Executive Memo: Supply chain volatility

Extreme Supply Chain Management

There are a number of buzz words flitting around the supply chain arena these days. We have agility, visibility, transparency and, of course, green. But, as this issue of Supply & Demand Chain Executive shows, another is making an appearance—volatility.


Whether caused by natural disasters, nuclear-plant explosions, political upheaval, international financial meltdowns and numerous other woes—including the inherent risks of simply doing business—supply chain professionals have to plan and prepare not only for the known, but the unknown.


Richard Douglass, the Worldwide Industry Director of Manufacturing and Logistics for the B2B & Commerce Industry Solutions group of IBM, says that most organizations, traditionally treated risk as something to be dealt with on a periodic basis using a contingency-plan approach, essentially as “one-off” incidents separated by periods of down time and recovery.


No longer, he writes in our feature story that begins on Page 19. “Business has entered a new era in which volatility is a systemic condition, rapid oscillation is a business constant, and recovery down time is an outmoded concept. Traditional supply chain management models broke down or, at best, bent under the strain of the unknown and the unexpected.


“As a result, the business world has realized that supply chain strategy and practice must evolve. In doing so, many companies are adopting a new style of ‘extreme supply chain management.’”


“Extreme Supply Chain Management” recognizes the need for collective, rather than sequential, risk management and facilitates collaboration on a new scale that is necessary for survival. It challenges companies to be “perpetually vigilant.”


What else is volatile? Fuel. Sure, it’s physically explosive, but it’s also volatile in price, in tax rates and in contracting. Fuel touches us all. Businesses have shut down and local governments have shaved or ended services like providing school buses, reducing police and fire personnel and more, just because they couldn’t afford the fuel.


And don’t forget the pain at the pump that we consumers deal with. Americans will spend about $700 more this year on gas than they did in 2010. In March, airline fares were up 15 percent over the previous year and Carnival Cruises announced lower earnings because of rising fuel prices, so our vacations will become more expensive.


We all complain about taxes. Well, there was a 400 percent increase from 2009 to 2010 in motor fuel excise taxes. This year there already have been 1,800 changes at the local, state and federal levels.


What to do? In a Best Practices piece on Page 17, we take a look at some of the issues—and provide solutions—to dealing with fuel volatility. Take a look.




Separately you may have noticed that we rolled out a new, improved and redesigned web site. We think it’s more user-friendly, making it easier for you to find stories, research and helpful information. You also can “like” us on our Facebook page and follow us on Twitter and LinkedIn.


Finally, I’m honored to take the reins as Editor of Supply & Demand Chain Executive, succeeding Andy Reese, whom many of you have worked with over the years. I hope to continue the fine work he did in making this magazine a great resource for supply chain professionals and I look forward to meeting and working with all of you.