Michel Baudin's Blog

When Bad Things Happen to Good Supply Chains | Industry Week

See on Scoop.it – lean manufacturing

“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.

See on www.industryweek.com

Posted

in

by

Michel Baudin

Tags:

, , ,

Comments

3 responses to “When Bad Things Happen to Good Supply Chains | Industry Week”

  1. Nic Avatar
    Nic

    I am not so sure that the alternative to vetting your whole supply chain is to do everything in-house. There are a number of reasons to outsource, from taking advantage of volume benefits, utilising niche specialisms through to focusing more time on customers.

    I think there is a real risk of failing to take control of your whole supply chain, whether it be for business continuity reasons, to be able to understand how to adapt or to safeguard your reputation (do you want your sneakers made by children?). It is a risk that the financial sector has taken and caused catastrophic failure.

    There is a solution and it is a combination of having suppliers follow acknowledged standards and periodically having a review of their compliance, ideally using in-house expertise as much as independent auditors.

    Reply
    1. Michel Baudin Avatar
      Michel Baudin

      There are plenty of reasons to outsource much of your process and, in fact, the only context in which the River Rouge model of full vertical integration applies is when there are no available suppliers, which happens in high-technology industries and in emerging economies, even for mature industries.

      The make-versus-buy decision is usually framed in terms of whether a process is your “core technology,” which I find unhelpful , because what you decide to keep in-house, by definition, is your core technology. The real issue is whether you want to control the supply of an item or get it cheaper. The reasons you may need to control supply include protecting your intellectual property, assuring that production capacity is available to you when you need it, and assuring that it is unavailable to competitors at any time.

      Using an outside supplier, however, means delegating responsibility. If you are able to develop and sustain collaborative relationships with your Tier 1 suppliers, you can, to a large extent, control what they do. Much of the supply chain management literature says that you should know you suppliers’ suppliers’ suppliers, but I don’t know of any company that does, and I don’t believe it’s practical. If a particular item requires this level of control, I take it as a sign that you should make it in house. It doesn’t mean that you should make everything in house.

      I remember visiting a Tier 2 supplier to Toyota in Japan that had a thorough mastery of its process. They were doing a great job, but they didn’t know the Toyota Production System and had had no contact with Toyota’s supplier support.

      Reply
  2. Nic Avatar
    Nic

    In general I agree, although I do know of instances where the suppliers, suppliers, suppliers were audited – and were found wanting. The circumstances may be unique to areas where the FDA remit runs. Here, for example, the FDA could theoretically close down the hosting center used by a quasi-cloud provider used by a software company used by a pharmaceutical company. The Pharma company in question did audit right through to the hosting center, and found THEIR suppliers were following practices that made the data stored at the site potentially unsafe.

    The software vendor found another cloud provider.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.