We have spoken before about the types of supply chain risks and even classified them as follows: (1)
- At source (no or reduced production at supplier):- caused by natural causes, man-made or economic.
- In transit, transportation and logistics failures, natural causes or man-made,
- At destination failures natural or man-made, defective componentry, delivery quality, or reputational, plus
- Corporate risks.
- All the above can be caused by similar issues at a supplier’s supplier.
When considering supply chain risks, we aim as much as possible to prevent them rather than try to handle them during or deal with the consequences.
Whilst this is not always possible, fortunately, today’s technology enables us to better forecast potential disruption and allows us to connect with more ‘partners’ to keep everything going (whether it is sourcing, production or delivery).
Here are some of the issues we regularly see along with the technologies that you might consider evaluating to better ‘anticipate and prepare’ for disruption.
Disruption Type #1: Natural Disasters
There is still wisdom in the words “Saving for a rainy day.” Natural disasters are the truly unpredictable element that threaten supply chains. It is one thing to predict political upheaval and man-made factory accidents. It is another thing entirely to predict weather events and earthquakes.
Do you simply stop working because there’s a weather condition that you didn’t anticipate? How can you be sure that your competitors are simply doing the same and haven’t worked out how to generate more ‘product’ from alternative locations by alternative means using their significantly improved knowledge of weather conditions to dynamically source?
Are you absolutely sure that they are happy just like you to let their performance to schedule slip, their committed deliveries to lag just because of a ‘rainy day’ that was actually forecast accurately 3 days ago and somehow still caught you and your team by surprise?
There is no doubt that we are getting better at predicting and anticipating the weather including natural disasters. Whilst there has been a lot written about IBM’s business ‘The Weather Channel’, that is now using artificial intelligence to enhance the quality of their forecasts, there is enough statistical information to show that our ability to forecast and predict all kinds of weather conditions is getting better and will continue to do so.
Note(2): In 2016 the weather channel was named as the most accurate source of weather forecasting for the world, based on a study across Europe, US and Asia Pacific. And things continue to change rapidly!
According to popsci.com(3) , ‘We’re in the middle of this big revolution in how we use weather,” says Bill Gail, co-founder and CTO of Global Weather Corporation, based in Boulder, Colorado, which provides forecasts to utilities and other businesses. “In a decade…those of us who already use weather information will be using it 100 times as often and won’t even know it.”’
‘Power companies need accurate weather forecasts to predict how much energy people in their service area will draw on. “It costs a lot of money and it takes time to turn on a generator, so you don’t want to turn it on if you are going to waste the energy,” says Floehr. Owner and founder of Forecastwatch, “In the energy industry, even a sway of a half a degree on average in accuracy really translates into bottom line savings.”
Providers also must estimate how much power they will be able to generate from wind or solar farms. If a day is less breezy than anticipated, they may have to buy electricity on the energy spot market to make up the difference, Gail says. His company, Global Weather Corporation, now provides wind forecasts to Xcel Energy. Xcel serves eight western and Midwestern states and gets nearly 20 percent of its power from wind energy. In 2015, Xcel estimated that improvements in forecasting had saved its customers $49 million.
Note (4) Add to this Daimler’s recent work on their autonomous truck of the future which also has on it wind and solar sensors to help with energy requirements we are getting a real insight of the importance of weather prediction to drive our energy usage of the future.
Increasingly, forecasters are answering questions that go beyond the weather itself. When a storm hits, power lines can be knocked down. But some are more vulnerable than others, such as power lines that run through trees. Utilities must decide whether they will need to call in trucks from other cities and send them to areas that are most likely to be damaged in a squall. In the past, Gail says, forecasters would simply inform them that a particular area is liable to feel high winds or other stormy conditions. “What they’re telling us is, don’t tell us about icing or wind or anything like that—tell us where we should park our people…a day ahead so that they can respond quickly if power lines go down,” Gail says.’
So, wouldn’t this be great if we knew days before that we could not use a quarry or a mine site, but could use another? What a great way to dynamically source! Or what about our emergency services? To ensure that they are indeed located at the right place giving them better accessibility in times of disaster.
‘Still, our forecasts are getting better, and there are a few ways that these improvements could save lives. About 22 percent of all vehicle crashes are weather-related; around 5,900 people die every year in the US in these accidents. “This is the equivalent of one airliner going down every week and nobody really caring very much about it,” Gail says. “Good, accurate information that tells you where the roads are going to be slippery would have an enormous impact.”
Global Weather Corporation is coming up with forecasts for how slick or icy the roads are in the United States, Europe, and China. This intel will be fed to connected cars, so drivers will receive alerts if dangerous conditions are on the horizon.
Soon, your in-car navigation system map will automatically include forecasts when it advises you to take a particular route. And before long, Gail says, we will be slipping weather predictions into decisions made behind the scenes, so you will benefit from forecasts without having to consciously think about the weather.
“The future is, you get weather information on your phone tied to your schedule, tied to where you’re driving, tied to all the different things you’re doing during the day,” Gail says. “The old paradigm was, you look at your map and…you get the weather and you try to combine those two in your head. Why should you be doing that? Why shouldn’t your app being doing that for you?”’
That said, doubling up on special preparations is key for disaster prone areas. If certain transportation routes in your supply chain are truly indispensable, then you must invest as much as you can in tech that allows your transporters to weather the storms in those zones.
Alternatively, you should proactively seek out alternative routes and alternative suppliers. Do what you can to source from a diversity of areas and not necessarily concentrate in one spot. It might also help to invest in some advanced planning software that helps you source from alternative locations as well as route optimisation software that helps you quickly plan alternative routes.(or do you already have your rainy day routes in place?)
How long till you will be better utilising available weather information in your business to improve your business, to dynamically source, to ensure your commitments are met on any day whether in adverse conditions or not and most importantly to out think and outperform your competitors?
Disruption Type #2: Man-Made
These cover a certain range of activities that can be accidental or deliberate. Factory or warehouse fires, employee strikes, sabotage and even acts of terror are another.
All create shortages and disruptions in very predictable ways. Despite that, some practitioners traditionally find these difficult due to the perceived unpredictability of the events. However, understanding the actual process and environment of their partners’ facilities can work wonders.
Obviously we want to do all that we can to ensure that these are prevented, and averted. Sometimes we will be successful and sometimes not.
As part of your supply chain strategy you would have done a supply side risk analysis along with a competitor analysis, right?
Actually, only 18% of companies globally even have a supply chain strategy, (that is a documented multi-year strategy with a detailed project road map that goes out at least 3 years.)
The rest, some 82% are apparently still working out what supply chain is, what it does, whether we need a strategy(or whether they are happy working on a different objective every month, inventory reductions today, generating on time customer performance next month and being the lowest cost provider the following month,) and who is going to actually put it together! Note (5)
No matter where you are, what if you just did this part of the ‘strategy’ and had a bit of a detailed look into your partners and also perhaps your competitors supply chains? How could that hurt? In fact you might learn a thing or to.
Proactively assess the facilities of your partners and competitors. Simple, honest questions like “Is equipment prone to breaking down?” or “Are working conditions good?” is enough to root out any red flags.
It might also help to consider partners with technologies that eliminate these risks entirely (such as more automated manufacturing, advanced AI systems and proactive maintenance). In the food industry for example, you might want to consider a chicken supplier who uses more hygienic robotic solutions for deboning rather than one who uses less hygienic, manual processes. The idea is to locate effective alternative suppliers for yourself if you are ever in these situations.
Here’s where this gets difficult. We tend to never ever want to engage with a competitor for many good reasons, mainly because we don’t want our competitive secrets transferred to our competitors. So we must guard ourselves in this respect. But further, if you are placed in a position of not being able to manufacture your products, where will you find alternative production capabilities that you can depend on? Do you have partners who can step in and will they be able to step in quickly and effficiently, filling the gap that your facility has left but also fulfilling their own requirements at short notice?
If a competitor came to you and asked for help, would you offer it? Would you expect them to do it for you? Is there one particular company that could do this, and could help you if needed, that you are yet to engage with? Why not start planning for this today, just so that if your ability to supply is ever compromised you know for sure that your business will survive.
Don’t get too tied up about competitors and partners. There are plenty of examples where companies that are competitors at the customer interface work together in warehousing and transport to generate economies of scale.This is more common in todays supply chains than you might imagine. You just need to ensure that you and your source of competitive advantage are well protected by the appropriate agreements.
Disruption Type #3: Economy & Politics
All disruptions that result from tariffs, wage hikes, inflation and other similar phenomenon fall under this category. This category also includes pandemics, quarantine, insolvency, trade credit issues and non-performance of sub-suppliers, patent infringement /expiry, slave / child labour, and environmental practices causing reputational damage.
Despite the controversy that often surrounds these subjects, it does not diminish the effect they have. The higher cost of labor can have foreseeable and far-reaching consequences. The same goes for when blockades and supply restrictions stifle the flow of materials.
More and more of our supply chains these days are global. We did this purposefully to locate the best quality product from around the world, for the best value. We outsourced as well to drive greater efficiencies into our operation, but in doing so we added more risk to our supply chains and now we need to work out how to better identify, manage and mitigate that risk.
It’s not just us, many of the worlds largest multinationals are struggling with these issues today and there are plenty of technologies on the horizon specifically focused on helping us in these areas.
This also is deemed a highly volatile and unpredictable cause of disruption among practitioners. However, despite having less control over such massive socio-economic forces, a few simple research habits can give you a good leg-up in the wake of changing political climates.
For a start, know your supply chain. This is not only your locus of control but also that of your suppliers. Where are they from, where are they sourcing from, where are you importing from and what are their likely risks? If you do not know this, find out today.
Do you completely understand your strategic products vs your non-strategic products and for your strategic products where are they being sourced from? (Hopefully not single sourced!)
Do you have clear and distinct alternative sourcing locations for your strategic products? If so, great, if not, please go and find some.
Simply getting your google resource to check the news every morning is a good idea. Is a supplier’s country suddenly facing new regulations? Is a certain sea route the sight of recent conflict? Knowing which parts of the globe are becoming political hotspots can be all the sign you need to prepare accordingly.
What about your freight forwarder? They should have this information well before you and you need to be ‘alerted’ of any potential disruption and the plan to mitigate it.(Make them self reporting and self managing!)
Have a plan B in place. If suddenly you cannot use your favourite lowest cost plant closest to your highest customer demand for that product, now deeply in the middle of a political uprising, what is your alternative? What’s the process for changing over to alternative supply locations?
The obvious new technology to discuss here is block chain, which cuts across disruption type 2 and 3.This technology is already all about how to rapidly identify any issue in the supply chain potentially causing disruption. It’s being mainly trialed in the global food supply chains by Walmart, 10 of it’s closest suppliers the largest food companies in the world and recently to include JD.com in China to improve the quality of food being sourced from and within China. Blockchain is a distributed ledger that in food safety improves the tracking and traceability of disease sources, contamination, bacteria or chemicals and allows the quarantining of this source and a rapid recovery from this type of disruption.
Note (6) According to the CDC, foodborne contamination causes 48M Americans to fall ill, 128,000 hospitalizations, and 3,000 deaths every year. Produce causes nearly half of the illnesses (due to norovirus) while poultry causes the most deaths (mainly due to listeria and salmonella).
When contamination breaks out in the face of unclear record-keeping, companies can take days or even weeks to trace the source of an infection and recall appropriate products.
For example, in 2006 three people died and nearly 200 fell ill after eating spinach contaminated with E. Coli. Because the FDA could not be sure which bags of spinach contained the infection, it ultimately recommended that Americans avoid eating any fresh spinach. The spinach industry faced $74M in losses.
Using blockchain, food companies can much more quickly trace outbreaks back to specific sources.(Time taken is 2 seconds vs weeks and many many lives saved.) This helps to increase consumer safety while limiting financial losses, as only the products directly impacted would need to be recalled.
You would be surprised at how today’s information and manufacturing technologies are opening exciting opportunities for faster response against disruption.
The best that today’s practitioners can really do is to plan while also opening themselves to investigation, evaluation and consideration of new technologies to address these issues.
Start small and make a few things work and then work up to the larger game changers. If you play your cards right, there is scope for much leapfrogging of first tier companies by clever second tier companies, looking for and finding new and creative solutions to supply chain pain points that have been around for a while, just waiting for a new technology solution!
After all, disruption is often the main driver of these innovations!
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