Reacting to Disruptions: The real test for belonging to the "world class supply chain" club?
Many people are quick to point to the AMR Top 25 supply chains as the benchmark for supply chain excellence.
In my mind, the real test of how “world-class” a supply chain is, is how they react under duress and severe supply chain disruptions. There is no doubt that as we go into 2012, there will be a major disruption, whether in the form of an earthquake, hurricane, flood, tornado, cyberterrorism act, civil war, or other element. The track record over the last decade indicates that we have at least several disruptions every year…and sometimes multiple ones. See the link below for an illustration
The impact of these disruptions can be unpredictable, swift, and devastating. One recent example is General Motors, who had three different carburetors in three different vehicles. Once you drilled down into the bill of materials, however, you might have discovered that there was one part common to all three of them, and that 70% of the volume of that part was sourced from a supplier 10 miles from Fukishima. Naturally, that supplier was shut down for a period of time after the Tsunami. GM, being a “lean” company of course, had a short supply inventory. As a result, the tsunami closed down GM for a good amount of time.
If any of us drill down into our supply chains – where are the real risks? And today, which parts of the supply chain should we be concerned about? This question involves looking are more than our current products, but indeed, should begin looking at future products in the pipeline that are coming down the pike. And once we have baselined our current risk, managers should be looking at their supply chain operating model. What is the impact of making a change to the operating model based on the questions you would ask to get to a resilient score?
To answer this question, we need to start thinking proactively about risk. One big area of risk is the impact of the global recession on Asian suppliers. In a recent interview, an executive in Asia shared that suppliers in India and China had not been too badly impacted by the recession in 2008. However, with the threat of inflation in China, and the housing bubble that is surely about to burst….a sudden drop in volume could catch up with suppliers who have a think working capital pipeline…and could shut them down quickly if the banks are unforgiving.
These and other topics around risk will be questions that many of our MBA students will be working on with our SCRC partners this semester. Lots of great insights will be forthcoming!