May 2011 | Commentary | In Perspective

Disruptive Influences

Tags: Risk Management

Disruption is not a word supply chain managers like to hear. But operating today's extended global supply chain is fraught with risks. Planning and building good relationships are your best defense.

Managing risk in a global supply chain inevitably leads to discovering new twists to old themes or dealing with unexpected events that affect your logistics operations. Recently, we’ve been forced to cope with more events happening in a narrower time frame.

Nothing diminishes the pain and suffering, or massive loss of lives and property, that accompany catastrophic natural disasters. But some manufacturers who initially sighed with relief that suppliers were unaffected by the earthquake and tsunami in Japan began to gasp as the extended supply chain reached back to a supplier’s supplier who was affected. In some cases, procurement policies designed to source from multiple suppliers ultimately led to the same source another level or two up the supply chain.

The risk should have been visible to those manufacturers, given efforts to secure the chain of custody for goods moving in trade to U.S. destinations. And, assuming the inbound logistics team had done a good job of following the extended supply chain through multiple sourcing levels, the problem then becomes one of close coordination inside the enterprise at the center of the supply chain.

Vetting security along that supply chain— and implementing solid systems to support the flow and transport of components, subassemblies, or finished goods— is not the end of supply chain risk management. As we learn when events of this magnitude occur, a supply chain that leads to a single source or multiple suppliers in close geographic proximity can spell trouble.

Close on the heels of this major natural disaster came the political upheaval in the Middle East that toppled some long-standing regimes and, in the case of Egypt, a stable one that controlled a major trade route— the Suez Canal. The immediate impact on international trade flows was minimal, if noticeable at all. But, the long-term impact could look very different, depending on the outcome of Egyptian elections.

Just out of synch with new concerns over the Suez Canal (added to the existing piracy off the coast of Somalia) is the expansion of the Panama Canal, which will improve capacity for that route and has already led to a number of agreements with U.S. East Coast ports.

Another potential disruptive influence on global supply chains is the impact of heightened security following the U.S. mission against Osama Bin Laden. Additional security requirements and heightened scrutiny could slow the responsiveness of some supply chains.

No company’s contingency plan includes the number and magnitude of events that have occurred in such a short time: a massive earthquake and tsunami; followed by a regional wave of political protests, regime changes, and an increased terror threat; and then a torrent of domestic tornados and floods.

The true test of managing a successful global supply chain lies in how well we build relationships, within our own enterprise and with logistics providers, suppliers, the suppliers’ suppliers, and the various regulatory agencies we deal with.

That’s not easy work, but it will go a long way to ensuring the resiliency of your supply chain when faced with an ever-changing series of disruptive influences.