Have we Learned any Supply Risk Lessons From Eyjafjallajokull?

As Peter Smith and others have pointed out recently, the giant ash cloud that grounded much of the air traffic in Europe for over a week called out a form of supply risk that few of us planned for. Granted, we might find it difficult to get budget for contingency planning efforts involving rogue volcanoes that happen to spit out random ash clouds every couple hundred years. But it has raised awareness among some organizations I spoke with both at ISM and in other recent calls that supply risk extends beyond monitoring supplier financial viability. Bob Ferrari recently summed up some of the logistics, airfreight implications and events from this one natural event.

In a recent post, Bob cites the FT, noting, "some European automobile assembly lines may suspend production due to a lack of key electronic components. BMW and Nissan [planned to suspend parts of] European production [during the air halt] because of disruption of electronic components." Of course other examples abound. I live in an apartment building with the top executive from a large fruit global sourcing and trading operation, who told met that her operations were drastically impacted by the volcanic cloud.

What are some of the broader takeaways we should keep in mind from Eyjafjallajokull? For one, many industries that we didn't think were dependent on airfreight (e.g., automotive) still use it to expedite shipments when necessary. I suppose these organizations have done a calculation suggesting that carrying extra inventory is more costly than having to expedite shipments of key components. Indeed, from talking with numerous procurement executives in recent years, I've learned that the unnecessary use of airfreight when alternatives (such as holding inventory) exist, is a green supply chain nightmare they don't want getting out. But beyond the hidden direct costs, risks and exposures that a just-in-time environment even slightly dependent on high-carbon airfreight usage can bring, the ash cloud highlights, as a few people have pointed out to me, the importance of considering "black swan" events within the supply chain.

Jason Busch

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