Forbes online edition recently ran an insightful guest column examining the state of supply risk from an underwriter's perspective. Courtesy of Linda Conrad, Director of Strategic Business Risk Management Zurich Financial Services, the article examines the evolution and emerging interest in the supply chain risk management arena over the past fifteen months. As frequent Spend Matters readers know, we read and write quite a bit about this subject ourselves. From what we've seen, this is one of the best primers bringing the topic alive through specific case examples.
Conrad begins the story noting that "between the catastrophe in Japan and the devastating floods in Thailand just eight months later, 2011 proved to be a difficult year for multinational manufacturers and their suppliers...Damage and workforce displacement left critical suppliers and subcontractors for auto-makers, technology firms and countless other industries short on parts or completely out of supply." She then refers to the example of one Japanese manufacturer that produced "60 percent of global car engine airflow sensors" which was shuttered after the disaster, "pitting competitors against one another in the fight to access scarce materials." The result of this zero sum supply chain game was that "companies with finely tuned inventories saw their cost-cutting efforts and just-in-time strategies eaten up by the financial and reputational cost of supplier disruptions."
Next, Conrad notes the case of another facility, owned by a different manufacturer that was the "sole supplier of brake parts" for a major Japanese automobile manufacturer. While this statement is hard to believe given the Japanese proclivity to develop multiple strategic suppliers as options, shifting spend to a preferred partner but keep other suppliers in reserve, it too highlights what can happen when organizations don't make the type of proactive supply risk investments they should. In this case, brake failure clearly caused one OEM's car to skid off the track, shutting down its "just-in-time supply chain" and "forcing 18 plants to close for nearly two weeks resulting in a total loss of sales on the order of $325 million."
How can a combination of the right technologies, skills and global market insight help better inform supply chain risk management decisions? We invite you to download our latest research on the topic: