What Will the Lasting Supply Risk Impacts Be From 2011 Black Swan Events? (Part 1)

In a highly commented-on post on Electronic Buyers News, Dustin Smith tossed out a number of worthy suggestions on what some of the lasting impacts of the 2011 supply chain disasters in Asia (e.g., flooding, earthquake/tsunami) will have on the electronics industry. His suggestions, however, are relevant far beyond just the high-tech manufacturing world. The central argument Smith makes is that forecasting will always be inaccurate and given the combination of global political and economic uncertainty as well as the potential for highly disruptive weather, geological and related events, "now it is time for the industry to look back and reassess market exposures, developing new ways to hedge risk going forward."

Among his suggestions, Smith argues -- and we strongly agree with -- there is a strong need for more proactive and "responsive" tactics. He argues that one of these approaches will require companies to "revisit the viability of sole-sourcing as nearly all had to work aggressively with qualified alternative partners to keep production lines moving" in the past four quarters in the wake of disasters. Here at Spend Matters and MetalMiner, this is a strategy we've seen across manufacturers in Asia in the metals industry, with companies increasingly adding constraints into sourcing decisions to split business between competing suppliers (and/or facilities) in different geographies. In part, these strategies often also entail expanding "the number of regional facilities to reduce risk in the event of geographically-centered disasters," a strategy which obviously has the counter side of adding complexity and inventory.

We'll also toss out five additional strategies (starting with two today and continuing in Part 2 of this post), that we are beginning to see more advanced procurement and vendor management organizations take in the wake of the disasters of 2011. These include:

  • Building and staffing a centralized supplier and supply chain risk management function with reporting responsibility into either finance or procurement/supply (or both). At the very least, this organization can act as a shared service to the business (e.g., to front-line supply chain and materials management) to provide as close to real-time intelligence as possible.
  • Investing in supplier management tools to gain almost entirely automated -- often supplier self-service and/or supplier network-driven -- visibility into everything from up-to-date supplier contact details to locations of facilities (and individual capabilities on the site level) as well as alternative suppliers based on capabilities, capacity, etc.

Stay tuned as our commentary and observations on subject of organizational responses and investment to supply chain disasters and Black Swan events continues.

- Jason Busch

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