Assignment # 2

The Suez Canal Incident 2021:

The Evergreen ship sailed from Yantian, China, and was heading to Rotterdam, Netherlands,
when it became stuck near the Egyptian city of Suez. The Suez Canal Authority said the 400
meter (1,300ft) long and 59-metre-wide ship was caught in a sandstorm which affected the
captain's visibility. . It was carrying 18,300 containers when it became trapped in the canal,
blocking all shipping traffic. It created a traffic jam of more than 360 ships and costed billions in
delayed shipments. Tug boats worked to free the Ever Given and analysts said it could be moved
out of the way in a matter of hours, but traffic could nevertheless be disrupted for a few days.
Efforts to free it finally paid off when it was partially dislodged in the early hours of Monday 29
March. About 30% of global container shipping volumes transit through the Suez Canal. The
Ever Given incident introduced many people to the complexity and interdependence of modern
supply chains.

Caterpillar Inc: Caterpillar Inc., the world's largest construction equipment maker endured
shipment delays due to the Suez Canal blockage. The US firm is in process of thinking of
airlifting the products if deemed necessary. It was told that the maker of the yellow diggers and
bulldozers expected delays of a week or more in shipments from Asia to its destination facilities
in Europe. Many large manufacturers faced supply-chain issues in recent weeks. As some
container ships proceed to reroute around Africa to avoid the logjam, Caterpillar was inclined to
send products by air if the delays threaten a factory-line shutdown. US machinery factory
activity growth slowed in the first week of March after double-digit gains for most of February,
reflecting what could be supply-chain challenges across the sector,
The principal mission of supply chain management is to optimize cost and risk, which means
having contingency and continuity plans for a wide range of situations, from routine disruptions
to “black swan” events like the Ever Given.

Contingency plans they could have used: The blockage of the international
waterway focused attention on the vulnerabilities of supply chains, the importance of having
crisis management and contingency plans, and how similar crisis situations could be prevented or
managed more effectively. For many companies, the damage from the Suez Canal crisis has
already been done, with costly delays arising from delays in receiving supply inputs or finished
goods, either directly or indirectly via their suppliers. These delays will have resulted in lost
sales and/or additional supply costs and freight charges. It is important to reach out to those
customers that will be impacted in the coming months. A detailed written recovery plan can
serve as a roadmap that enables your organization to return to normal as fast as possible. This
includes having the financial resources to see through these incidents. Scenario planning
workshops can be helpful in thinking about the specific events that can impact a business’
operations. It is critically important to have sufficient supplies of production inputs... to
withstand any extended, external shocks and business disruptions. For companies to recover as
quickly as possible from the backlog of ships in the Suez, they have no choice but
to seek sourcing that uses transit routes outside of this area 

How to avoid future problems at Caterpillar:

The key toward mitigating exposure to these types of events in the future. The company needs to
have multiple sourcing options in place, as we learned during the pandemic. Another element of
this recommendation would be to do business with one preferred vendor that has multiple
operations across many regions of the world. This will avoid the massive impact a single location
event would have on their business. 

They will need to plan for, budget and implement plans that circumvent these single points of
failure, so that transportation, energy and communication networks can weather the crises
without bringing the global trading system to a standstill. This will require systemic
redundancies rather than efficiencies; organizational decentralization rather than centralization;
production diversification rather than specialization

Following points companies must considered for such events:

 A best practice for responding to and managing a crisis is to always be prepared for the
unexpected. As with any disruption, companies simply have to be ready. To do this, they
need to assess which part of disruption is temporary, and which is permanent. Then, they
need to be clear about the tradeoff of keeping extra inventory vs. delaying delivery.

 “Do the customers care more about price or the delivery time? Once a company knows
this, they can plan better. To deal with delays, companies need to introduce slack in their
system namely in form of higher inventories both of inputs and finished goods.

 Companies also must have alternative sources of their critical inputs and try to
understand each source's supply chain so that the company can diversify its supplier base
relative to this particular risk.

 Companies must communicate openly and clearly with customers. Prices rise bringing
demand in line with supply, and everyone suffers a temporary pinch at the pump. In a
more complicated situation where a company might not be able to meet a deadline,
communication with the customer is the key with as clear as possible message
surrounding delays, impacts, etc.

 One of the biggest issues in supply chains that is amplified by a situation like this is the
lack of visibility into the end-to-end supply chain. You need to have visibility in order to
be immediately aware and assess the impact on your organization. The more latent your
recognition of the potential issue that might be embedded deep within your supply chain,
 the longer it is going to take to react. The longer it takes to react, the more costly it will
be for your organization to mitigate the impact.

For those organizations with a strong culture of resilience, ‘unforeseen’ or ‘unavoidable’

events won’t disrupt their ability to continue operating and delivering on their brand promise.
After all, not all incidents can be avoided completely but the way in which you react is
entirely within your control. We can expect the organizations that understand their end-to-
end operations and champion a sharp focus on a cross-organizational resilience to
demonstrate intelligent and successful responses to such disruptions.