Disaster Looms: Why Today's Global Supply Chains Are At Risk

Apr 1 2014, 5:02pm CDT | by

The recent occurrence of faulty ignition switches in General Motors cars should serve as a wakeup call to companies that lack good visibility into their global supply chains. But most have failed to implement adequate supply-chain risk-management programs that could head off such problems.

That’s the view of Yves Leclerc, managing director with business consultancy West Monroe Partners. Despite a raft of natural disasters and quality failures over the years, he said, many companies have yet to step up to the requirements of an effective risk-management effort.

You might think that 13 deaths and the the recall of 6.1 million cars since February would have top manufacturing executives scurrying to adopt controls that would prevent such nightmares from occurring in their own organizations. And maybe they are. But neither the 2013 floods in Thailand nor the 2011 earthquake, tsunami and nuclear disaster in Japan has resulted in sweeping risk-management measures, Leclerc said. The business world, it would seem, has a short memory.

Many companies remain fixated on boosting shareholder value in the short term. It can be tough to sell top executives on the value of expensive programs that could shield them from disruptions caused by disasters, natural or otherwise. What is the value of a non-event?

Leclerc was disheartened to hear one of his clients brush off the necessity of a plan for coping with lost or delayed containers, even during the critical peak-shipping season. “His reaction was, ‘If I’m in trouble, all my competitors will be, too. It’s no big deal.’”

Even the most innovative companies are vulnerable. Leclerc cites the allegedly defective gas pedals that forced Toyota into a $1.2-billion settlement with the U.S. Justice Department, with recalls numbering in the millions. Toyota is considered to be one of the pioneers of assembly-line quality and efficiency. Yet it found itself facing accusations of criminal mismanagement.

If multi-billion-dollar enterprises like GM and Toyota can’t avoid costly lawsuits due to quality glitches or poor management, how can smaller companies weather their own supply-chain disasters? On top of that, revelations of poor working conditions in overseas factories can have a serious impact on global brands. Regardless of the issue, it all comes down to a lack of visibility, coupled with inadequate response plans when the inevitable problems occur.

The new emphasis on sustainability and safety only exacerbates the challenge. A recent report from the Supplier Ethical Data Exchange (Sedex) found inadequate controls and a lack of compliance with both local and international law among companies doing business in Mexico, Brazil, Colombia and Peru. Management in those countries is failing to meet rules on the environment, health and safety and working hours, Sedex said. The state of affairs extends beyond Latin America — witness the deadly factory fires that occurred in Bangladesh over the past three years.

Leclerc believes companies need to take a multi-pronged approach to risk management. He cited the concept of the “Triple-A Supply Chain,” a term coined in 2004 by Stanford University professor Hau L. Lee. The idea of supply chains being “agile, adaptable and aligned” can apply just as much to the discipline of risk management, he said. The quality of “alignment” is especially relevant to the conversation about risk: it acknowledges the fact that good supply-chain management ranges far beyond the walls of an individual company, to embrace multiple tiers of suppliers upstream, and service partners and customers downstream.

A workable action plan, said Leclerc, must be executed at the strategic, tactical and operational levels. From a strategic perspective, companies need to map their global supply networks. In the process, they gain knowledge of the impact that a disruption will have on operations. Tactically, they should look to the end-customer to achieve a full understanding of demand, and how a fall or rise in supply will impact service. Operationally, they should be zeroing in on execution-based tasks like warehousing and transportation. Functions related to “basic blocking and tackling” shouldn’t be overlooked as important means of alleviating global risk, Leclerc said.

In all cases, companies must ensure continuity of supply, should current feeds be interrupted. Many seek to cut costs and boost purchasing power by reducing suppliers to a bare minimum. While that strategy can result in a leaner supply chain, it shouldn’t rule out the use of alternative vendors that can be called on in a emergency.

Good risk management is both a technology and business-process effort, Leclerc said. Companies have spent untold amounts of money on enterprise resource planning (ERP) systems to manage financials and other basic functions, but they’re less advanced in acquiring systems that enable end-to-end visibility and collaboration among all supply-chain partners. At the same time, they need to tear down the functional “silos” that keep various disciplines from communicating key information on raw materials, goods in production and inventory throughout the chain.

Source: Forbes Auto

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Your Parent Or Kid Moved In: Are You Covered?
A record 57 million Americans now live in multigenerational family households — double the number in 1980, according to a new Pew Research Center study. And I bet many of them have the wrong homeowner’s or renters...
 
 
Pandora Looks to Challenge Terrestrial Radio's Dominance in Cars
Pandora Media is one of the largest Internet radio providers in the U.S. with more than 75 million active users. While the company’s active user count has increased at a robust pace historically, it is likely to slow...
 
 
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
Are General Manager Salaries About To Skyrocket? Will There Be A Front Office Salary Cap?
It’s January 2026. New York Yankees owner Hal Steinbrenner gets out of his driverless car and triumphantly marches before the gathered press to introduce his prized new free agent. It’s a record-breaking contract—over...
 
 
Volkswagen AG New Coverage: Trefis Price Estimate at $51
Volkswagen AG is the second largest automaker in the world behind Toyota and slightly ahead of GM, selling 9.72 million vehicles globally in 2013. Established in 1937, Volkswagen AG, along with its 340 subsidiary...
 
 
 

Latest from the Network

JWoww wants to adopt
JWoww is thinking about adopting a child. The former 'Jersey Shore' star, real name Jenni Farley, only gave birth to her first baby, Meilani, on July 13 but she and fiancé Roger Matthews are already considering adoption...
Read more on Celebrity Balla
 
Kiefer Sutherland's London tour guide
Emily Berrington acted as Kiefer Sutherland's London tour guide. Whilst filming '24: Live Another Day' in London, Emily managed to squeeze in some sight-seeing with the show's lead actor, Kiefer Sutherland. The blonde...
Read more on Celebrity Balla
 
Ancient wine cup unearthed in Greece
Athens, July 31 (IANS) A team of Greek archaeologists have unearthed an ancient wine cup that dates back to the fifth century B.C. The team said that the cup was found Wednesday in a grave which was unearthed in...
Read more on Apple Balla
 
'Ebola could be a threat to Britain'
London, July 31 (IANS) The fatal Ebola virus, which has killed hundreds of people since February, could be a threat to Britain, Foreign Secretary Philip Hammond said. The disease has killed more than 600 people in...
Read more on Business Balla
 
Three Israeli soldiers killed in Gaza
Gaza, July 31 (IANS) At least three Israeli soldiers were killed in the Gaza Strip, an Israel Defence Forces (IDF) spokesperson said. "Three IDF soldiers were killed Wednesday night in combat while uncovering an...
Read more on Politics Balla
 
Chris Pratt starved himself for film role
Chris Pratt starved himself for 'Guardians of the Galaxy'. The 35-year-old actor stars as Peter Quill aka Star Lord in the upcoming adventure sci-fi and he's confessed he had to put a lot of hard work into making sure...
Read more on Movie Balla
 
China to punish those growing or selling GM crops
Beijing, July 31 (IANS) In a move to prevent illegal sales and growing of genetically modified (GM) crops, which are prohibited in the country, Chinese authorities have vowed zero tolerance and harsh punishment against...
Read more on Apple Balla
 
NASA to reveal Mars 2020 rover instruments
Washington, July 31 (IANS) The US space agency is set to announce Thursday the instruments that will be carried aboard the agency's Mars 2020 mission rover. The announcement will take place at NASA headquarters in...
Read more on Apple Balla
 
US woman sues Facebook over 'revenge porn' images
New York, July 31 (IANS) A woman in the US has filed a $123 million case against social networking site Facebook for not deleting "revenge porn" images uploaded by her old friend. According to the lawsuit, Facebook...
Read more on Politics Balla