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TheUnexpectedHappens:IsYourSupplyChainPrepared?InboundLogistics
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TheUnexpectedHappens:IsYourSupply
ChainPrepared?
ByWilliamKeenan,Jr.

106

Notagsavailable

Relativelyfewcompanieshaveadetailedandtestedplanfor
respondingtopotentialsupplychaindisruptionsgreator
small.Thosethatdohaveadistinctadvantage.

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MORETOTHE
STORY:

10WaystoStay
AheadofPotential
Disruptions

Investinginsupplychaincontingencyplanningislikebuying
insuranceyoucommittime,manpower,andresourcesto
somethingyouhopeyou'llneverneed.
Butifyoudoneedit,thatplanningcanmeanthedifference
betweenstayingafloatandsinking.

(http://www.inboundlogistics.com/cms/article/the
unexpected
happensisyour
supplychain
prepared/#sidebar1)
WhatKeeps
SupplyChain

ItmadethedifferencetoSolectron,a$10.6billioncontract
manufacturerwithU.S.headquartersinMilpitas,Calif.The
companyservesthecommunications,computing,networking,
automotive,consumer,andmedicalindustries.Itssupply
chainstretchesaroundtheworldandinvolvescloseto5,000
materialsuppliers,transportationcompanies,andother
vendors.

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ExecutivesUpat
Night?
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unexpected
happensisyour
supplychain
prepared/#sidebar2)

WhenHurricaneRitathreatenedSolectron'sAustin,Texas,
facilityinSeptember2005,thecompanysetitscontingency
planinmotion.

"Oncethehurricanewaspredicted,weimmediatelybegan
notifyingoursupplychainpartners,trackingthestorm's
progress,andcompilinganddistributingchecklists,"recallsMikeHaikola,Solectron's
globalbusinesscontinuitymanager.
Throughthatprocess,Haikolaaddressedpressingquestions:"IftheGulfareais
decimated,howwillthataffectourlogisticsinthearea?Whereareourmaterialscoming
from?ArewetransportingshipmentsthroughtheGulf?"hesays.
Solectronpinpointedthespecificlocationsitsshipmentsweremovingthrough,and
contactedsupplierstoholdadditionalshipmentsuntiltheareawasoutofdanger.Inthe
end,RitamissedtheAustinsite,"butthepreparationputusthroughavaluableexercise,"
saysHaikola.
AnothervaluableexercisetookplacelastMaywhenaquickspreadingfireburneddown
muchofthecargosectionatIstanbul'sAtaturkInternationalAirport.
Solectronquicklylearnedofthefirebecause,aspartofitscontingencyplanning,it
"constantlymonitorsthenews,lookingforpotentialimpactstoourbusiness,"Haikola
says."WeimmediatelycontactedoursiteinTurkeytodeterminetheimpact,andifwehad
shipmentsorproductsintheairport'scargostoragearea.
"Itturnsoutwedid,butfortunatelywewereabletoidentifytheproductsquickly,contact
thesupplier,andorderanothershipmentsoourabilitytosupplyproducttocustomers
wasnotdisrupted."
APERFECTSTORMOFCONTINGENCIES

Supplychaincontingencyplanninghasbecomeasignificantissueformanufacturersand
distributorsformanyreasons,includingthefollowing:

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Leansupplychains."Supplychainsaregettingleaneranddistancesaregrowing
longer,"saysRandyStrang,vicepresident,consultingservicesforUPSSupplyChain
Solutions."Leansupplychainseliminateinventorythatinthepastcreatedsomebufferfor
unexpectedevents.Withoutthatinventory,dealingwithunexpectedeventsandsupply
chaininconsistenciesgrowsmoreurgent."
Outsiderisks.Naturaldisasterssuchasearthquakesandhurricanesarealwaysathreat,
forexample,asarelaborissuesincludingstrikes,lockouts,andotherworkstoppages.
And,withtheincreasingglobalizationofmanysupplychains,terrorism,geopolitical
unrest,traderegulation,currencyexchangerates,andsupplierdependabilityalsobecome
factorstoconsider.
"Coupleallthatwithrawmaterialandenergypriceincreasesoverthelastfewyears,anda
rangeofsupplysiderisksbeginstounfold,"saysJadeRodysillofglobalconsultancy
Accenture.
"U.S.companiesaredealingwithtightlogisticscapacity,alongwithtightrawmaterials
capability,"hesays."Addanumberofcatastrophicnaturaldisasterstoindustrialareas,
combinedwithglobalization,andaperfectstormbeginstobrew.
"Manycompanieshavebeenhitwithoneormoreoftheserisks,andarebombardedwith
somuchinformationandsomanywarningsthattheyarenowmakingcontingency
planningastrategicimperative."
Contingencyplanningisn'timportantonlytolargecompaniesmanagingelaboratesupply
chains,it'salsoimportanttocompanies"manufacturingordistributingdishesortowelsin
theSoutheast,"notesJoeDagnese,avicepresidentwithMenloWorldwide,athirdparty
logisticsproviderthatoffersbackupwarehouseandlogisticsservicesintheeventof
disruptions.
"Ifacompanyoperatesonlyonefacilityanditgoesdown,whatthen?"heasks."They
can'tjustfindanotherfacilitywhenthetimecomes.Theyneedaclearoperational
recoveryplanthatvetsallthe'ifthens':Ifthepowergoesout,doIhaveagenerator?If
theroofgetsblownoff,canIstillpickandship?"
Bottomlineimpact.Corporateexecutivesarealsogrowingmoreawareofthepotential
threatsupplychaindisruptionsposetotheirbottomlines,marketposition,andstock
value.
"Asupplychaindisruptioncanputacompanyatadisadvantagecomparedtoits
competitors,"saysJohnBrockwell,whoheadsJPMorganChaseVastera'sGlobalSupply
ChainManagementconsultingpractice."Ifproductsarenotavailableontheshelves,or
can'tbedeliveredtocustomers,acompanywilllosesalesandmarketshare.
"Whencompaniesannounceadipinearnings,andblamesomeelementofthesupply
chain,theirstocktakesahit,"hesays."Itcantakemonthsorevenyearstorecover."
Whiletheoddsofaspecificfacilitybeinghitbyacatastrophiceventareslim,themore
facilitiesinvolvedandthefartherflungthesupplychain,thegreatertherisk.
But"thecollectivechancethataportionofthesupplychainwillfacesometypeof
disruptionishigh,"notesYossiSheffi,directoroftheMITCenterforTransportationand
LogisticsandauthorofTheResilientEnterprise.
EVALUATINGTHETHREAT,WEIGHINGTHERISK

Supplychaincontingencyplanningbeginswithidentifyingthepotentialrisks,butfew
companiesaredoingeventhat,accordingtoarecentAccenturesurveyof151supplychain
executivesinU.S.companieswithrevenueofmorethan$1billion.
While73percentofcompaniesparticipatinginthesurveyexperiencedsupplychain
disruptionsinthelastfiveyears,and32percentofthosesayittookmorethanonemonth
torecover,"only17percentindicatethatsupplychainrisksareformallyidentified,
assessed,quantified,andprioritized,"saysAccenture'sRodysill.
"Couplethatwiththefactthat67percentofexecutivessaythatrisksaregenerally
understoodbutnotspecificallyquantified,andthat'salargegroupwhodon'tknowthe
potentialimpactadisruptioncouldhaveontheirorganizations."
Howshouldsupplychainmanagersbegintoprepare?Thefirststepistolistandprioritize
eventsearthquake,hurricane,strike,sabotagethatcanleadtodisruptions.Thesecond
istolistdisruptionsreducedproductioncapacity,criticalpartsshortages,severed
transportationlinksandanalyzetheircausesandimpact.
"Thefirststepismoreusefulwhenthinkingaboutreducingtheprobabilityofadisruption,
becausetherelevantactionsinvolvetreatingthesourceoftheproblem,"saysSheffi."The
secondstepismoreusefulwhenconsideringhowtorecoverfromadisruption,because
thecausemaybelessrelevantthantheconsequencesandseverityatthatpoint."

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Whilefewcompanieshavetakeneventhesesteps,Solectronisanexception.
Becauseitisacontractmanufacturer,mostcustomersrequireSolectrontomaintain
regularlytestedcontingencyplansandtoallowcustomerstoauditthoseplans.The
companyrequiresthesameongoingprocessofitssuppliers.
"Ifwemanufactureatfoursites,andonegoesdown,wehavetoknowinadvancewhere
togowithourproduct,"Haikolasays."Weputtogethercomprehensivealternatesite
transfermatrixpackagesthatidentifyalluniqueapplicationssuppliers,equipment,test
fixtures,skillsets.
"Thatplangivesourtransferteamstheabilitytomovethebusinesstowhereitmakes
sense.Someofourcontractsevenrequireustostipulatetransfertimes."
COMINGUPWITHAPLAN

AnotherexceptionisNordsonCorporation,aWestlake,Ohiobasedmanufacturerof
adhesiveandcoatingapplicationsystemsoperatingin30countrieswithmorethan
35,000customersworldwide.Contingencyplanningisanintegralpartofthecompany's
culture,arisingfromitsfocusoncustomerserviceandsafety.
"Ifacompanysetssafetyandmeetingcustomerexpectationsastoppriorities,itneedsa
bestpracticecontingencyplan,"saysBeverlyCoen,whoheadsNordson'sworldwide
contingencyplanning."Then,intheeventofadisruption,nobodygetshurtandcustomers
arenotdisappointed."
Nordsontakesabottomupapproachtocontingencyplanningitdevelopsplansfor
respondingtospecificrisksateachlocation.Nordsonalsofocusesontheresultsofa
disasterordisruptionratherthantryingtoidentifyallthepotentialcauses.
"Ifsomethinghappenedthatmadeitimpossibleforustoaccessouremployees,materials,
orlocations,forexample,whatwouldwedo?"Coenasks."Forthemostpart,itisn'tthe
eventitselfbuttheresultoftheeventthatcausesbusinessinterruption."
Ateachofitslocations,Nordsonstartswithabusinessimpactsurveythatfocuseson
recreatingthefacilityifneeded.
"Wedeterminehowlongitwouldtaketoproduceatcertainlevels,whichprovidesatime
frame,"Coenexplains."Nextweidentifyalternativescouldweoutsource,ormove
productiontoanotherNordsonlocation?Finally,wereviewtheplansandidentifyand
quantifyanygaps."
Nordson'scontingencyplanningprocessalsoevaluatesandidentifiessuppliersthatcan
meetthecompany'srequirementsandqualitystandardsincaseofadisruption.In
addition,"welookatITissuesandpracticesintermsofrestoringdataifnecessary,"Coen
says.
Nordsonalsoreviewsitssuppliers'businesscontinuityplanstoseeiftheyhaveevaluated
theirrisks,andtoensuretheirrecoveryandcontinuityplansarecomplete.Ifplansare
incomplete,Nordsonworkswiththesuppliers,andprovidestoolsandmaterialssothey
candeveloptheirownplans.
"Everycompanyshouldhaveabusinesscontinuityplan,"statesCoen.
TwoteamsateachNordsonfacilityareresponsibleforimplementingthecontingency
plansintheeventofadisruption.Acrisisteamisresponsibleforensuringthesafetyof
Nordsonemployees,andpreservingNordsonassets.Ashorttermrecoveryteamfocuses
onbeginningtheworkflowrestoringnormalproductionandmaintainingmarketshare.
"Whenwedrawupalocationfocusedcontingencyplan,wetestitwiththoseteams,then
rollitoutforapprovalatalllevels,"saysCoen."Wealsotesttheplanregularlytoensure
thatitiscurrentandrelevanttothechangingbusinessenvironment."
TESTINGYOURREADINESSTORESPOND

Testingiskeytoeffectivecontingencyplanning."It'snaivetothinkyoucancommitaplan
topaper,thengotosleepatnightassumingeverythingisOK,"saysMIT'sSheffi."You
havetotestyourplan,rundrills,andconducttabletopexercisesaswellasactual
exercises.Youhavetoexercisethecrisisteamsotheydevelopamusclelikememoryof
howtoreactintheeventofadisruption."
"Exercisingtheplantakingtimeoutofthedaytodosomedryrunsisimportant,"
agreesBrockwell."Runscenariosforadayortwo,andgetemployeesthinkingaboutwhat
couldhappenandhowtheywouldrespond.Logisticsprovidersshouldalsobeinvolved.
Testtheircontingencyplans,andcommunicatedifferentscenarios."

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Exercisingthosemuscleshelpspeopleprepareforanactualevent."Whileyoucan't
simulateaneventasitwillactuallyhappen,ifpeoplehaveatleastthoughtaboutitthey
canengagemorequickly,"Brockwellnotes.
"Wecontinuouslyworkourcontingencyplans,"saysSolectron'sHaikola."Eachfacilityis
requiredtoexerciseitsplansanditsteams."
Solectronconductsteambuildingexercises,butalsorunsscriptedexercisesthattrainsite
coordinatorsonfacilitatingresponsesforspecifictypesofdisruptionslightningstrikes,
snowrelatedscenarios,bombthreatsandtaketeammembersthroughtheirvariousroles
andresponsibilities.
"Webaseourscenariosonannualriskassessmentandbusinessimpactanalyses,"Haikola
says."Wetrainsitecoordinatorstoidentifythemostlikelyrisks,basedonourassessments
orcurrentevents,thenmeetwiththesiteteamtocreatearealisticresponse."
Atypicaltabletopexercisemighttakebetweentwoandthreehours,orlongerforfullscale
drillssuchasevacuationsorhazmatresponses.Solectronhasevenstartedtoconductjoint
exerciseswithcustomers.
Overall,Solectron'sfacilitiesmanagementandcrisismanagementpersonnelspend
approximately40to60hourseachyearinemergencyresponserelatedtrainingand
exercises,moreifitisanewfacilityoranewmanagementteam.
Thecompanyalsoconductsquarterlyreviewsofitscontingencyplans."Everythree
monthswereviewtheplan,andmakenecessarychangesthatarisefromourexercisesor
realevents,"Haikolaadds.
Statesandgovernmentagenciesarealsogettingintocontingencyplanningmode.
IntegratedWarehouseSystems(IWS),aWoodridge,Ill.basedmaterialhandlingsystems
integratorhasadapteditsIRMSwarehousemanagementsystemforuseinstatewide
emergencyhealthcaredistributionintheeventofanaturalormanmadedisasteror
healthcrisis.Stateagenciesusingorconsideringitsproductputitthroughrigorous
testing,saysIWSCEOScottUpp.
Theproduct,amobileemergencyresponsesystem,or"GoKit,"isessentiallyapre
configuredWMSinabox,andincludesbarcodelabelingprinterslabelingscanners
laserprintersacommunicationssystemcapableoflandline,wireless,orsatellitelinkup
andportablepowersupply.
Thekitallowsastateresponseteamtosetupimmediatelyinadisasterarea,and,ata
moment'snotice,havethecapabilitytorecordpatientdataanddistributeincominghealth
caresuppliessuchasvaccines,pharmaceuticals,anddonateditems.
Georgiaiscurrentlyimplementingthesystemaspartofitsstatewideemergencyresponse
effort.Thestatewilltestitsusagecapacityupto3,000simultaneoususersand300,000
patientdataentriesperhourbeforerollingitout,andwillcontinuetotestregularlyafter
rolloutviahealthcrisissimulations.
MAKERISKPARTOFTHESTRATEGICEQUATION

Mitigatingthreatstothesupplychain,andreducingriskbybuildingmoreflexibility,can
beaccomplishedinanumberofways:developingbackupsourcesorsuppliers,orsome
dualsourcecapabilityclosertoyourfacility,forexample.Butthesesolutionscomewitha
cost.
It'snotlikelythatcompanieswillstepbackwardsbybuildingmoreinventoryor
redundancyintotheirsupplychains."It'sjusttoocostly,"saysMIT'sSheffi."Nocompany
canhaveenoughinventorysafetystocktocoverallcontingencies.Thecostistoohigh,and
supplychainsaretoolean,tooSixSigma,toojustintime,andtoocompetitivetobeable
todothat."
Buildinginexcessinventoryandredundancy"givesyoutimetocatchyourbreathand
decidewhatneedstobedoneifadisruptionoccurs,"Sheffisays,"butit'snotasolution."
Therearewaystobuildmoreflexibilityintothesupplychainwithoutincreasinginventory.
Postponementstrategies,forexample,areoneoption.
"Companiescanpostponeaddingvalue,orleavematerialinasemifinishedstateforas
longaspossible,dependingontheneed,"Sheffisays.
Anotherstrategyinvolvesgettingdifferentfunctionstothinkmoreholisticallyabout
supplychainrisks."Permeatetheideaofriskmanagementthroughouttheorganizationso
thatallfunctionsengineers,procurementofficers,logistics,manufacturing,andsales
thinknotonlyaboutthecostorprofittobederivedfromatransaction,butalsotherisk
involvedwithit,"suggestsSheffi.

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Infact,onewaytosellthecostofacontingencyplantocorporatemanagement,says
Sheffi,istodemonstratehowbuildinginflexibilityandtheabilitytorespondtoa
disruptiongivesthecompanyaleguponthecompetitionnotonlywhenadisaster
occurs,butdailyasmarketsgrowmorevolatileanddemandbecomeslesspredictable.
106

10WaystoStayAheadofPotential
Disruptions
1.Assessrisk.Whendecidingwheretobuyormanufactureproduct,orwhereto
locateDCsandwhichportsorothertransportationoptionstouse,keeptheserisk
factorsinmind:politicalandlaborissuesphysicalandgeographicrisks,including
weatherandlogistics/utilitiesinfrastructureandeconomicandmarketrisks,
includingfuelprices,currency,andinflation.Runscenariosinyourorganizationto
initiatethinkingabouthowtorespondwhenoneoftheserisksbecomesathreat.
2.Createaresponseteam.Youdon'twantpeopleactingandreactingontheir
own,withoutthinkingthroughpossibleconsequences.Establishateamthatwillbe
responsibleformakingdecisionsduringacrisis,andcommunicatetheir
responsibilitiesthroughthesupplychain.
3.Giveyourselfoptions.Establishandmaintainrelationshipswithalternate
suppliersandlogisticsnetworks.Usemultiplecarriers,ports,andtransport
modes.
4.Testyourplanregularly.Besidestestingandexercisingyourowncontingency
plan,demandcontingencyplansfromyoursuppliersandlogisticsproviders,then
reviewandupdatetheseplansregularly.
5.Keepdocumentationuptodate.Makedetailedprocessesandauthorizations
readilyavailableforthealternateandbackupbrokersandsuppliersyouuseinthe
eventofanemergency.
6.Trackcurrentevents.Continuallymonitorthecountriesorregionsimpacting
yoursupplychainforthreatsortrendsincludingweather,laborissues,fuelprices,
inflation,orpoliticalchanges.
7.Stresscrosstraining.Developacrosstrainedworkforcethatcanreact
quicklyandbemovedtoavarietyoffunctionalareaswithinyouroperations.
8.Beknowledgeableandprepared.Ifyouareinahurricanezone,keepaneye
ontheweatherforecastsandunderstandalternativetransportationoptionsand
rates.
9.Savetimeandavoidcongestion.Wherepossible,usecustomsfacilitiesthat
enableyoutoobtainandfinalizeclearancesatalocationotherthantheportof
entry.
10.Backupyourfiles.Ensurethatalltraderelateddocumentsarebackedup
andsavedinelectronicformatatanoffsitelocation.
SOURCE:JPMorganChaseVastera

WhatKeepsSupplyChainExecutivesUpat
Night?
Threeoutoffourcompaniesexperiencedasupplychaindisruptioninthelastfive
years,accordingtoarecentAccenturesurveyof151supplychainexecutivesfrom
largeU.S.corporations.Ninetyfourpercentofrespondentswhoexperienced
disruptionssaytheyhadsomeimpactonmeetingcustomerexpectationsand
profitability.
Herearesomesupplychainthreatsthatapercentageofsurveyparticipantssay
aremostlikelytoincreaseincomingyears:
Volatilefuelprices60%
Supplyofrawmaterialsorparts50%
Costoflabor/materialsduetocurrencyfluctuations44%
Supplierplanning/communicationissues40%
Manufacturingcapacity39%
Portoperationsandcustomsdelays36%
Servicefailuresduetolongersupplylines/leadtimes36%
Delivery/qualityperformanceofsupplychainpartners36%
Geopoliticalinstability35%
Reducedaccuracyofforecasting/planning34%
Logisticscapacityand/orcomplexity33%
Inflexiblesupplychaintechnology33%
Naturaldisaster31%
Terroristinfiltrationofcargo30%

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