Hurricanes place protective focus on supply chain risk management
By Staff -- Manufacturing Business Technology, 11/1/2005 12:00:00 AM
Two hurricanes in one month that left plants across five states blown apart or under water have caught the attention of manufacturing supply chain managers. And high time too, says Tim Minahan, supply chain expert at Boston-based AberdeenGroup, which recently conducted a survey on risk management in supply chains. Minahan calls the results alarming.
"Most companies lack a strategic approach to risk management," he says. "Less than half have established benchmarks, metrics, procedures, or lines of responsibility in place."
Yet the same survey reveals 82 percent of respondents have experienced supply chain disruptions—typically more than 12—in the last 24 months. Three-fourths of them expect the situation to get worse over the next three years.
Meanwhile, Ben Yokell, manager of supply chain solutions for INSIGHT, says Hurricane Katrina taught one of INSIGHT's customers the importance of "holistic, dynamic supply chain optimization that factors in real network behavior." This company—a well-known manufacturer of consumer packaged goods, food, and beverages—used INSIGHT software to reconfigure its Gulf Coast supply chain in response to the hurricane.
The company wanted to supply hard-hit customers from its Atlanta facility, but quickly ran up against capacity limits in trying to supply its usual Atlanta customers and those affected by the hurricane. The company ran planning scenarios to find the optimum secondary sources to temporarily supply other regions of the country, leaving Atlanta free to supply Gulf Coast customers until usual arrangements could be put back in place.
"We were able to help them respond in a day or two because they already had the system in," says Yokell. "People assume that supply chain optimization is a once-a-year-or-two thing, but once you have the model going, you can use it to do this near-term spot analysis."
A change in business models also heightens stress on supply chains. "We have moved from big companies that make stuff to big companies that buy stuff," says Jim Lawton, VP of marketing at business intelligence provider Open Ratings. "You used to be able to assess risk by looking internally. Now to understand risk, you have to look at things that go beyond your own company."
Initiatives such as just-in-time and lean manufacturing have made for more efficient, less costly supply chains, but have added new and greater risks, maintains Lawton. So has outsourcing. In addition to performing due diligence about supplier financial health, now companies must consider the impact other countries' politics, culture, business rules, and, yes, their weather patterns, he says.
