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Supply Chain Risk Mitigation Strategies: Reminders from Japan

The recent earthquakes in Japan coupled with a record of over 1,000 aftershocks remind us that Mother Nature is unpredictable and that disruptions to our lives and to our daily ebbs and flows can be altered in the blink of an eye. Thankfully, the 2016 disasters, while unfortunately taking a toll on human life and livelihood, were not as catastrophic as the 2011 earthquake that spurred the devastating tsunami and Fukushima meltdown. The record-breaking aftershocks, however, have scientists warning that there will be more seismic events to come and that the area is experiencing an increase in activity.

On the business side, the island of Kyushu, and particularly the Kumamoto prefecture, which was the epicenter of both quakes, plays an important role in the electronics industry, particularly for the automotive electronics and industrial-automotive sectors, in addition to Sony’s major CMOS facility where image sensors are manufactured. Unfortunately, some of the many manufacturing facilities were affected and suffered damage to equipment and to the structures, including clean rooms. Additionally, we know from statements from Renesas that some of their facilities were affected but they are also contending with disruptions due to losses down into their subcontracting tiers, affecting material and subassembly sourcing.

Visibility into the layers of sourcing is a critical issue, yet one that is not as readily available as a strong risk mitigation plan would dictate. In today's rapid information world where sourcing knows few bounds, how do you ensure the rigor of your risk management/mitigation plan? How can you ensure your plan's ability to proactively or at least immediately engage in contingency processes in order to alleviate disruptions during unforeseen events, possibly happening on the other side of the globe? To learn what is happening at the leading edge of supply chain risk management, EBNOnline spoke with Bindiya Vakil, CEO of Resilinc, and Wayne Caccamo, Chief Marketing Officer of Resilinc.

When questioned about the most pressing risk mitigation issues facing the global supply chain, in the wake of the current situation in Japan, Vakil offered a few critical points for companies to bear in mind:

  1. Visibility into the deeper tiers of the supply chain through mapping clears the fog and enables companies to execute timely and proactive mitigation strategies;
  2. The mind-set that the supply chain is an enabler (cost center) needs to change.  Supply chain resiliency should be thought of as an investment in growth, because agility and immediate action during disruption events can be opportunities to gain market share and improve positioning; and
  3. There are vastly different timelines when dealing with logistics impairment versus manufacturing recovery scenarios – as logistics disruptions can often be shorter term in nature.  Fundamentally, losing a factory or damaging a line or equipment can disrupt supply chain for months on end, due to the serial nature of recovery activities. For example, recovery time is serially determined by lead-time to secure new tooling, time to qualify and supply samples for customer qualification, followed by full manufacturing lead-time and full logistics lead-time. 

Resilient supply chain planning and strategies are derived from thorough and deep mapping of the various tiers and layers of suppliers, subcontractors and facilities on a global basis. In order to respond to a situation, it is imperative that you know there is a situation that has arisen. Resilinc's mapping capability combined with these alerts is particularly critical when a key subcontractor or sub-tier supplier, who may be a sole or limited-source partner, is affected.

Sourcing along today's global supply chain would appear to be more limitless than ever before as connectivity and access to providers and distributors is facilitated through digital business tools and the Internet. However, despite this logic, most companies are navigating in a fog in terms of the subcontractor/sub-tier layers of the supply chain. Vakil commented, “The fog is there, we're navigating [but] we don't have the supply chain mapped out and don't know who is second- and third-tier down, and what the risk aggregation is […].”

Compounding problems in today's supply chain are the widespread adoption of lean inventory management and Just-in-Time (JiT) sourcing that results in limited, on-hand inventory, from materials to finished product. Vakil noted that the recent spate of M&A activity adds to these challenges for risk management: 

The whole lean thing has always been fascinating – how does lean affect risk management? It can be in conflict with risk management strategy if implemented broadly without adjusting for risk; most companies do implement lean without incorporating risk intelligence, because the kind of supplier intelligence needed to do it properly is not readily available. I believed that the supply chain must be managed at the part level and the supply level, and started Resilinc as a result. What works for one supplier for one part is different for another part and another supplier. Without a solution for managing this information, a risk adjusted lean supply chain can be a pipe dream.  So many considerations…

Another example relates to lean hubbing and M&A. Direct materials managers say you have to second-source for risk mitigation, but when M&A happens, suddenly you have one not dual-source for a particular part; so you effectively are back to single-source. Therefore supply chain has to be managed at part and site level.  A financially robust supplier may be perfectly safe to single source with, and derisk site, capacity, and recovery related issues by working together… the best risk management strategy is to collaborate, expect sub-tier and capacity transparency, and improve resiliency together – a win for all.

To gain a better foothold during supply chain disruptions, which are inevitable, after all, there are new tools available and now being leveraged that come from the growth of digital business and supply chain risk management companies like Resilinc. Vakil explained how improved visibility is achieved:

Resilinc leverages cloud and social media to make data collection easier for customers. Suppliers put in all of their global factory information and their details about their subtiers, all at the part number level, and from where their subcontractors source. They do this once and they approve who has access to this information [so they may] share with their many customers.

The benefits show themselves in fairly short order:

Over time, suppliers see tremendous network effects and customers experience faster time to value.  Rather than waiting two years for multi-tier visibility, Resilinc can get them within a few months, which means they can now start working on risk mitigation – proactively manage the supply chain, design new products, etc. When disaster strikes, Resilinc informs customers within minutes or hours; through the mobile app, customers can immediately see which sites are affected, which parts and products are affected, the potential revenue affected, and the potential size of impact to their business.  Effectively, Resilinc eliminates the process of discovery so that they can jump into action and secure supply before competitors get in.

There are opportunities for operations to improve. There is the ongoing tension between a more traditional mind-set of a hero-mentality of getting the job done and saving the day during disruption, but at what cost to the business and the efforts to improve savings when expenses rise, as Resilinc reminded during the conversation. Crisis situations however, should be recast as events that will happen, and if well prepared and with keen visibility, they can be opportunities to gain an advantage over competitors who have not invested the time and effort into agile risk mitigation plans.

Caccamo offered an interesting view of this ongoing evolution of risk mitigation planning: 

We see the leaders in this space, they look at Japan in a different way, not in isolation but more holistically, and put it in the context not of comparing this event to other quakes, but potentially the other 30 different types of events Resilinc tracks. You can't over- nor underreact. Regardless of the cause, labor, fire, quake, extreme weather, the reality is that the outcomes are limited and what you'll do are a very defined set of things. Whatever the cause, the tools you have to mitigate the risk apply, regardless. People are starting to get that and gain sophistication in their reaction to this. They now realize that you have to personalize the impact of disaster, not necessarily the event itself.

These learnings have started to shift the way that organizations are approaching risk and risk mitigation:

People are starting to recognize it is not just about the next disaster, but leveraging across all types of risk. Security and brand risk are huge, but they have the same processes in the background: know your suppliers and their suppliers to know what's going on in your supply chain. Executives are aware of their careful brand cultivation and are just terrified that somewhere deep in their chain, a supplier has been implicated in some bad corporate social responsibility moment.

Now with the new Forced Labor Legislation companies should be further concerned that shipments being imported into the United States might be held up if a supplier is accused by media or NGOs to use forced labor.  Knowing the sites being used and the sub-contractors being used by suppliers is an imperative in today's world.  Accusations can travel fast in today's Twitter age and companies could find their revenues jeopardized.

Risk mitigation is not just about reacting to events that unfortunately arise, whether natural or other, whether a facility or production event or one rooted in security or brand image. Information and data sharing are a real variable in today's global supply chain, that information is available not just to learn of events, to access new markets and suppliers, but also to seize new opportunities and leverage data in new ways.  In closing, Vakil offered: 

It's not going to get easier as the complexity, interconnectedness and global nature of supply chains is here to say.  As MIT's Yossi Sheffi said, the worst disruption hasn't happened yet, because the past is bound, the future is unbound. The good news is that in this age of technology, cloud, mobile, social network, Internet, the globe is not measured by distance but by the seconds for information to pass around it. Therefore, information is power in this new environment – the one who has power is the one gets the information the fastest.

Clearly, there are significant risk mitigation opportunities afforded by the maturation of data sharing, digital business, and the greater visibility afforded by companies and technologies working along the global electronics supply chain.

  • How has your risk mitigation view and strategic planning changed?
  • What barriers has your company been able to reduce to improve visibility into your supply chain?

Share your experiences and views in the comments section below, we're eager to include your thoughts.

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