Lessons in Risk Management

Even the most proficient supply chain maestros can fall victim to unforeseen global pitfalls. Advances in technology has opened markets to provide a cost-effective climate for sourcing your products, and the consequence is an increased volatility in pricing. Many political, environmental and unanticipated events will create complexities in a global pipeline and result in a loss of productivity and revenue. Learn from these scenarios in risk management to overcome the greatest challenges for your brand and bottom line.

Scenario

The West Coast Port shutdown that took place from November 2014 through 2015 could have cost the US economy nearly two billion dollars a day. The labor dispute between the Pacific Maritime Association and the International Longshore and Warehouse Union halted cargo ships at 29 ports. During this period, a myriad of products was left unattended at the harbor and distributors saw unfilled purchase orders and lost sales.

Solution

Labor disputes can snowball and disrupt any supply chain. These occurrences are outside of bottlenecks and single points of failure, which make it incredibly difficult to recover lost revenue. Products needed for repairs, distribution or consumer sales will collect dust and not fulfill customer orders.

Many companies choose to outsource manufacturing needs to countries such as China and Mexico for cost reduction. However, there is a strategic value in having a domestic manufacturer. A domestic OEM is free from trade and port disputes and more responsive to special requests outside of forecast demands.

Scenario

The earthquakes in Japan and New Zealand, floods in Thailand and the severe tornado season in the United States in 2011, resulted in the costliest year in decades for economic loss from natural disasters. The case of the Japan earthquake and tsunami saw major ports close and cost the Japanese economy several billions of dollars a day in lost trade. A Japanese car manufacturer recorded more than a 60 percent loss of production in Japanese factories directly attributed to the tsunami.

Solution

The companies that rebound from natural disasters focus less on protecting their assets and more on the ability to stay in business. Build a resilient supply chain by investing resources in understanding your sensitivities; what is critical and what is not.

Some of the best strategies a company can implement to protect itself from a disruption in the supply channel is mapping out the essential supplies for their most profitable product lines and stressing these value streams. After stressing value streams, invest adequate resources in insurance, risk engineering, and analytics to ensure their safety. Some organizations have restructured their supply chains to focus on a local agenda and move closer to their customer base.

Scenario

With material pipelines becoming more global and complex, the transportation of goods possesses more risk for value-dense products. Cargo theft accounts for nearly 25 billion dollars annually, according the World Economic Forum. Criminals find opportunities to pirate products from cell phones to razor blades. One pallet of these products could be worth hundreds of thousands of dollars.

Solution

The obligation to ensure product security and delivery are critical to every organization. Advances in technology monitor goods through every step of the pipeline aim to reduce cargo piracy, here are a few options for your products:

A Global Positioning System (GPS) transmitter can be packed into a pallet and monitored through satellite surveillance. If the contents go missing, it can be found by authorities provided the transmitter is working properly.

Nanotechnology tracking is standard in commercial products for airplanes and other high-value goods. Manufacturers use nanotechnology to encrypt paint on parts to verify origin and authenticity. Also, it allows for tracking at the component level.

Bar codes are one of the most tested methods of goods tracking. Pallets or individual products can be tagged and scanned at any access point along the shipment. Use these methods to record and track your inventory to reduce piracy.

Modeling

A good analyst knows their business from the means of production to product delivery. Modeling is a technique to practice for unexpected events and plan ways to keep your business running.

The move to value-based manufacturing instead of a cost centered model highlights the effectiveness of domestic OEMs. Piracy can be reduced by tracking products from distant suppliers.

Remember in the worst case scenarios it is not about protecting your assets as much as staying in business and fulfilling contractual obligations. Use these techniques to build a resilient supply chain that protects your product from production to delivery.

 

Sources:

https://www.scdigest.com/ASSETS/ON_TARGET/10-08-12-3.PHP?CID=3649

https://www.eurekalert.org/pub_releases/2015-09/uoc–ssc090215.php

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