DIGITALISATION
HOW TO MANAGE MAJOR DISRUPTIONS IN THE SUPPLY CHAIN by Greg Smith, Managing Director, Americas, Proudfoot A specialist in operational management and digital transformation addresses the current situation and offers practical solutions. The worldwide COVID-19 pandemic has exposed glaring vulnerabilities in today’s global supply chains, making it essential for businesses to quickly and effectively develop risk management plans for their supply chains. Despite the last decade seeing several catastrophic events, Mr Greg Smith including the disastrous hurricanes that hit the US, Puerto Rico and the Virgin Islands in 2017, Japan's 2011 devastating tsunami, and 2010's volcanic eruptions in Iceland that grounded flights worldwide, most companies were still underprepared for the COVID-19 pandemic.
THE CHINA VARIABLE With a vast majority of the global supply chain moving through China, it is essential to acknowledge how much Chinese firms have improved their operations over the years. They have increased capacity and output exponentially, built increasingly complex products domestically and streamlined downstream processes in domestic transport, sea freight, unloading and customs clearance, to reduce risk and administration. On the flip side, China has introduced relatively high labour inflation for over 10 years, and this has eroded cost benefit over time. Indeed, some European automotive component manufacturers, have moved operations from China to more competitive labour markets in Turkey and North Africa.
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Companies must consider every link in the supply chain, as well as risks associated with each link. Natural disasters, regional economic instability, and other potential disruptions can result in delays, higher costs, lower sales and customer dissatisfaction. The COVID-19 pandemic was unprecedented on the levels of global disruptions triggered. It may go down in history as a black swan event. Still, it also crystallised the need for well-defined and easily deployable supply chain risk management plans to businesses worldwide.
CREATING A SUPPLY CHAIN RISK MANAGEMENT PLAN In today's global business world, there are many unpredictable events impacting supply chains. Leaders must bulletproof their supply chains and strategically think ahead to mitigate risks. Proudfoot has compiled the following five-step, high-level overview of how to start thinking about supply chain risk management plans (SCRMPs) that will protect businesses against disruptions in the supply chain:
Locate the risks The first step in disaster planning is mapping out every critical facet of the supply chain exposed to risk. Consider risk locations such as partner suppliers, production lines, procurement processes, transportation providers, warehousing and technology.
Additionally, firms that do business in China frequently fail to increase the inventory of safety stock, instead of making a trade-off for cash. When operations in China unexpectedly ground to a halt, as we witnessed earlier this year, this failure adds more risks to an already dysfunctional supply chain.
Specific risks can be determined based on geography, climate, or socio-political events. General risks include cybersecurity and changing industry trends. For companies without an integrated SCRMP, the priority should be identifying such risks and designing operational data-driven strategies to mitigate them. By questioning the likelihood of these risks and their impact, organisations can save costs and ensure timely deliveries to maintain customer satisfaction and profit margins.
THE CASE FOR SUPPLY CHAIN RISK MODELLING
Quantify the risks
The supply chain was much simpler when companies started sourcing in China. Today, the supply chain is increasingly complex, fuelling the need for a supply chain risk model. Without it, companies are unable to manage the current fragility of the global business landscape efficiently.
Some risks cause minor interruptions while other risks could spell disaster. Rate each risk in terms of likelihood and severity. By assigning a rating, risk management teams can predict the threat of each risk. One such method to quantify risk is the Failure Mode and Effect Analysis (FMEA). Organisations can then identify risks
THE SINGAPORE ENGINEER June 2020
