When Bad Things Happen to Good Supply Chains | Industry Week

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“Any single failure anywhere in the supply chain can bring operations and profits to a standstill. From the 2011 tragedies of the Tōhoku earthquake and tsunami in Japan to last year’s devastating Hurricane Sandy closer to home, Mother Nature has a way of reminding us to reexamine catastrophe preparedness.

These events, and the tragic aftermath that follows, also serve to remind the insurance industry of the challenges in quantifying risk and accounting for exposure in an increasingly complex supply chain environment. As a result, risk managers are being asked new questions as insurance underwriters require them to seek information from a broader range of stakeholders within and outside of their organizations.”


Michel Baudin‘s insight:

The article is limited to a list of questions an insurer might ask about a supply chain, some of which cannot be pratically answered. The supply chain management literature often states the need to know your suppliers’ suppliers and your customers’ customers, but most companies don’t, and practically can’t.

After all, the point of buying from suppliers is to delegate responsibility for the whole upstream supply chain. If you have to worry about it all the way to mining raw materials out of the ground, you might as well make it all in-house from scratch, like at Ford’s River Rouge plant in the 1930s.

Asking the right questions is fine, but providing answers is better. Supply chain disruptions come in many degrees of severity and a variety of frequencies, from trucks delayed by traffic accidents to earthquakes and tsunamis.

You can, and should have preplanned responses to small, frequent disruptions. That may involve building some slack in milk run schedules, keeping small buffers of stocks, or having contingency plans for alternative transportation…

But you cannot practically have preplanned responses to all possible catastrophes. What you need is to monitor operations with vigilance to get early warnings, and develop relationships with your suppliers and customers that are strong enough that they come together and develop an ad-hoc, rapid response when disaster strikes.

This is the lesson I see in Toyota’s response to emergencies, from the Mississippi flood of 1993 to the Aisin Seiki fire of 1997 and the Fukushima earthquake of 2011.

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