Against the backdrop of a world beset by natural catastrophes, are corporations taking the right approach to ‘Black Swan’ events? This was the question posed by Ti’s Chief Executive, John Manners-Bell, at the recent IMHX conference in Birmingham, UK.
Manners-Bell warned that over the past thirty years, advances in supply chain practice had ironically created levels of systemic vulnerability which had placed corporations at severe risk from natural and man-made disasters.
Lean inventory, centralised distribution, just in time delivery, layers of manufacturing complexity and remote production in developing countries have left supply chains highly exposed to external threats.
“Supply chain managers have been very effective at driving down the risks and costs associated with holding unnecessary inventory; corporations have become much more agile and able to deal with demand shocks. At the same time, though, they have left their supply chains exposed to external risks; a situation exacerbated by the growing frequency of natural disasters,” said Manners-Bell.
High tech companies, with highly out-sourced production strategies and globalised supply chains, are amongst the most vulnerable. Layers of complexity, with five or more tiers of suppliers, mean that manufacturers may have little understanding of the consequences of a disruption to its up-stream supplier base.
Manners-Bell commented that just because ‘Black Swan’ events could not be predicted, did not mean supply chain managers could not prepare. “You cannot look at past events to predict future challenges,” he said. “Who would have anticipated a volcanic eruption in Iceland could shut down European airspace? But you can address vulnerability. I believe that the mantra of the future for supply chain will become resilience, not lean.”
To illustrate this, he described how high tech manufacturer, Cisco, had undergone a major transformation from its reactive risk management strategy of 10 years ago to one in which resilience is engineered into its business processes. Its successful response to the Japanese tsunami underlined this. As well as a special monitoring team which alerted senior management to the disaster within minutes, a full assessment of the impact on Cisco’s supplier network was undertaken within a few days to assess the status of 300 of its suppliers and put in place mitigation plans. Consequently, Cisco claimed that the “largest supply chain disruption in modern times” had virtually no revenue impact on the company.
To download a copy of John Manners-Bell full presentation, click here.