Continuity of supply has become an increasingly important factor for resilience professionals as more organizations are beginning to rely on complex, global supply chains to deliver their products.
Supply chain disruptions can be extremely damaging to a business, especially one that relies on a large network of suppliers to create their products. Any business continuity risk, from a data breach to a catastrophic weather event to a terrorist attack, could cause a disruption.
And these disruptions can be costly. Figures from a recent survey found an impact of up to 10% lower sales, 11% higher costs, and even a 25% average share price decline – something that is definitely going to get the CFO’s attention.
In some severe cases, continuity of supply issues can completely doom a business. One example is “The Fire that Changed an Industry,” which drove cell phone maker Ericsson out of the business because they did not plan effectively.
A lightning strike on a power pole caused a machine in a chip factory to burst into flames. Once a fire reaches a clean room, it’s no longer a clean room. These particular chips were used to make cell phones for two major customers, Nokia and Ericsson. Nokia had in place policies and procedures to ensure continuity of supply and Ericsson did not. As a consequence, Ericsson took a $200 million charge that quarter and exited the business.
To effectively manage supply chain risks, it’s recommend that you incorporate three critical aspects into your program: supply chain visibility, intelligent response, and network-wide collaboration.
There are three must-haves for insuring continuity of supply, visibility, intelligent response, and network-wide collaboration.
The first is multi-tiered, end to end visibility. You can’t manage what you can’t see and if you don’t want to be blindsided you have to extend your visibility as far into your vendor trading network as you can. Many companies will have visibility out to their contract manufacturers, but they won’t have vision be on that and many of the problems that cause continuity of supply disruptions happen on the second and third tier.
Having an ‘intelligent response’ to disruptions can help mitigate damage and increase recovery speed. Making sure your organization has the right data and that it is being used properly is key to this response. What is the impact of the information going to be on the ability to serve the customers? If, for instance, you have a massive shortfall, which products is that going to effect and how are you going to deal with it.
As with most disruptions, having some sort of plan in place along with an early warning system makes mitigation much easier. Having an early warning system and response system in place can help mitigate supply chain risk. You can see examples of how important that can be in incidents like the fire in the chip factory.
Some organizations can even turn supply chain disruptions into competitive advantage if they are well prepared. For example, a major hard drive company was able to turn its preparedness into a competitive advantage when massive flooding struck Thailand a few years ago.
When the Thailand floods occurred, a lot of the companies there that made hard drives were flooded because they were all in the same area. Some of the companies connected the dots and looked to sources outside that geographical region. The companies that were able to do that were able to horde the alternate supply. One distributor made a fortune selling hard drives, which are not a high margin item, because they had them and no one else did.
While it is important to be prepared, it is equally important to make sure your suppliers also have plans in place. Regular communication and data sharing between links on the supply chain are key to making sure everything runs smoothly.