Supply Chain Risk
July 2010
A volcano in Iceland erupts and shuts down air travel to and from parts of Europe. Chinese workers strike for higher wages. A supplier’s plant has a devastating fire. Increased security procedures cause delays in getting import shipments cleared through the port. Commodity prices soar – then tumble. Petroleum prices triple, increasing all transportation costs.
All of these things happen (and many more) and are mostly unpredictable. When you set up your supply chain – choosing suppliers and transportation alternatives, setting inventory policies, etc. – did you consider any of these possible challenges? Have you thought about the impact of any such disruptions? Do you have contingency plans in place?
Many companies have set up contingency plans for their IT systems – daily back-ups stored off-site, emergency data center access, technical support on-call – but few have even thought about the same kind of preparation for the supply chain. One deterrent is probably the size of the problem. Only a few, easily definable disasters can affect your computer system. Literally anything can happen in the supply chain.
Nevertheless, when disaster strikes, you will be better prepared to react if you have thought about it ahead of time. Even if you have not taken action in advance, knowing what to do will give you a great head start. Sometimes there is nothing you can do. But it would be good to know the impact of the disruption before it happens.
One characteristic of successful supply chains is agility – the ability to change in response to changing conditions. Supply chain risk management is a big factor in gaining that agility. The other part of agility is reacting to slowly changing conditions. Not every change is abrupt and dramatic. Recognizing gradual changes in demand, the impact of evolving technologies, competitive forces moving into or out of your markets, and emerging opportunities can make the difference between growth and success or gradual decline and obsolescence.
The world can be a surprising and unstable place. Your supply chain must be built to accommodate change – whether it’s sudden and disruptive or gradual and erosive. Either way, flexibility and agility are the keys to long-term supply chain success.