Supply Chain Risk Management Lessons From the Japan Earthquakes

Japan earthquakes destina/Adobe Stock

The earthquakes and aftershocks that have hit Japan in recent weeks have caused significant supply chain disruptions. While companies cannot completely predict natural disasters, they can and must position themselves to be able to respond when one occurs, risk management experts say. A key part of setting up a strong risk management program is having access to information that provides a high level of visibility over what is happening in your supply chain.

Bill DeMartino, general manager of North America at riskmethods, which provides risk management solutions that allows organizations to monitor and assess risks in the supply chain, said companies are increasingly demanding more information on how disruptive events could impact the business.

“It’s not just about identifying the risk, but having the visibility to understand what the risk exposure is and how it can impact the company’s bottom line,” DeMartino said.

A number of companies have halted production in Japan and elsewhere following the quakes as they try to determine the impact to business. Shortening this downtime is crucial for companies competing at a global level. But since supply chains stretch over various countries and continents, companies still struggle to understand the full impact of a disruptive event — at least in a timely manner. Take GM, for instance, which just recently announced it would shut down its North American plants for two weeks while it took time to assess the impact of the Japan quakes.

This where having access to real-time information on what is happening with your supply chain is key. Ideally, companies should have a system in place that not only alerts them when an event takes place but provides information on how that event has specifically impacted their supply chain, according to Rob Cheng, head of growth at Elementum, a software company offering supply chain management applications that provide real-time insight and analysis of potential disruptions. Having this visibility allows companies to do “triaging” of their supply chain, determining which suppliers were most impacted or which manufacturing sites suffered the most damage in order to focus their recovering efforts, he said.

The Competitive Advantage

Major events like the Japan earthquakes may be rare, but supply chain disruptions take place all the time, and organizations need to continue to plan for them. These events also cannot be predicted, and companies need to determine how to best position themselves to be able to react faster than their competitors to such an event, Cheng said. Business continuity can be a major competitive advantage in scenarios like this. And companies must determine all the ways supply chain disruptions can threaten business continuity, he said.

DeMartino of riskmethods believes we are “entering a new era of action,” when it comes to companies tackling risk management. We may still be in the early stages of adoption, but the demand for risk management solutions and strategies is no doubt increasing. Much of this growth can be attributed to competition — as companies see their competitors improving risk management efforts, they too will take action, he said.

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