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Risks Persist One Year After Japan Tsunami

Just a few weeks ago, we marked the one-year anniversary of the earthquake and tsunami that devastated Japan. While this is certainly not an event to celebrate, I think it does warrant a little reflection.

No one can predict with pinpoint accuracy when natural disasters such as earthquakes and volcanic eruptions will occur, and even if we could there is no stopping Mother Nature. But that does not mean that members of the electronics supply chain should resign themselves to being at the mercy of these or any other natural or man-made occurrences that can disrupt the supply chain.

In today's global business environment, risk management can no longer be perceived as an optional or expendable part of a corporate strategy. Awareness and proactive planning can dramatically decrease the negative effects of a supply chain disaster. While I am encouraged by the increasing attention paid to risk management in the supply chain, I am also stunned at times with how shortsighted some companies can be, particularly as they explore opportunities in emerging markets.

At {complink 577|Avnet Inc.}, we work closely with customers as they look to expand their businesses into markets outside the US, and urge them to consider the vast range of potential risks that each new market may introduce into their supply chains.

We often see that events such as the Japan earthquake serve as an abrupt and shocking reminder of just how tenuous the bonds of the global supply chain can be. Yet, with time, the impact of this jolt fades, and often so does that urgency around supporting an aggressive risk management program.

I understand, to a degree, the temptation during times of relative stability to let your guard down and cut back on risk management resources, but doing so is ill advised. Not only are you leaving your company vulnerable, but you are essentially negating all the time and resources that have already been allocated into your risk management program. A “set it and forget it” approach doesn't work. Risk management programs must be managed in accordance with the ever-changing dynamics of the global supply chain.

Since understanding risks and impacts on the supply chain are essential to managing them, the Supply Chain Council has recently introduced a new tool to help companies better manage their risk by first measuring it. The council's “Value at Risk” (VAR) metric takes the probability of an event and multiplies it by the expected impact of the event (i.e. if this happens, what does it mean for my organization?).

VAR provides a more methodical and financially based means of evaluating each risk factor, thereby enabling companies to define where resources should be focused. The reality is, not all risks are created equally and each company's strengths and vulnerabilities will determine which risks are significant enough to warrant investment in proactive mitigation.

Communication and transparency of information among trading partners are also vital to an effective risk management program. Avnet's new Control Tower offering is designed to provide transparency into the multiple echelons of the supply chain to give customers the ability to not just respond to risks, but proactively mitigate them. Control Tower is essentially a repository of information gathered by Avnet so that in the event of a supply chain disruption, customers can quickly assess suppliers' ability to maintain the flow of product. Examples of the kind of information that can be found through Control Tower are demand forecasts, channel inventory, SKU level sell-out, WIP inventory, shipping data, and purchase orders.

Please feel free to contact me if you would like to discuss ways in which you can better protect your global supply chain.

10 comments on “Risks Persist One Year After Japan Tsunami

  1. Barbara Jorgensen
    April 9, 2012

    Gerry–I find myself dealing with whatever issue is in front of me and no matter how dramatic (or traumatic) it is, once things are back on track I am on to the next crisis. It is no surprise that businesses and organizations make the same mistake. Obviously, the nation of Japan cannot and will not forget the lessons of last year, but it is clear that parts of the world have moved on. Great advice on reflecting on the crisis, and kudos to companies such as Avnet that are keeping their eye on the ball and advising partners to consider the risks.

    There are a number of indications that businesses are diversifying…there has been EMS activity in Brazil and Eastern Europe of late. One step at a time…

  2. FLYINGSCOT
    April 10, 2012

    I can understand why some companies might let things slip during the good times.  To counter this it is important companies make disaster recovery planning part of their on going strategy that is managed and audited.

  3. Daniel
    April 11, 2012

    Gerry, an uninterrupted supply chain is necessary for the flow of goods from manufacturer to the assembling units. We had seen that this had been disturbed by last year Japanese tsunami, Taiwan’s floods etc. in such a scenario, I think diversified supply across the globe can ensure the supply through alternate channels, in case of any disaster. I think the information from Avnet’s depository can help the companies to know about the alternate channels, availability, source etc

  4. bolaji ojo
    April 11, 2012

    This is an industrywide problem but which most would rather not collaborate to solve. It comes down to dollars and cents at the individual companies and unless a firm experiences the supply constraints attendant upon a natural disaster, it's more likely they'll keep their focus on more immediate challenges.

    Today, another earthquake off Indonesia has prompted countries to warn coastal towns of the possibility of a tsunami. Like Gerry said, these incidents don't provide explicit warnings. They just strike and kill and devastate infrastructural systems. (See: Indonesia Aceh quake triggers Indian Ocean tsunami alert.)

  5. Anne
    April 21, 2012

    Thanks to Avnet, this information can help companies supply chain during natural disasters.

  6. itguyphil
    April 22, 2012

    flyingscot,

    I have seen and heard that line many times. Now I understand that it is mostly just lip service by most organizations. People talk about planning for the worst but don't actually do it because the worst usually doesn't happen. They plan for mini-disasters with backups and mobile workforces but NOT the big bang that can put you out of business for a long time.

  7. Ariella
    April 22, 2012

    @pocharles That is true. The problem is that they only plan for likely risks, the type they have already dealt with, and not those that seem unlikely. It is what George Eliot identified in Chapter 5 of  Silas Marner over a century before Nassim Nicholas Taleb came out with his arguments for The Black Swan:

     The lapse of time during which a given event has not happened, is, in this logic of habit, constantly alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent. A man will tell you that he has worked in a mine for forty years unhurt by an accident as a reason why he should apprehend no danger, though the roof is beginning to sink …

  8. itguyphil
    May 6, 2012

    Ariella,

    Referring the classic lit I see, you get points for that!

    But this reminds me of the hard drive property MTBF (Mean Time Between Failure). The longer rhe drive spins, the closer you get to its failure. Most people assume it will never fail but each day brings you closer to the FAIL (and the annoying clicking noises).

  9. Ariella
    May 6, 2012

    @pocharle Yes, that's exactly it. We assume that th longer something has withstood any problems, the more assured we can be that it will remain so when the opposite is the case.

  10. itguyphil
    May 12, 2012

    Agreed. Impending doom is always a good motivator.

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