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A recent history ofdisaster

Recent examples of extreme weather

and natural disasters disrupting

supply chains include:

UK floods (2013-2014) – The

highest rainfall levels since 1910

have led to prolonged flooding

across the country. Businesses have

been severely impacted, and there

has been substantial disruption to

road and rail infrastructure. Some

analysts have predicted costs of

more than £1 billion ($1.66 billion) to

the UK economy.

European floods (2013) –

Significant rainfall in Eastern Europe

had a major impact on manufacturing

companies last year. Porsche was

forced to temporarily close its factory

Home › Opinion › Keeping the supply chain afloat

Keeping the supply chain afloat20 February 2014 | Mark Morley

As extreme weather continues to disrupt production,

Mark Morley (left) writes that manufacturers need to take

a closer look at how they are protecting their supply

chains both physically and digitally.

The current flooding crisis gripping much of the UK highlights how

vulnerable global supply chain and transport networks are to

disruption.

Globalisation has helped to fuel trade, consumption and economic

growth, but also means events such as natural disasters and extreme

weather have even more widespread economic consequences, including for the automotive

supply chain. As if the rain and winds weren't enough, snow and extreme cold have even been

disrupting car production in unexpected places, including the US south and Japan.

Looking out further, the risks go beyond the

operational into the digital space as well, where so

much supply chain information is exchanged.

Research conducted by Accenture showed significant

continuity issues can cut the share price of a company

affected by supply chain disruption by 7% on average.

Alongside the increasing impact of natural disasters in

recent years, the past 24 months has seen a

substantial shift in the main causes of disruption, with

extreme weather now the second most common cause.

This demonstrates the need for supply chain directors

to shift their focus from reactive to proactive risk

management.

In light of these devastating consequences, it is in each

country’s interest to ensure that they are prepared

when disaster strikes. Increasing supply chain

resilience was one of the key themes at last year’s

World Economic Forum, and building this should be on

every CEO’s agenda, especially if they operate a truly

global supply chain.

But what exactly is resilience? The Accenture report

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in Germany after floods in the Czech

Republic halted the supply of

Cayenne bodies by rail from the

Volkswagen plant where they are built

in Bratislava, Slovakia.

Superstorm Sandy (2012) – This

storm was the deadliest to hit the

north-eastern coast of the United

States, causing over $68 billion in

damage to buildings and

infrastructure, including ports and rail

lines. It prompted the worst fuel

shortages in North America since the

1970s.

Japanese tsunami (2011) – The

tsunami brought long-term disruption

to global supply chains, particularly in

automotive, with production at many

factories suspended as a result of

flooding.

Thailand Floods (2011) – Hi-tech

supply and automotive supply chains

were severely impacted by the floods

in Thailand, which led to a shortage

of key components within the

computer industry. Over 1,000

factories were affected and

subsequent insurance claims

reached $20 billion.

defines it as “the ability of a system to return to its

original or desired state after being disturbed.”

Consequently, with resilience now a top priority for

supply chain directors, various operational based

changes have been implemented to try and remove the

potential for risk. Examples include:

Near shoring – also referred to as ‘reverse

globalisation’, the term is used to describe a way of

shortening logistics networks. Rises in wages in China

and an increase in natural disasters have led many

companies to consider relocating manufacturing

capacity back to their home market. For example,

Caterpillar moved production of its small bobcat

excavator from Japan back to North America.

Establish a global plant floor – this is a term coined

by the analyst firm IDC, and describes how

manufacturers are spreading production capacity to

differing plants around the world. Therefore, if disaster

strikes again and a manufacturing plant is taken offline,

they can switch to an alternative to maintain production

capacity. For automotive, this is also referred to as ‘co-

location’ of production for vehicle models.

Dual sourcing strategies – constant disruption

combined with a need to source from the Far East has

meant many companies now implement dual sourcing

strategies. This means that when disruption occurs

across a supply chain, the manufacturing company can

quickly switch to an alternative provider of components.

Concerns also remain in relation to oil dependencies

and increasing insurance and trade finance costs. This

added to the impacts of natural disasters means more

than 80% of companies are now worried about supply

chain resilience. Subsequently, risk management must

be an explicit but integral part of supply chain

governance. Accenture’s own recommendations

include establishing a multi-stakeholder supply chain

risk assessment process, the creation of global

resilience standards and expanding the use of data

sharing platforms for risk identification and responses.

Digital resilience

So far I have only covered risk management across the physical supply chain. As more traditional

supply chains evolve into the digital market however, effective risk management will also need to

include these areas. As information is increasingly transmitted digitally, there is also a greater

chance of cyber risks disrupting supply chains.

Therefore, in addition to introducing operational-based changes, supply chain directors should

likewise look to improve their information and communication technology (ICT) infrastructures. If

configured correctly, such technology would provide significant resilience gains, according to

Accenture.

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2

The corner stone of IT-based resilience is data and information sharing. Business continuity is

enabled through access to real time data, followed by rapid dissemination of data-driven supply

chain fixes. However, information-sharing infrastructures depend on a resilient core network,

appropriate communication tools and an element of redundancy.

Combined, this requires an ICT infrastructure that is flexible, scalable, secure and re-routable.

Mark Morley is director of industry marketing for manufacturing at GXS.

Tagged with: Inbound, IT, SCM

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