Preventing Supply Chain Disruptions - Go all the way? Or just the right level?

Curious about risk management and disruptions to supply chains? There is a very interesting article posted on buyersmeetingpoint.com/blogs about this topic. The article discusses how supply chains are similar to humans—imperfect. Some are better than others. Their successes within business plans are a product of accurately forecasting how to survive crisis and reduce damage in high-risk scenarios. Balance is the key to surviving most situations. In a supply chain, the accord between supply chain efficiency and risk reduction can be difficult to achieve.

The article goes into C.S. Tang’s article, “Robust Strategies for Mitigating Supply Chain Disruptions,” found in the International Journal of Logistics Research and Applications, Tang explains the constant evaluation between supply chain efficiency and risk reduction exceptionally well. 

Would never having a supply chain disruption cost more than it is worth? The article dives into how a company needs to calculate not only the costs for safety stock, warehouse storage fees, excess purchase orders, and excess logistics fees, but also the cost of research to be completed. There is no one formula that can dictate how much risk analysis and mitigation is necessary to secure ample supply chain efficiency. It is an art form that will constantly change based on global factors like natural disasters, upcoming low cost countries’ tariffs and regulations, and war.

The article mentions the volcano that hit Iceland in 2010 caused the International Air Transport Association (IATA) to ground and cancel almost 48% of flights, an estimated loss of $1.7 billion to the global airline industry. In 2011, multiple floods hit Thailand causing computer manufacturers a shortage of hard disks and other components. A tsunami struck Japan, leaving the automotive world short of parts for the global demand of cars. The cost of having multiple suppliers in multiple sites needs to be compared to the devastation a natural disaster could cause to the supply chain and overall sales if a company chooses just one supplier in one country. 

I found it interesting how they mention at some point China, India, Indonesia, Bolivia, Brazil, and Mexico all have had their own times as the lowest labor rate for manufacturing. As more money flows into that manufacturing country, the people are able to spend more causing products and labor rates to increase.

It was thought provoking when it discusses companies needing to continuously evaluate reports on performance, efficiency, and costs at its offshore sites at a monthly or quarterly frequency to remain ahead of the competition; it needs to continue to research low cost countries to evaluate which is worth the investment. The benefit of having low labor rates must be compared to risks. Low labor rates may be desired but the likelihood of sacrificing skill and experience needs to be acknowledged. In every risk mitigation decision there needs to be a proper balance produced from thorough analysis and consideration. In addition to the direct disadvantages of manufacturing in low cost countries, the current or future risk of warfare should always be considered in any choice of manufacturing location decision. 

The article summarizes the overall goal of most supply chain departments. I found it very thought provoking and exciting. Is reducing the risk of disruption to the supply chain worth the cost? Read and find out.

-picture attributed to logisticstoday.com