Disruptions in the Global Supply Chain

By failing to prepare for the unexpected, businesses risk everything from interruption to ruin


It’s said that the only things we can be sure of are death and taxes. But there is a third: uncertainty.

Whether natural disasters like the earthquake and tsunami that ravaged Japan, or the political upheaval that has the Middle East in turmoil, we just don’t know what’s going to happen or when, but somehow we have to plan for it. After all, those events affect the entire supply chain from raw product to delivery.

“One thing that weighs heavily on the supply chain is uncertainty,” says Paul Martyn, vice president of BravoSolution in Chicago. “Look at the Middle East and the supply of oil. There’s a lot of concern over the volatility in the oil markets. There was a 20 percent price rise in a short time.”

Unfortunately, planning for uncertainty is easier said than done. In fact, it’s not done enough, says Jeff Karrenbauer, president of INSIGHT, Inc. in Manassas, Va.

“Firms have a tendency to put off contingency planning until the next crisis hits,” he says. “Well, guess what? They need wait no longer. The future is now. The typical reaction of management is to ask the staff to prepare some spreadsheets and perhaps monitor some KPIs (key performance indicators) in a business intelligence (BI) system. Wrong on both counts. There is not a spreadsheet in existence that can handle the complex interrelationships inherent in global supply chains, and BI systems are chock full of simplistic ratios and performance ranges that are useless when it comes to professional contingency planning. Serious prescriptive analytics are worlds removed from descriptive tools.”

But, does anyone plan? “Some do, most don’t,” says Johan Selle, a director at iJet, an Annapolis, Md.-based provider of risk management solutions and crisis response services. “Cisco, for example, has some really robust procedures. They very swiftly made the right decisions. Procter & Gamble, when they shut down in Egypt, were ready to move elsewhere. Sometimes a company needs to put a plan in place on risk assessment. Not everybody had plans for Egypt, but they had done it for earthquakes and other natural disasters. This is just one more piece they need to consider.”

Middle East Muddle

Oil seemingly was the first concern of most people when the Egyptian uprising began. Bahrain and Libya followed suit. Thoughts immediately turned to the Suez Canal.

According to a report from Drewry Supply Chain Advisors, European container imports from Asia are particularly reliant on the Suez Canal, with as many as 14.2 million TEUs (twenty-foot equivalent units) being carried through the Suez.

What would happen if Suez passage was cut off?

“That’s even more nuanced than the press covered,” says Gene Tanski, CEO of Demand Foresight, the provider of demand forecasting software headquartered in Golden, Colo. “It doesn’t preclude availability. They could go around Africa. It would be a six- or seven-day trip. They’d take a one-time hit and it would have driven up the shipping rate. If they’d gone around Africa, the trip would be riskier and prices would have gone up.”

The Suez Canal remains open, but, says iJet’s Selle, there’s a definite ripple effect.

“One of the things I saw in Egypt was the interconnectivity of things,” he says. “For example, they instituted curfews. Fair enough. But people weren’t getting to the worksite as early as they normally do. Instead of 7 a.m., it’s 8 or 9. And to be off the streets by a 3 p.m. curfew, they have to leave work at 2. The curfew threw a curveball.

“Now,” he adds, “they’re looking at closures. Again, it’s the ripple effect. Gas stations close down. Workers can’t get to the refinery or distribution center. Now the distribution is affected. Trucks can’t run because they didn’t get gas.”

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