Are You Prepared For Supply Chain Disruptions?
Supply chain disruptions are a fact of daily life for supply chain management professionals. Some disruptions are small and people shrug them off as all in a day’s work. Nevertheless, the cumulative effects of even small disruptions can add up to big money.
Are Supply Chain Disruptions Serious?
With today’s global supply chains, even minor supply chain disruptions should be considered serious. If you look at the supply chain in its entirety, a delivery that’s late by a few days or damaged can be just as disruptive to the overall supply chain effectivity and costs as an interruption that wipes out supplies for days and weeks. That’s why companies in many industries — from automotive original equipment manufacturers to food processors — are tasking their suppliers with proving that they have a plan in place to deal with supply chain interruptions.
What Constitutes a Supply Chain Disruption?
Any unexpected occurrence is a supply chain disruption. Disruptions can be as minor as a truck breakdown during delivery, or as major as a strike that closes ports or a natural disaster that affects an entire region.
A few years ago, when supply chains were “inward-focused,” many companies only considered an event to be a supply chain interruption if it affected their in-house operations. Today, supply chain management covers the entire supply chain, including external nodes. With this better understanding of the interdependent nature of the supply chain, risk management has assumed even greater importance.
The Stages of a Supply Chain Disruption
Researchers at MIT have created a model that defines eight stages of supply chain disruption. These stages include:
- Preparation: Companies looking to improve supply chain resilience will identify events that can cause disruption and put plans in place to react quickly.
- The Disruptive Event: This is the action or event that sets disruption in motion. It can be as extreme as a natural disaster or as simple as receiving a bad batch of material.
- First Response: Actions here attempt to control event ramifications. These first response actions are often defined in the preparation phase to allow the company to swing into action quickly.
- Initial Impact: This is an assessment of the disruption’s operational effects. The impact can be immediate — a machine or plant shut down — or it may take time to develop. Conditions often deteriorate between the identification of the event and the time when the full impact becomes apparent.
- Full Impact: At this point, performance drops quickly and affects multiple nodes of the supply network.
- Recovery Preparations: In many cases, companies will have already identified alternatives if they anticipated the disruption. If not, the assessment should begin right away. Mitigation plans may include alternate suppliers or working with suppliers to redirect resources.
- Recovery: Companies may choose to operate at higher-than-normal levels to bring supplies back into alignment and mitigate revenue effects.
- Long-Term Impact: If a disruption has caused a rift between supply chain partners, the supplier that suffered the disruption may be unable to recover or get back to pre-disaster revenue and output because of lost business. This can have an impact beyond individual suppliers and can shift the structure of an industry or region.
Mitigating Supply Chain Risk
Because of the potential for significant adverse revenue effects, companies should place an emphasis on preparing for disruptions well before they happen. The Automotive Industry Action Group recently introduced a standard (IATF 16949) to ensure that suppliers and sub-suppliers have taken steps to ensure supply chain resiliency. Suppliers that cannot show they have resilient supply chains are cut from the approved suppliers list for two years. Even then, those suppliers must re-apply for approved supplier status and compete with their replacements for the business. That can be enough to put a smaller supplier out of business for good. This isn’t unique to the automotive industry — other industries have also created mandates or recommendations for supply chain resiliency.
Planning for supply chain disruption doesn’t mean planning for every possibility. It does mean ensuring that you have adequate plans on standby to withstand short-term supply interruptions and plans for managing larger disruptions. These plans can include ideas such as tier 2 and 3 carriers, or the ability to add shifts in various regions or facilities.
Supply chain disruption plans are most easily accomplished with simulation tools and the insight of knowledgeable people and partners such as your global 3PL. Unyson offers strategic and tactical modeling and other specialized services that can help you ensure you are prepared for supply chain disruptions. If you’d like to learn more, contact us today.
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