Increased supply chain risks have been the major unintended consequence of two of the most significant business trends of recent decades: globalization and lean production. Now companies are fighting back with new ways of identifying, managing and mitigating risks.
Flooding at a single automotive plant in Thailand in 2011 led to 29 separate production disruptions around the world. Last year, delays at ports on the US west coast resulted in $7 billion in lost sales and additional transport costs for retailers. Driven by the quest for lower manufacturing costs or access to specialist capabilities, companies are increasingly likely to source materials and components from around the world. Yet this has greatly increased the number of potential points of weakness in their supply chains, especially as some key production sites are now located in regions more vulnerable to natural disasters.
As supply chains have increased their exposure to risk, they’ve increased their vulnerability, too. Short product lifecycles and the desire to conserve working capital encourages companies to keep inventories and buffer stocks as low as they possibly can. This is an approach central to the Japanese “just-in-time” philosophy. When supply chains are running smoothly, this way of working has been incredibly successful, cutting manufacturing costs, improving companies’ ability to respond to market shifts and simplifying quality control. But when problems do occur, there is far less slack available in these lean, tight supply chains, leaving companies with less time to react before the impact of problems reaches their customers.
Another significant issue is lack of transparency. Companies don’t always know the routes and transport modes their suppliers use, where products are along these routes or where suppliers get their own components and materials from. When Toyota was forced to rebuild its supply chain after the 2011 Tohoku earthquake, managers were surprised to discover just how many parts relied on the same few suppliers far upstream. “We thought [our supply chain] was pyramid-shaped, but it turned out to be barrel-shaped,” said one official.
For a while, it looked as if supply chain vulnerability might threaten to undo some of the key advantages of globalization and lean manufacturing. Today, that seems less likely. Increasing recognition of the importance of supply chain risk is driving a revolution in its management. The latest report in DHL’s InsightOn: series takes an in-depth look at the nature of that revolution.
InsightOn: Risk and Resilience examines how the type and severity of the risks faced by companies are changing, mapping the risk landscape and its impact on different industry sectors, including automotive, engineering and manufacturing, energy, life sciences and technology. It then looks at the new tools of supply chain risk management: how big data, smart software and advanced analytics are helping companies to find and fix the weak points in their networks and how leading companies are improving their planning, preparation, prevention and risk response processes to boost resilience and keep costs under control.
Detailed case examples show how these approaches are being applied today in some of the world’s most demanding and risky supply chains, highlighting the key role of collaborative approaches and new partnerships in the creation of risk-tolerant supply networks.
Finally, the report examines the economics of resilience: the growing body of evidence that shows companies that take a proactive approach to supply chain risk can avoid these downsides and also benefit in other ways; plus the skills, tools, processes and cultures they develop mean they are exceptionally well-positioned to seize emerging opportunities for competitive advantage, wherever they occur.
– Jonathan Ward for Delivered. The Global Logistics Magazine