Nearly every major retailer, manufacturer and distributor has learned the value of comprehensive long-term supply chain planning. Whether they are looking at a two-, three- or five-year horizon, most executives can tell you what they expect their supply chains to look like in the future. They have top-level financial goals, as well as detailed plans for constructing new facilities, broadening their distribution networks, partnering with new suppliers, launching innovative products and other key supply chain activities.
But what happens when these carefully constructed plans go awry? Is the average company equipped to succeed in the face of a severe supply chain disruption such as a hurricane, work stoppage or transportation shutdown? What about the dramatic demand falloff caused by a product recall or a game-changing competitor innovation?
While many businesses have a firm grasp on their overall planning processand have a clear direction for the long termfew companies are adequately prepared for the short-term contingencies that can devastate even the most robust supply chain organization.
Continuous supply chain design is a new concept that is emerging to help companies succeed in the face of the unexpected. It creates an ongoing, flexible capability to design the supply chain around both long-term goals and short-term realities.
When the unthinkable happens
Just as every business has a unique supply chain, every company will have a specific set of what-if contingencies that have the potential to disrupt operations. But some threats are universal, including:
Natural disasters, which have the ability to physically devastate any part of the supply and distribution network
Product recalls, which can destroy consumer confidence and slash demand not only for the affected manufacturer, but for every manufacturer and retailer in the category
Transportation roadblocks, such as the 2002 West
Coast port closures that brought thousands of U.S. businesses to a standstill
Customer bankruptcies, such as the recent Circuit
City closure that dramatically affected many consumer electronics manufacturers
Terrorist attacks and political unrest, which can impact both supply and distribution facilities, as well as national transportation systems
Dramatic changes in currency exchange rates, which can mean the difference between profit and loss
Even a development that seems positivesuch as a wildly successful new product introductionhas the potential to turn the supply chain upside down if an organization has not prepared for it.
Is it really possible to prepare for these kinds of contingencies and ensure that the supply chain maintains a high level of performance? Thanks to increasingly sophisticated technologies and associated processes, the answer is an unqualified yes.
A truly catastrophic event will certainly bring short-term disruptions, even for well-prepared companies. But, as demonstrated by some supply chain leaders, effective upfront planning can minimize these disruptions, and quickly bring the entire organization back on track. (See Masters of Contingency Planning, page 3.)
Hope for the best...
The first step is one that your business has most likely undertaken already: preparing a well-detailed supply chain plan that defines your organizations future direction. Assuming all goes as expected, what will your supply chain look like in two, three or five years?
Your supply chain design should define the future scope of your facilities and the shape of your distribution network, as well as include detailed plans focused on sourcing, inventory, new products and staffing levels. Of course, this supply chain design will be based on your organizations projections about overall and regional demand levels, growth projections for specific customers and the likely actions of your primary competitors.
As the earth has flattenedand both offshore sourcing and international customers have become more prevalentthe supply chain design process has become much more complex. Are you allowing enough lead time to ship products from around the world? Is product inventory optimized to match demand and distribution in every local market?
With so many suppliers and customers to consider, often spread across the globe, designing a supply chain plan to support your organizations long-term vision under a best-case scenario can be a daunting task.
...but prepare for the worst
Even more intimidating for most companies is looking past the best-case scenario and designing a flexible, responsive supply chain that can weather any number of contingencies. With so many possible threatsranging from random storms to carefully planned acts of terrorismhow can the typical company expect to consider, and plan for, every possible disaster?
The answer lies in a companys basic philosophy of supply chain design. Instead of viewing design as a onetime event, or an annual planning exercise, todays planning leaders are taking a continuous approach to supply chain design. In a volatile business world, it is becoming imperative to designand redesignthe supply chain on an ongoing basis to reflect the newest dangers and the emerging opportunities.
Companies should use their long-term supply chain plan as a starting point, then begin to ask themselves what they would do if various contingencies occur. They need to consider the impact of a number of threats on various critical components of the supply chain, including:
Sourcing plans, which can be disrupted by extreme weather, political unrest and other events across the global supply chain. Even changes in currency rates can suddenly make an entire group of suppliers unprofitable. In todays fast-changing world, companies need to take an ongoing look at their network of suppliers, modeling the effects of any disruptions on the overall sourcing plan.
Inventory levels, which need to be continuously optimized against long-term business objectives, changing market conditions and supply constraintsas well as emergencies like customer bankruptcies. In the event of such contingencies, businesses will need to define which inventories to carry, where, in what form and quantity across the entire procurement, manufacturing and distribution network.
The transportation network, which may need to be reconfigured due to port closures, natural disasters or even rapidly escalating fuel costs. When the optimal transportation plan becomes impossible, businesses can consider the use of cross-docks, compare the advantages of various transport modes, and assess flexible strategies such as merge-in-transit, co-mingling, and multi-drop direct shipments.
Of course, as the typical supply chain becomes broader and more global, the complexity of the continuous design process will only increase. With suppliers and customers spanning the world, there is a long list of contingencies that may disrupt the supply chain, and the effects of each one must be considered and prepared for.
Making continuous design a reality
Fortunately, the supply chain management industry has responded to this high degree of complexity with a new generation of technologies and associated processes that support continuous supply chain planning.
Today, it is easier than ever for businesses to make intelligent decisions at every stage of the supply chain, from raw materials procurement to finished goods distributionand then reexamine these decisions as the business situation changes. Powerful new modeling tools provide a dynamic look across the entire supply chain, enabling an ongoing assessment of raw materials sources, factories and factory processes, distribution centers, seasonal demand variations, transportation links, outsourcing, inventory and related costs, and constraints.
Innovative technology solutions can serve as a central repository of data about the current and potential performance of the supply chain. Organizations can create dynamic supply chain models that allow them to consider a wide range of variables and contingencies, as well as create strategic responses to these what-if scenarios.
From the terrorist attacks of September 11, 2001, to the catastrophic devastation caused by Hurricane Katrina, recent events have changed the face of modern businessaffecting every facet of our organizations. While many of us view our international supply chains as strong and robust, in reality they are fragile and easily disrupted when the unexpected occurs.
There is no longer a question that companies have to prepare for contingencies within their businesses; todays volatile world has made such preparation an absolute necessity. The only question that remains is, Can we do it?
With the advent of sophisticated modeling and simulation tools, and the innovative processes that support them, every business can embrace continuous supply chain design with a high degree of confidenceand face its worst-case fears head on.
Masters of Contingency Planning
No company wants to find itself dealing with a disaster. But these businesses have earned admiration for the way in which they conquered unexpected obstaclesand delivered consistent long-term performance, even when faced with incredible short-term trials.
In March 2000, telecommunications leader Nokia found its supply chain in chaos when a supplier facility in Albuquerque, NM, was struck by lightning. Nokia responded quickly by partnering with the supplier to find other facilities that could manufacture radio frequency chips (RFCs)the critical component that was made at the New Mexico plant. Nokia also rapidly re-engineered these RFCs, so that they could be quickly and easily produced by the companys other worldwide suppliers. Even faced with this supply chain disaster, Nokia maintained its production goals and increased its market share from 27 percent to 30 percent (Value Opportunity Three: Improving the Ability to Fulfill Demand, Business Week, 2003).
By the time Hurricane Katrina struck the U.S. Gulf Coast on August 29, 2005, computer giant Dell was readythanks to its system of Dell Enterprise Command Centers (ECCs), created specifically to manage such emergencies. As Katrina approached, crisis experts at the Dell ECC in Round Rock, Texas, were able to quickly dispatch rapid-response teams, proactively shift resources and manage ongoing customer support. First on Dells agenda? Ensuring that the U.S. Coast Guard, hospitals, police and fire departments, and other emergency responders would be able to continuously access their critical systems. (Nothing Basic About Next-Generation Enterprise Support, Dell Power Solutions, http://www.dell.com/ downloads/global/services/powersolutions_article.pdf ).
Consumer products leader Procter & Gamble was able to quickly resume its high level of supply chain performance following Hurricane Katrinaeven though the storm wiped out the companys entire production facility for Folgers coffee. Thanks to a highly detailed and continuous disaster planning processwhich included secondary sourcing plans for fresh water and other critical suppliesthe companys coffee production was at 85 percent of capacity by September 23. By November, Folgers production was back to its normal levels. (Supply chain execs share disaster-planning techniques, NetworkWorld, June 5, 2006).