Plan B 2: How to prepare for a major supply chain disruption?
While it is clear that one cannot anticipate acts of god, or even those of men, one does have the capacity to limit their impact on operations… We can learn lessons from the past but also from the present. The risk of disruption, is real and it is known. What we can do to mitigate disruption is equally known. Internal risks are prevented and monitored through the usual risk monitoring and mitigation management techniques such as governance, policies, guidelines, trainings, insurance etc… External risks require a different more eclectic and varied treatment. These external risks are typically linked to geographies, currencies, suppliers, regulations, natural events and in general; higher volatility. While these risks are outside of a company’s control, their consequences are not necessarily. With the globalisation and the acceleration of supply chains, these risks have increased in probability, scope and impact. Addressing these effectively, requires a systemic and structured approach which is built-into the supply chain at the outset. The remedies and treatments to and of the risks need to be planned for ahead of time, ideally when the supply chain is set-up.
Let’s take a natural disaster such as an earthquake or a hurricane which disrupts means of production, communication and transportation: The supplier for critical supplies cannot be reached, the production is down, and the stocks available cannot be shipped. What can customers do?
In an ideal case, the disrupted supplier would not be a single source supplier or the sole supplier for critical supplies… If it is, the company probably has an excess stock which is tailored to cover the re-procure lead-time. The time to re-procure in normal times is obviously different from the time to re-procure in a time like this. The default of the supplier will most probably affect more than one customer and hence all the concerned will be frenetically searching for alternatives, thus the time to re-procure will significantly be increased.
It is important at this stage to split re-procure activities along two axes: Trying to find out if/when the affected supplier will recover and where alternative supplies are. Technology choices are crucial in both cases: to acquire relevant and reliable data, information, to be fast and to be effective in the execution. Technology needs to be portable, networked, widely available, least vulnerable and content rich. Crisis required 24/7 and flexible communication means.
It is crucial to find out how badly the supplier is affected, how much stock the affected supplier has, how long it would take for the supplier to resume production as this would scope the remedy action plan. The first activity relief organisations like the United Nations take when a disaster occurs, is send an assessment mission onsite to scope the relief effort. If the affected supplier was digitally integrated with the customer, the last status of many of these data points is known. If the affected suppliers is digitally connected through means relying on the internet, the information is in the cloud and thus available. The customer can continue exchanging through this mean with the supplier despite the physical disruption.
A supply chain for critical supplies normally requires that the company has in its portfolio alternative suppliers as a result of a previously competitive tender and/or identified back-up suppliers among its pool of current suppliers. Back-up suppliers are suppliers, which although supplying other products to the company, are known to have capacity and capability to produce the required product. It is important to activate these suppliers as soon as possible. This could be done faster and better: if the bids are still valid or their validity has been regularly renewed/adjusted, if the alternative suppliers are “active” thus have a vested interest in giving the company priority for these supplies to keep their current business, if the alternative supplies are provided for contractually under a “back-up supplier” clause, if the suppliers are digitally integrated with the customer. Ideally, switching demand to the alternative suppliers would be as swift as possible. This can be accommodated with the least effort if the suppliers are already in a network with the customer, that is digitally integrated.
Should the afore mentioned not be the case, a quick turn-around sourcing exercise to secure supplies becomes the fall-back. The challenge being to identify alternative capacity suppliers quickly and secure supplies reliably. You are now in a first-come, first served contest. The search for supplies should encompass wholesalers and resellers, as well as other manufacturers for which it is not the main output. Wholesalers and resellers are of particular interest, while they usually are outside of the traditional sourcing pool of companies, they typically have stock on hand and often a privileged relationship to alternative suppliers which the company does not have. Ariba Network and its discovery functionality is an excellent instrument to identify this new pool of alternative suppliers in an unfamiliar marketplace.
Let’s take the Kobe earthquake and how both scenarios would play out in this situation: In scenario 1, the customer would retrieve valid bids from incumbent suppliers from the sourcing system and open relevant categories in the procurement system, inform the suppliers, using existing digital exchange technology start placing orders and exchanging supply information with the suppliers for the affected categories. In scenario 2, the customer would have access to a network, search for suppliers by category and contact these by posting an RFX with relevant questionnaires about stock, certifications etc.. or posting a direct request for purchase if the information available in network is sufficient/adequate to do so. Ideally, these new suppliers would be able integrate digitally with the customer to allow business continuation with minimal disruption, at a modest cost.