.  The schedule was incredible, with production up and running in only six weeks!

Phil pointed out that in any type of emergency,  there is a need to really think through the implications.  For example, governments in an emergency can shut down roads and commandeer logistical channels.  And since much of GSK’s active ingredients are produced in Singapore, the SARS outbreak created a major problem.  GSK had to engage with the government to ensure that they could ship their products! 

Phil summarized by pointing out the importance of “wargaming”, or supply chain risk planning.  GSK spent billions on putting in infrastructure to be able to respond to a pandemic .  The key was to put in vaccines, redundancy, and infrastructure.  The team replaced Relenza’s equipment, and trained people on how to run them.  They went into the supply base and built stocks of components and put in installed capacity in our supply base.  They also put in stocks of medicines into their facilities.  The planning required was driven in large part by the UK government.  GSK’s CEO was taking calls from Nicholas Sarkozy and Gordon Brown to ensure that they were working on preparing antiviral stocks!

Although in a pandemic it is often “every man for himself”, this wasn’t true at GSK.  Not once during their planning meetings did the topic of profit come up.  GSK donated millions of doses to the WHO to vacinnate critical workers in poor countries.  The focus was on governance, and a risk plan for the enterprise and for GSK’s patients.  For more information on how to plan for a pandemic, check out the link in our SCRC meeting site.