Iceland, Supply Chains and Transportation Preparedness

Spend Matters is pleased to continue this ongoing series of posts with partner NPI Financial on a range of topical procurement and spend management/supply chain issues.

Disasters, both natural and manmade, have dominated the headlines since the beginning of 2010. Most recently, the BP oil spill has sent stocks on a rollercoaster, and the Icelandic volcano eruption disrupted travel and commerce across the globe. Many companies suffered, and those that weren't directly impacted received a de facto warning: be prepared or prepare to lose money, customers and your reputation.

Today's supply chains are global and highly susceptible to crisis situations, whether they stem from natural disasters, political or economic strife. While these types of events can't be predicted, the end customer in the supply chain still expects a reasonable level of service no matter what the conditions may be.

With that in mind, you have to prepare your logistics strategy for the unpredictable.

Here are four things you can do starting now:

  1. Increase supplier diversity: You don't want to have all of your eggs in one basket -- both in terms of count and geography. Increase the number of supplier relationships within your supply chain, and find a healthy balance between local versus global suppliers. For example, if your supply chain requires widgets that are currently only sourced from Iceland, it may be time to add a local supplier into the mix. The cost differential may prove to be null the next time a crisis event occurs. You may even realize transportation savings by sticking closer to home.
  2. Be prepared for mode flexibility: Be prepared to use delivery methods that are unconventional to your operations, like Air Freight, Next Flight Out or Ocean. Also, remember that different modes and service delivery levels can often equate to the same result. For example, a ground shipment may arrive in the same amount of time as a 3-day air shipment. Be flexible and stay informed of contingency options.
  3. Stay up to speed on import fees and the legal and political landscape: The transport of goods across international borders requires knowledge of specific trade regulations, import fees and political challenges. In a crisis/disaster situation, expedient action is required -- which doesn't afford you the time to become proficient in these areas. Companies must be able to immediately navigate complex international laws, political landscape, implications of import duties and taxes and cost of disruptions. If you can't do this in-house or through your suppliers, contract a third-party to assist.
  4. Create contingency plans for internal threats: Natural disasters, acts of God and political upheavals aren't the only threats that require preparation. There are plenty of internal threats that you have limited control over, such as strikes, breakdowns and stock outs. Anticipate these and plan for them in your supplier relationships and operational processes.

Preparedness is the most important part of maintaining an agile supply chain. If the second half of 2010 is any thing like the first, these four steps could be the difference between minimal impact in a crisis situation and major revenue loss.

-- Paul Smith, VP, Transportation & Logistics, NPI

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