To achieve resilience, supply chains need to adopt new tools and forecasting capabilities. To get some insight, EBN spoke with Gene Long, vice president for the industry supply chain at Chainalytics, to get some advice on how supply chain managers can make better decisions to avoid and mitigate risk.
Gene Long, VP of Industry Supply Chains at Chainalytics
EBN: In your article, "Supply Chain Resiliency: From Insight to Foresight," you have mentioned that today's supply chains are well prepared with contingency plans to recover fairly quickly from some disruptions, but that fairly quickly is not enough. What must supply chains adopt in order to speed up their recovery plans?
Gene Long: There are probably three aspects of supply chain management behavior that need to change if global, or long distance supply chains are going to be able to cope with risk. I am saying it that way because I think recovery is one of the problems.
Over the last two and a half decades, supply chain management has evolved to the point that many companies that operate complex, global supply chains can't recover. They don't have good disaster recovery plans that let them pop back from a disaster, a supply chain intervention, or a break down quickly.
The problem is they're still recovering when, in fact, what we want them to do is to avoid and mitigate risk. The market is basically saying and the investors are basically saying: You shouldn't be recovering. You should not have the problem in the first place. Consequently, one of the things that we want supply chain management behavior to do is to include a forward view.
EBN: How can supply chains do that?
Long: You can think in practical terms about adopting forecasting capabilities. You can think… about adopting alternate scenarios, meaning that supply chain behavior doesn't need to be simply optimized.
There need to be optimal alternatives adopted. So, the first measure is to develop foresight. The second measure is to be able to use alternative scenarios. One of my favorite phrases is "What's the next best alternative?" If there's an imminent disruption and you can see it coming in your supply chain then what do you do differently to get around disruptions that doesn't impact your costs, your time, your investment basis, or the business.
The third thing... is to make absolutely sure that in your management behavior there is clear accountability… We think you have to have a very clear governance model within the business that says who, what, and where people, activities, and departments are strictly accountable when something is likely to go wrong in the supply chain, or when something has gone wrong in the supply chain.
In other words, advocating the governance model recognizes two things: It recognizes that you have to have steady state management that is ready to recover if there is a breakage in the supply chain, and the other thing is that somebody has to be looking ahead to see what could disrupt supply chain operations and be able to take management action to change the company's behavior and, therefore, how you organize the supply chain. So, those would be the three things you need to think about.
EBN: The financial impact of supply chain disruptions of all types is increasing instead of decreasing. What are supply chains doing wrong?
Long: I don't believe they're doing anything wrong. I think what's happened is that the global expansion we've experienced in supply and demand, for it goes in both directions, the global expansion that many companies have experienced in the last two decades has basically caught up with us.
It means that we have very extended supply chains. You have supply chains that have twenty thousand miles in length. That is a lot of territory and a lot of risk for a lot of reasons that simply [are] functions of the distance and the people involved, the number of entities involved. So, automatically, the longer the supply chain, the higher the number of players in that supply chain are at risk.
I think supply chain managers have not acted quickly enough to really manage the root cause of supply chain risk. The supply chains are extended. They're long, they're fragile, very efficient -- and let me tell you what the other side of efficient means: It'll break if you try to bend it.
So, think of the really efficient supply chain in your mind's eye and visualize a glass pipeline. We've got this glass pipeline running between… Shenzhen in China, and Chicago, Ill., and [that pipeline is moving] Finnish goods at a high-rated speed, completely visible. It's that real time data that we talk about that tells me where everything is and that it's moving well.
That pipeline is going to serve its purpose exceptionally well so long as nothing changes. But, what happens if something happens to make the glass crack or break? What if there is a labor stoppage? What if there is a massive increase in barrel fuel charges? What if there is a materials shortage? What if the customer's demand changes and now is not Chicago, it's San Francisco you need to go to?
Any of these little things just broke the supply chain and rebuilding it requires a complete restructuring effort, not adopting a second, well-planned alternative couldn't be in place.