Leading-edge supply chain organizations have some distinct approaches in common. These organizations adopt forecasting capabilities and don't underestimate the risk of man-made disruptions. We sat down with Gene Long, vice president of industry supply chain at Chainalytics, to get his take on these trends.
In part one of this interview, we learned about what supply chain managers need to adopt in order to make better decisions to avoid and mitigate risk to become more resilient.
EBN: How can supply chains be better prepared in order to become more resilient?
Gene Long: I think that to be better prepared they need to adapt. Supply chain management needs to become more proactive in understanding, or merging risk and they do that by looking at the fundamental design of their supply chains. For instance, we know that Wal-Mart recently announced its Made in America initiative. They're basically saying they're going to source closer to the market.
So, one technique, a very broad technique that supply chain managers should [consider] is to look at literally shrinking its project. When you shrink the supply chain, you make it less complex. You take out distance. You take out time. You take out variability. When you do that you are minimizing the risk. You'd make it a lot more manageable and you'd have more alternatives.
There are many ways to get complexity out and I will tell you that is a general statement removing time variability, removing partner variability, removing distance, removing reliance on scarce resources; all of those kinds of steps can fall under the major category of taking out complexity, or simplifying the supply chain. I really think that's what supply chain operators need to do.
EBN: Supply chain managers seem to be mainly preoccupied about supplier viability, failure, and natural disasters. Are supply chain managers underestimating the risk of man-made disruptions?
Long: Historically, I believe that most supply chain risk mitigation efforts, or risk management efforts were focused around catastrophes, big things that went badly wrong. But a lot of those were not under control of mankind. There were natural disasters, there were wars, there were legal issues, all were things you couldn't control. However, what we do know from contemporary researches is that over 80% of supply chain disruptions are driven by man-made events. It's only 20% that is caused by the big problems.
You hear about those big events a lot, but you don't hear about the little ones like “Well, we can't make iPhones any more because the supplier of the PVC resin in the case just blew their reactor up in Istanbul and can't make any more plastic. They're the only one in the whole world that makes it.” You don't hear about those because they are not very dramatic, they're not very newsworthy, but they happen.
So, 80% of supply chain disruptions have historically come from human problems. Not managing well, breaking something, whatever they might be. I would tell you that in risk management terms supply chain managers have underestimated that kind of risk. However, if we go back to our beginning premise that if you do predictive analytics you might better understand what your alternatives are, then there is a way to manage that. But, I would tell you yes, I agree that they have underestimated the impact of man-made change.
EBN: Is there a secret, a successful formula to create more resilient supply chains?
Long: If there is a secret the secret comes down to the ability to plan alternatives to current supply chain design. You do that by being able to use analytics to drive scenario plan. So, you have choices, and choices that you can immediately make to change the direction, the flow, and the behavior of your supply chain. I don't know if there's a formula. I wish I had one in a box I could probably sell; but there is no formula that I know about other than changing the behavior. A lot of what we've talked about really comes to supply chain executives really having a different mindset, and a different point of view about how to do the job and what's important to them.