Preparing for Supply Chain Disruptors

02/03/20

Over the past couple weeks, the spread of the Coronovirus has impacted global supply chains.

Per Automotive Purchasing and Supply Chain news, “Commenting on the effect of the Coronavirus outbreak on the global supply chain, Professor Richard Wilding OBE, Professor of Supply Chain Strategy at Cranfield School of Management, said: “This is a major disruptive event with global implications for supply chains. Air freight is already down 50% and we are seeing a backlog of shipping on the Yangtze River. The consequences are already taking effect, as we are hearing that a car plant factory in Germany has had to close because it does not have the raw materials. This is a trend that is likely to continue in the short-term.”

Per the National Association for Manufacturer’s Q4 Outlook survey, 55.4% of respondents were concerned about trade uncertainties, the 2nd biggest challenge for respondents aside from talent shortages.

Bottom line is that today’s supply chains are impacted by disruptions.

Supply Chain Dive contributor, Jon Kirchoff, PhD, a professor of marketing and supply chain management at East Carolina University, recently shared four steps for managers summarized below for ways to minimize risk inherent in global supply chains.

1. Identify which risks can be addressed quickly with little cost in the short run and which will take longer to implement and have higher costs. This idea can be translated into a “cone” of risk, whereby risks are divided up by the time needed to address them (days or weeks, months and years), and the resources needed in terms of planning. In this way, near-term planning commits resources for a quick turnaround while long-term planning commits greater resources but addresses the larger problem.
2. Move from a reactive, operational approach to supply chain risk management and instead pursue it in strategic, proactive terms. Ad hoc solutions do not consider root cause analysis or the long-term impact of supply chain disruptions. An operational approach is fine for a quick turnaround, but a strategic approach to risk management addresses the immediacy of impact and prepares firms for the future.
3. Employ a useful tool in the form of a basic equation of supply chain risk: the probability of the risk occurring multiplied by the impact or cost of the risk to the business. So, while the risk of force majeure may have a low probability of occurring, e.g., Japan’s tsunami of 2011, the impact or costs to the affected supply chains are nearly incalculable. Conversely, while the risk of shipping delays in a lean supply chain is not uncommon, the impact is often relatively low and short-term.
4. Work with supply chain partners to develop and implement risk management strategies. Firms often do not have full visibility of their end-to-end global supply chains, and cooperation and coordination with suppliers and customers are critical. To that end, new technologies such as blockchain show promise to better connect members of the supply chain and improve trust and transparency.

Key to supply chain risk management is to be proactive, consider tactics such as those suggested above by Jon Kirchoff and work with internal and external partners to craft a plan to minimize potential impacts.

APICS Greater Detroit also offers globally recognized certification programs throughout the year for individuals and companies looking to improve their supply chain management efforts. Please contact us via email at: classes@apicsdet.org with questions on our offerings and how they can help your company prepare for global changes.