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August 20, 2012

Supply Chains: Perhaps Lean and Flexible, but are they Predictable?

Posted by Komal Jain (View Profile | View All Posts) at 7:13 AM

blog18_new.jpgOne quick look down the past 20-30 years for changes in the supply chain, and you'll see straight off that organizations have been focusing on making their supply chains more efficient by reducing inventory, implementing just-in-time ideas, consolidating vendors and leveraging technologies like RFID.  On the other hand, the very nature of business has become increasingly transcontinental and so has the supplier-manufacturing base of many large enterprises.  This is clearly bringing in a "global" dimension to the efforts that several companies are making - investing to the tune of several millions of dollars to make their supply chains lean and flexible.

Lean supply chain efficiency is an acknowledged success metric for many companies, today, as enterprises strive to consolidate efforts down to a single supplier or location.  However, what's taken a backseat, in the process, is the element of risk management for supply chains.  Look at some of these telling facts:
•  Toyota's car production, in Japan, plummeted down a staggering 62.7% in March 2011 due to a parts supply crunch following the earthquake and tsunami. 
•  Intel was compelled to lower its quarterly guidance in Dec 2011 due to a hard disk shortage triggered by floods in Thailand.

Needless to say, companies must have robust strategies to address risk to the predictability of supply chains.  Some questions that must be answered are: 
•  What are the various types of supply chain risks involved?  Are these related to a location, a key supplier, Government compliance, technology obsolesce, IP Risk and such like.
•  What is the possible impact of the risk?  Impact can be measured in terms of revenues lost, time to market, market perception, loss of market share and such like 
•  What is the typical response time to react to risk?  Can the risk be contained within a matter of hours and what exactly will it take to restore normalcy?
•  What is the action plan once the disruption is apparent or imminent?  Who are the internal or external parties that need to be involved? What is the best possible way to minimize risk impact?

Having some of these answers ready and augmenting it with a comprehensive risk governance plan will help enterprises prepare to respond to natural disasters and put together a mitigation plan before the risk disrupts their supply chain. Because tomorrow's supply chains must also be smarter. And this means, not just lean and flexible, but predictable too.


Good observations Komal. Some of the companies, with a result of these natural disasters are looking to move from a lean supply chain to more balanced supply chain.. eg looking for more vendors near to their local offices to reduce risk, bulking up inventory (at the cost of impacting their balance sheets, but by not too much).. its a catch-22, i would say with a question of 'hw much is too much' or 'how little is too little'... wud be interesting to see how it pans out.

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