Recent headlines have left everyone feeling like members of the disaster of the week club, as hurricanes then earthquakes then forest fires have left a wake of devastation. Usually, the headlines don’t mention the supply chains that have been disrupted as component makers, electronics manufacturers, and their partners work to keep products in production. Disasters aren’t new, but recent events should have everyone thinking about how to prepare the processes, people, and technology in the supply chain to be ready for whatever Mother Nature brings.
“The reality with natural disasters is that it’s not a case of if it will happen but when and where will it happen and how will you get ready for it,” Richard Howells, vice president, solutions management for supply chain at SAP told EBN. “It’s really planning for the unexpected but not completely unimaginable. We need to prepare with the understanding that we plan in the perfect world but execute in the real world.”
Disaster is real
It’s important not to underestimate the potential impact of natural disaster. You may be affected if you have suppliers in that geographic area, whether your operations are located there or not. “The closer you are to the suppliers in the region, the sooner the disruption will hit your supply chain,” said Bindiya Vakil, CEO and founder of Resilinc, which provides a risk management service and recently sponsored a webinar on the topic. “If these suppliers are in your sub-tier supply chain, and if you have not mapped your supply chain dependencies, the capacity and material constraints will be realized in the weeks to come.”
Consider Hurricane Harvey. The storm, which formed in the Gulf of Mexico as a tropical storm on August 24, evolved into a massive Category 4 Hurricane. The storm covered Houston, dumping as much as 52 inches of rain, which flooded many business. The is responsible for almost $600 billion in economic activity and is home to ports that trade with many countries around the world.
“Resilinc has mapped almost 800 factories, warehouses, distribution centers etc. to the region of Texas that was affected by Hurricane Harvey, and 300 of them are in the Houston vicinity,” said Vakil. “Even if a supplier’s factory is not flooded, the infrastructure (power, water, transportation etc.), needed to operate is not going to be there for weeks.”
Resilinc gathered information from tens of thousands of suppliers about the potential impact of the storm, and discovered that in the wake of this level of storm, recovery times would average ten to 20 weeks, with full recovery taking up to a year. “If the roads leading up to the factory are damaged, that is a two to four week disruption, but if the factory is flooded, then equipment procurement or repair time, setup and qualification time, production lead time and transit times, all become critical path to recovery,” said Vakil.
Good sourcing, always good business
Following good procurement practices is a solid place to start when trying to address potential problems caused by natural disaster. For example, continuously be considering alternate sources for critical components and materials, said Howells. Further, consider the amount of inventory that the organization is holding.
This is not a once and done activity but something that should be considered continuously. “At uncertain times of year, you may change inventory policy, when there is a higher risk of something going wrong,” said Howells. “You can also look at where you keep inventory, and perhaps move it closer to the actual manufacturing facility to avoid shipping problems.
Think beyond your own locations and the locations of first tier suppliers. “I would also remember that suppliers who are not located in the affected area could be relying on materials that come from this region – knowingly or unknowingly due to the supplier being many tiers downstream - and therefore could get disrupted in the coming days or weeks,” said Joe Carson, chief strategy officer at Resilinc.