Supply Chain Resiliency – A series of short articles – Part 1: Where to Look is a Critical Success Factor
Supply Chain Resiliency – A series of short articles
By Robert Benny & Missan Eido
From Jim Satterfield: As the President of Firestorm, I am pleased to introduce this Series Introduction and first article, “Where to Look is a Critical Success Factor” as part of our series on Supply Chain Resiliency by Missan Eido and Robert Benny. We look forward to discussion in this article’s comments, and as always, please contact us with any questions for the article’s authors.
Introduction:
According to Swiss Re’s latest sigma study, 2012 was a relatively good year. Worldwide, natural catastrophes and man-made disasters caused the loss of approximately 14, 000 lives and $186 billion in economic losses. Large scale weather events in the US pushed the total insured claims for the year to $77 billion, the third most expensive year on record. This amount is still significantly lower than 2011, when record earthquakes and flooding in Asia Pacific caused historic insured losses of over $126 billion, the highest ever recorded.
2011 was an eventful year marked by several major disasters costing about $395 billion in economic losses and double the 2012 estimated loss of life. This precipitated monumental supply chain disruptions and since only half of the losses are actually covered by insurance, the financial duress that followed was truly enormous.
The spiraling impact of natural catastrophes and man-made disasters in the last few years and the corresponding rise in the cost of insurance caused many executives to rethink Supply Chain risk exposure and to view the underestimated risk as a potential threat to business stability and even continued existence.
Even though there is no shortage of evidence to support that supply chains are becoming more resilient, there is more evidence that there is never enough time or money to do “it” right the first time. Unfortunately, there is always time and money to do it over and over again! How many times have you seen this? How many times have you had to re-engineer, modify and or revise your current process, plan and / or strategy? Read this series of short articles to see the many facets of the supply chain that you should address to get it right the first time.
About Robert Benny
Robert Benny is a recognized leader in the supply chain management field with a proven track record in integrating IT Systems with Business Processes. He is currently the Associate Director of the Supply Chain Center of Excellence in the McCombs School of Business at the University of Texas.
His previous position was Director of Supply Chain Processes at AMD where he directed the Supply Chain Transformation Program and the Global Operations Program Management Office. His team focused on institutionalizing the sales and operations planning process, improving demand planning and reducing inventories.
Prior to that, he served as Director of Systems and Business Process Integration for Freescale / Motorola’s Semiconductor Group where he drove a cost effective implementations of ERP, Advanced Planning, Logistic, Customer Relationship and Quality systems across Motorola’s global semiconductor sector.
Robert started his career at IBM where his last assignment was Director of Technology Planning & Forecasting. During his tenure at IBM he directed the reengineering of the semiconductor planning process and implemented formal S&OP and Master Scheduling Processes with teams in North America, Asia and Europe
Robert has a BS from Rensselaer Polytechnic Institute, is a Project Management Master and has a Six Sigma Green Belt. Robert has lectured at the University of Texas at Austin and Texas A&M University. He has presented papers at various SAP conferences and at Supply Chain World.
About Missan Eido
Firestorm Principal Missan Eido is a seasoned Program Manager with an extensive track record of achieving excellent results through people and teams directing Global Transformation Programs. These Programs focus on Business Architecture redesign for resiliency, Business Continuity Planning, Supply Chain Management, Inventory Optimization and Lean Manufacturing Operations.
Missan is recognized for managing successful business assessment programs aimed at identifying process vulnerabilities and managing programs designed to mitigate risk and deliver improved cost and cycle time performance. His substantive work across a myriad of systems, business processes and global organizational cultures provides him with extensive insight into how any company can best avoid the five common business failures that are typically exposed during a crisis, disruption or disaster, and threaten an organization’s resiliency and overall value to stakeholders.
Firestorm’s work with major clients, which includes crisis management support at Virginia Tech, provides Missan with excellent insights into the importance of preparedness. Leveraging experience and knowledge that spans a broad spectrum, Missan speaks to the considerations an entity employs to build disaster ready people and disaster ready businesses as a part of its overall operations, financial and reputation risk management strategy. Audiences will learn the value of Firestorm’s Predict.Plan.Perform.® process to “keep disruptions from becoming disasters.”
Working for more than two decades in a variety of regional and global management roles allowed Missan to develop a deep understanding of the challenges associated with establishing durable business processes and controls that support overall preparedness.
Missan has published articles on Semiconductor Fabrication Planning and Dispatch, Co-authored a white page on Discrete Event Simulation in supply chain planning and inventory control and has spoken on panels in business and industry forums.
He received his Bachelor’s degree from the University of Beirut Lebanon and completed graduate work at California State University Fullerton. He is a certified Quality Assurance and Production and Inventory Control Professional.
Part 1: Where to Look is a Critical Success Factor
The supply chain is made up of a sequence of highly interrelated serial and parallel dependent activities. Demand planning, capacity and supply planning, inventory management, manufacturing – both internal to your company and external manufacturers – supply procurement, logistics (including taxation from an import / export perspective), and customer service.
Supply chain complexity is magnified by the human factor consisting of all the individuals in the chain that through actions or “inactions,” induce unpredictability and impact the overall performance of the corporation.
So what is supply chain resiliency and how does it affect these activities individually and as an integrated set?
In 2004, Martin Christopher and Helen Peck published the first industry paper on “resilience” called Building the Resilient Supply Chain. They defined resilience as “the ability of a system to return to its original state or move to a new, more desirable state after being disturbed.”
From our perspective, building resiliency into the supply chain is a process that starts with a high-level assessment of supply chain vulnerabilities. From that point, the process moves through the identification of gaps and a complete Business Impact Analysis (BIA);
1. the development or modification of strategies;
2. the plans to close those gaps identified;
3. the development of a crisis communications capability;
4. the training of appropriate managers and leaders;
5. the testing and routine exercise of the plans and finally,
6. the maintenance of the plans to ensure their continued effectiveness.
Having options – a playbook so to speak – in place for each segment of the supply chain makes a great difference in preventing unexpected disruptions from causing significant negative revenue loss, while limiting the impact on the rest of the supply network.
Disruptions can occur from a variety of events be they geopolitical, economic, climate, crime, workforce impacts, and yes, the human factor as mentioned above.
Take a look at the following:
A volcano in Iceland in March 2010 caused extensive air cargo and travel disruptions throughout Europe costing the industry $200 million in daily losses. The disruption impact extended throughout the global supply chain, forcing factory delays, closures, and causing supply shortages.
The impact extended globally. In Asia, Nissan and Honda temporarily suspended the production of several car models. Samsung and LG were unable to ship 20% of the daily electronics exports.
In Africa the impact was widespread; Kenya Flower Council said 3,000 tons of flowers were destroyed and the Fresh Produce Exporters Association of Kenya called the situation “disastrous”.
In addition to the tragic human toll and the nuclear power station meltdown caused by the March 2011 Earthquake/Tsunami in Japan, the event also caused a comprehensive disruption to the Japanese economy with significant global consequences. A subsequent Japanese parliamentary investigative panel report stated that the disaster “could and should have been foreseen and prevented” and its effects “mitigated by a more effective human response”.
A strike in the Port of Los Angeles/Long Beach happens every few years particularly around labor contract negotiations. Any strike at the port of entry for about 40 percent of U.S. imports has significant repercussions domestically – with global supply chain implications – often requiring federal intervention.
Hurricanes Katrina and Sandy underscored the traumatic impact of a major weather system on local and global supply chain operations in terms of direct damage cost and subsequent disruptions.
Disruptions are not limited to major events. The disruptive impact of a series of labor related crises at Foxconn over the last couple of years underscores the risk contractors can add to a supply chain and potential damage that may be caused to all Brands associated with the supplier. Other events ranging from regional conflicts to transport disruptions could be equally devastating.
Internet disruptions – accidental or intentional – are becoming a more frequent source of increased risk for supply chain managers with significant financial consequences.
Despite the outlier nature and magnitude of some events, the events themselves are predictable, and may occur with alarming regularity. However, surprise and supply chain disruption seem to be the most common outcomes.
The impact of most event-driven crises can be foreseen and mitigated if the right questions are asked and the right data is used to predict the impact, manage the disruption and insure the best recovery outcome.
Using Firestorm’s Predict.Plan.Perform.® framework has proved to be indispensable for many in driving a structured approach to supply chain continuity by focusing the preparedness effort on specific risks, enabling effective crisis management and facilitating a significantly faster recovery.
Today’s world of “Big Data,” massive amounts of readily available information, huge data mining capabilities and ever growing business analytic capabilities, allow the design of flexible resiliency in the supply chain and should be pursued by all.
Future short articles in this series will explore individual pieces of the supply chain and how resiliency planning can help deal with these disruptions more effectively. Some questions to think about as you read future articles are:
1. Return on investment vs. Return on no investment (ROI vs. ROnI®)
2. How can changing risks, conflicts, uncertainties and trade-offs be better managed over time?
3. Can your supply chain structure react to crisis, bring stability to your organization and minimize your risk to disruptive events?
4. Where should capital be deployed across the supply chain to mitigate risk while earning an attractive return?
“What should we do now?” “What should we say?”