To mark European Supply Chain Day and the publication of the new book, Supply Chain Risk, Logistics Briefing undertook an interview with its author, John Manners-Bell to find out more about threats to the logistics industry.
LB. Over the past few years we’ve seen tsunamis, earthquakes, floods, piracy and terrorism. Would you agree that these days there seem to be many more risks to supply chain risks?
JMB. It’s not necessarily that there have been many more events, it’s the supply chains themselves which have changed. Manufacturers and retailers have dramatically reduced the amount of inventory which they hold in their supply chains. Although this makes good commercial sense in one way, it means there is less margin of error. If you are expecting a delivery on a just in time basis and it doesn’t arrive, then your production line is more likely to go down or there could be a stock out on your shelves.
LB. Does this mean that shippers’ attitudes to supply chain risk are changing?
JMB. Absolutely. Many companies are now starting to cost in the threat of disruption. No longer is it a straight trade off between inventory costs on one side and transport and labour costs on the other. Supply chain managers realise that they have to try and identify the costs to the overall organisation if their operations are disrupted. However, it’s a difficult job planning in financial terms for something that may never happen – and far more difficult to get the Board to spend money on a hypothetical scenario. But here’s the thing. Companies which were hit hard by the Thai floods or the Japanese tsunami understand that business as usual is no longer a viable strategy. They have to be ready for the next major event, whether that’s a natural or manmade disaster.
LB. But how can a supply chain manager plan for a specific event?
JMB. Its not about preparing your supply chain for a known threat, it’s about making it resilient against all risks – what’s called risk-agnostic. This requires a great deal of scenario planning; putting processes in place, implementing the technology to sense and respond to events as they happen. It has to go to the very core of a company’s supply chain strategy. In fact supply chain visibility is fundamental to an agile response.
LB. Can you give me an example?
JMB. Well, there is a well-documented example in the automotive sector that, following the Japanese tsunami, the supply of a specific black pigment was affected. It seems there was only one supplier of this pigment and hence production of a number of makes and models of cars in Europe and the US was disrupted. If the vehicle manufacturers had had a better view of their suppliers below the Tier 1 then they could have taken steps to diversify supply and mitigate the risk. High tech companies such as Cisco have now become much more proficient at identifying components which may be at risk from disruption, and implementing a multi-source strategy.
LB. In the past you’ve written about how logistics networks are particularly at risk. Can you elaborate?
JMB. We live in a world of inter-related networks, and there is still very little understanding of how they interact. This is a real worry, not just for transport networks, as IT, communications, financial, energy and even society is affected. Let me give you an example. Following the bombing a few years ago on the London Underground and Buses, many commuters in the affected area immediately switched on their mobile phones and made calls. This had the effect of overloading communications networks; likewise websites crashed as people tried to find out what was going on. As commuters tried to get out of London, rail stations were overloaded, bus services couldn’t cope and the chaos spread out onto the M25 which became grid-locked. Hence a very localised event at two points in London brought down the entire region’s transportation.
LB. Is risk all about these major catastrophes you’ve been highlighting?
JMB. No not at all. Although these are the ones which get the headlines, supply chain managers have to worry about low level risk every day of their working lives. This can include dealing with cargo crime, corruption and strikes. However the principle is the same. If supply chains are lean, then any sort of disruption can have far-reaching consequences to production or customer service.
LB. Isn’t climate change affecting the level of supply chain risk?
JMB. Yes. Many are people are worried about the impact of climate change and its impact on the weather. For example, in the US a large amount of roads and railways are routed along the coast. Increased storm activity and even rising sea levels could result in more damage to infrastructure. In fact you don’t have to go to the US to see the impact of storms; of course the rail link to Cornwall in the UK was cut off at Dawlish when sea washed away the foundations of the track.
LB. Is there anything else that we should be aware of?
JMB. Modern supply chains reach deep into many emerging markets where social and environmental practices are less sophisticated and under much less scrutiny than in the developed world. Multinational enterprises are starting to realise that there is a huge reputational risk to their companies if they are not seen to be treating their employees, or more often their suppliers’ employees, in a fair and equitable fashion. Likewise they understand that their suppliers must behave in a sustainable way to the environment, otherwise the implications of bad press will rebound on their brand. Consequently we mustn’t just think of supply chain risk in terms of the disruption to the flow of products; there are much wider issues and costs at stake.
LB. Thank you for sharing your insight with our readers.
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