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Opportunities Beckon as Risks Rise

Aggressively investigating “what if” scenarios for a global supply chain doesn't just make it less vulnerable to risk. It can bring changes that enhance agility and quickly make the most of unexpected market opportunities.

Every supply chain professional knows it's a dangerous world out there, full of highly volatile and unpredictable elements that can grind production to a halt, hold up cargo in stubborn bottlenecks, drive up prices, and drive down demand, all in the time it takes for a crack of thunder to rumble across the skies. Of course, that's nothing new.

Some would argue the sheer number and variety of things to worry about can seem almost overwhelming. They include natural disasters, terrorist attacks, computer viruses, theft, hijack, “shrinkage,” transportation and labor disruptions, new regulations, bad weather, political unrest, and economic collapse. For all these reasons, risk management has become an ever-larger part of what occupies my time and attention.

However, it might surprise you that risk management is not just a defensive way of reducing the negative impact of unexpected or unwelcome events; it's also a way to proactively boost business. The kind of thinking, planning, and modeling required to anticipate and ameliorate these potentially threatening factors is also exactly the thinking that will make your supply chain more agile and therefore lead to an ability to be prepared for unforeseen opportunities.

An article by Mike Doheny, Venu Nagali, and Florian Weig, published in the McKinsey Quarterly in May, “Agile Operations for Volatile Times,” homes in on exactly this point.

“Rising volatility, uncertainty, and business complexity have made reacting to — and planning for — changing market conditions more difficult than ever,” say the McKinsey authors. But smart companies that focus on supply chain agility “are also seeking ways to use volatility” in positive ways, when their strengths provide a unique market advantage. The paper goes on to cite examples of three companies doing just that.

In the hard-disk drive industry, everyone was hit hard by the floods in Thailand last year. But that disruption accelerated Seagate's already-planned initiatives to make its supply chain even more flexible, robust, resilient, and responsive to change. The situation demanded that we work to utilize Seagate's supply chain advantages even more than in the past. One change we are making, for example, is to dramatically streamline operations into fewer regionalized locations. This will give us much greater flexibility, capability, and capacity to adjust to sudden changes in demand.

Today, supply chain leaders not only must know how to shift supply and distribution amid natural disasters, but they must be on the ball and agile in all kinds of other matters, such as finance amid wild currency fluctuations or political changes amid social unrest.

Risk management, as we know, involves constantly considering “what if?” scenarios. The old, reactive mentality is to ask “what if” questions only about things that are already going wrong. But exactly the same modeling and extrapolation can be used to break apart the whole supply chain process and design it to better adapt to a new situation quickly and efficiently.

Today's leading supply chains can be critical competitive advantages for their companies, investors, and customers. It's imperative, though, to incessantly interrogate your supply chain with possible scenarios, good and bad, and modeling outcomes. Make changes in collaboration with customers, suppliers, and all the major divisions within your own company, including sales, marketing, product design, and manufacturing. The result should be that smart risk management makes it easier to open the door when opportunity knocks.

4 comments on “Opportunities Beckon as Risks Rise

  1. Barbara Jorgensen
    July 17, 2012

    Hi Dennis: I fully appreciate how Seagate was affected by this disaster. I'm glad to hear it is bouncing back. I have a question on some of the moves you cited here: 

     One change we are making, for example, is to dramatically streamline operations into fewer regionalized locations. This will give us much greater flexibility, capability, and capacity to adjust to sudden changes in demand .

    What do you mean by fewer regionalized locations? Are the locations no longer clustered around one center (such as in Thailand) or are you reducing the nuimber of locations per region? I ask because I'm curious about how a company actually gets to agility from where it was before. Thanks!

  2. bolaji ojo
    July 18, 2012

    Supply chain wins for the best in class companies and there's no better place to find out than when problems arise. The winning companies not only know how to get out but know also how to extract opportunities from what would make others collapse.

  3. Dennis Omanoff
    July 18, 2012

    Barbara,

    Thank you for your question.  I was referring to reducing and consolidating JIT hubs, which pretty much just hold inventory, into value-added fulfillment centers that are located in regions closest to our Customers' major points of consumption.  I think it's important to have strategic partners with global capabilities and regional locations to service the requirements of a particular geography.   This provides a more flexible network that can adapt rapidly to change while improving agility, responsiveness, velocity and customer service.

    – Dennis

  4. Barbara Jorgensen
    July 19, 2012

    Thanks Dennis! Kudos to Seagate for diversifying geographically. I can imagine that is not always a popular strategy from a cost standpoint, yet it indiactes we learned a lesson from the devastation. Change is tough, but as you point out, it was already underway. Keep us posted on the progress.

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