Disaster-proofing the Supply Chain

Using supply chain solutions to prepare for the next "Big One"


Blake Johnson, a consulting professor of management science and engineering at Stanford University, compares running a supply chain to driving a car with a dirty windshield. If the driver can peer only through one clean spot on the windshield and see only what is directly in front of the car, the driver's assumption is that everything will go according to plan and nothing will move into the car's path from either side to disrupt its forward motion. As anyone who has driven in rush hour traffic or had a supplier go bankrupt or missed a delivery date can attest, disruptions happen. "We need to clean that windshield and understand that there are a lot of different outcomes that can occur," says Johnson, who has done considerable research into the quantification and management of risk and flexibility for industrial companies.

In the supply chain context, Johnson continues, cleaning the windshield means identifying the sources of uncertainty in the supply chain, as well as the magnitude and timing of the uncertainty, and then incorporating this information into the supply chain decision-making process. Suddenly options that might otherwise appear irrational start making good financial sense. For example, rather than sourcing all of a particular mission-critical component from low-cost, long lead-time suppliers in Asia, a company might employ a supplier diversification strategy that calls for procuring some percentage of the component from a higher-cost, but shorter lead-time — and more secure and readily accessible — near-shore or onshore supplier less subject to potential disruptions. "In part, that's classic good sourcing practices," Johnson says. "But there are dimensions around risk that people can develop further to understand their exposure to different kinds of events."

Dana Mathes believes that another key success factor for disaster-proofing the supply chain is turning sustainability or resilience into part of an ongoing process within the enterprise. "At Dow, we included our supply chain sustainability goals in our overall corporate goals, so they're very visible, and they're going to be reviewed every quarter for the next ten years, so they'll stay visible. We also assign a champion to each of those supply chain goals, so it's very clear that there is accountability for meeting the goals." Mathes emphasizes that education is critical to ensure the ongoing success of a supply chain sustainability initiative, particularly education directed at internal constituencies. "We have always had quite a strong safety culture, and we understand the importance of doing everything possible to prevent accidents," he says. "What's new since 9/11 is the security threat. Because that's something that's outside of most of our experiences, it is important for us to help everybody understand how the security issues are different from our historical safety issues. And it's important to help people see how sustainability integrates with their business agenda, that it's not only about reducing risk but also about looking for ways to enhance the profitability of the company. It isn't just a cost. It really can be part of the business agenda."

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