Readiness for future disruptions to your supply chains

Roger OakdenLogistics Management, Procurement, Supply Chains & Supply NetworksLeave a Comment

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Not ready this time

The July 2020 edition of National Geographic asked the question “Why Weren’t We Ready for This Virus?”; because it should not have come as a surprise.

The magazine article noted that in the mid-1980s a scenario was described at a conference to illustrate the potential effects around the world of a new virus. In 1990, the term ‘emerging viruses’ was used by a group of virologists to explain the conditions which assist unknown microbes to be released into the atmosphere:

  • climate change,
  • urbanisation of populations,
  • proximity of humans to farm and forest animals that could be hosts to a virus,
  • globalised economy with ease of international travel and the
  • increasing movement of refugees due to famine and war

Unfortunately, the scientists assumed that the next pandemic would be ‘flu like’, so few science journalists nor the general media took notice of the warning. Since then, books and articles on the topic have been published and all described the same scenarios, the same unpreparedness and the same ‘war games’ to attack the disruption in our lives. When a new virus appeared, such as SARS, MERS and EBOLA, it was not in industrialised countries; so life continued there with a few inconveniences – until COVID-19 appeared.

Like many other people in supply chains, Learn About Logistics did not make themselves sufficiently aware of the pandemic threat. But this is not a reason to ignore the threat of future disruptions. Supply chains must be recognised as more than ‘managing the movement and storage of materials’. Yes, improving the effectiveness and efficiency of daily movements and storage are important. But what is happening, or likely to happen, outside of your port, warehouse, truck, ship and aircraft, is of equal importance.

The National Geographic article re-enforces the view that Logisticians must be aware of and identify future scenarios that could influence the operations of supply chains (more than what are called ‘trends’). Then understand how the scenarios might affect the industry, supply chains and employer and what may be done to counteract the effects. This is Risk Management.

Risk and change due to disruptions

The five factors listed above that influence the risk of a future pandemic remain, so the question is not if there will be another pandemic, but when. The only known date is the increasing (exponential?) effects of climate change after 2030. Besides the physical effects, which have been widely published, the influence of climate change on the likelihood of a pandemic occurring is not known.

If the likelihood of a pandemic is high, but the timing is unknown, yet the consequences can be extreme, your business and supply chains need to be (ideally) flexible, adaptable and resilient. In past eras, the emphasis for supply chains (and their operational disciplines) has been on reducing costs and increasing speed. From now on, the emphasis is more likely to be on the capability of responding to customer needs, in the face of disruptions.

Will this require a move from a globalised Just-In-Time (JIT) or ‘lean’ system to a Just-in-Case (JIC) system? While ‘lean’ principles should remain the objective inside each business, the flow between nodes of a supply network will have a higher likelihood to be planned for JIC.

At ‘make to stock’ businesses, this may require additional safety stock of inbound materials and finished goods, held at more locations. For ‘make to order’ and ‘assemble to order’ businesses, it could be a greater reliance on multiple SME suppliers that are both adaptable and accessible. But in those countries that have become predominately services economies, can this objective be achieved?

Global and ‘lean’ supply chains have been structured with manufacturing often performed through a network of outsourced suppliers. This has moved the costs and risks of production to (typically) smaller businesses, often in developing countries.

These global supply chains have made finished goods availability and inventory more vulnerable to disruptions, both natural and government induced through restrictions on global trade. While your tier 1 suppliers are able to deliver goods to warehouse or other locations as required, the tier 2 suppliers could be reluctant and tier 3 and 4 suppliers even more so. As experienced in the pandemic, this increases the risks of non-delivery and shortages.

Brand name companies are now likely to be more of ‘design and marketing’ businesses. Will this business model have to change with the likelihood of increased supply chain risks?

How quickly can an organisation change? Video conferencing existed 30 years ago, but executives kept flying to meetings. Similarly, remote learning, tele-health and on-line shopping have existed for some time, but with varying rates of acceptance and up-take.

Only when a critical situation forces acceptance of what is unfamiliar will selection and adoption quicken and that situation is now; if senior executives grasp the opportunity. The speed of decisions will be helped by the availability and cost of digital and other technologies, which Logistics will increasingly need to use:

  • Where there is physical activity and a need to fulfil government regulations for social distancing and safety in the workplace
  • For the ‘backroom’ clerical processes that are more likely to be done from remote locations (which include offshore), as ‘cloud-based’ email, messaging, file-sharing and video-conferencing are readily available
  • In knowledge work of Logistics analysis, planning and scheduling, which are more project focused and therefore best done in small interactive groups within the business

However, the brake on success for the integration of information technology in logistics operations is that for many businesses, real-time access to critical information concerning supply chain processes and inventory continues to be a challenge.

This blogpost has posed a number of questions for Logisticians as they think about the future of supply chains. The approach and solutions to the challenges are not new (although some commentators will give them new names). In the next few blogposts, ideas for addressing the challenges will be discussed.

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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...

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