Planning your business to reduce supply chain risks

Roger OakdenLogistics Planning

A threat to your business.

The overwhelming typhoon that recently struck the Philippines is another reminder that global warming is changing climate patterns, causing larger storms.

Cyclones, typhoons and hurricanes are the names given in different parts of the world for the same condition. The outcome is the same – enormous devastation over a wide area and the need for humanitarian logistics and emergency aid.

While responding to the immediate emergency is critical, there is a need for businesses in the area and those which obtain materials, components or products from areas likely to be affected by tropical storms to plan their business based on risks – what is the likelihood of a catastrophe and what are the likely consequences?

The western Pacific basin is the most active for tropical storms; the basin covers south eastern China, Hong Kong, the Philippines, Taiwan, Japan and South Korea, with SE Asian countries also potentially affected. This is the world’s manufacturing hub for many consumer products, so there is a major threat to both extended and core supply chains – supplies of materials and components, production operations and distribution of a business. And the threat from tropical storms only subsides over two months of the year.

As the risk of disruption to supplies in the basin  has a high likelihood and with an increasing severity of storms, the consequences can be severe. This level of risk requires an integrated planning regime, which I call the ‘one plan’ approach.

One plan approach

Plans have been done in businesses for ever, but all too frequently they are completed in functional silos – there is not a direct linkage from the Business Plan to the Execution Schedules. The missing link is often the Sales and Operations Plan (S&OP).

Within S&OP the term Sales includes marketing, product development and demand planning. Operations includes procurement, logistics, production and technical support; that is the functions that work to supply product or services for sale. The third essential function in the S&OP process is Finance.

As indicated, S&OP is not just for businesses that make products; the principles and process are suiable to companies that import products, contract out their operations or sell services. So S&OP is applicable for a shipping container park or a bulk materials loading terminal.

S&OP is the link between the Business plan, with an horizon of up to three years and the Master plan that covers the longest material lead time and addresses materials, capacity and distribution plans. The role of S&OP as a structured planning process, is to bring the identified demand and the available capacity into balance over the forward period of up to 18 months.

In that period lie the known or expected threats (including climate) which can be identified, the likelihood of the threat estimated and a plan established for mitigating the consequences. As the threats are company wide, the planning must also be across the business; this is difficult, but without S&OP your business will stay in reactive mode.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...