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Supplying Thought: Resilience

20 Apr 2016 4:30 PM | Christon Valdivieso

Authored By: Christon Valdivieso

Edited By: Afton Knight


     The APICS Dictionary defines supply chain resilience as “the ability of a supply chain to anticipate…avoid or mitigate, and/or recover from disruptions to supply chain functionality”. Supply chain disruptions are more than just the daily annoyances from a late truck or an interrupted production schedule. According to new research, supply chain disruptions cost companies millions of dollars every year[i]. A single disruption can cost anywhere from US$100,000 to US$1 million[ii] and most of them are preventable! The two major tools for creating resilience are redundancy and flexibility. I should note here that I prefer the concept of agility (mental nimbleness) to flexibility (mental yoga) as agility implies the ability to see and maneuver into different ways to achieve success. Flexibility, on the other hand, implies an ability to fit success into a changing picture. Think of it like this: a flexible supply chain manager might keep their staff late to finish a project whereas an agile supply chain manager cuts non-essential associates incurring less OT to finish the task. While a flexible leader argues the glass is half full, the agile leader puts the same amount of water into a smaller glass and fills it up. For this discussion let’s focus on redundancy (i.e. repetition or having multiple of the same thing).

Redundancy is a great way to protect your operation from disruptions. The most common types of redundancy are safety stock and utilizing multiple suppliers. Given that the U.S. Census Bureau[iii] reports a yearly growth of retail inventories of 5.5% (1.6% overall) for November 15, I would propose that most supply chain managers understand the need for safety stock. They will, no doubt, come under fire from their “lean” minded senior leadership, but will supply chains be reactive and cut safety stock or find an appropriate balance? Also, what about multiple suppliers?

Most businesses achieve scale by leveraging larger business needs for lower costs. Thus, a reduction in suppliers is useful; however, there is a risk of increased disruption susceptibility (I would like to note that risk management is a key factor in all this as well, but I will save that discussion for another day). Recently, Toyota revealed[iv] a shutdown of its Japan operations for a week due to a supplier-related issue. Strikes at the port of LA/Long Beach and New York[v] have impacted almost every US business. Many companies decided to utilize the New York port after the LA strike, but New York’s recent strike illustrates the need to innovate multiple supply chain solutions. Is air freight a potential secondary option? Can a 3PL help open your supply chain? Is there a free app for improved inventory management? Can the top two bids be utilized to reduce procurement risks? Most of these question shouldn’t be new, but the answers might be.

And so, I supply this thought: How resilient is your supply chain and has it been tested?

 



[i] Hanna, Sheree; “Research reveals supply chain disruption cost UK manufacturers 58 million”; Supply Chain Digital; Online; http://www.supplychaindigital.com/procurement/32/Research-Reveals-Supply-Chain-Disruption-Cost-UK-Manufacturers-58-million

 

[ii] Christ, Andrea; “Costly Supply Chain Disruptions”; insurancenewsnet.com; online; http://insurancenewsnet.com/oarticle/COSTLY-SUPPLY-CHAIN-DISRUPTIONS-a-516674

 

[iv]Horie, Masatugu; “Toyota Supplier Behind Production Shutdown Pulls Forecasts”; Bloomberg; online; http://www.bloomberg.com/news/articles/2016-02-03/toyota-supplier-behind-production-shutdown-pulls-profit-forecast

 

[v] Online; “NRF: Strikes at East, Gulf Coast Ports Not the Way to go”; World Maritime News; https://worldmaritimenews.com/archives/182169/nrf-strikes-at-east-gulf-coast-ports-not-the-way-to-go/

 


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