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Weather, Outsourcing, Telecom Outages, Hurt Supply Chains

Many have claimed in recent months that the global supply chain is faulty, but now experts are backing up that assertion with research figures.

The latest study by the Business Continuity Institute cites adverse weather conditions as the biggest culprit, although researchers say a variety of factors will require companies to rethink the way they manufacture and move goods. The research found 72 percent of respondents experienced at least one disruption in their supply chain in 2010, with 53 percent citing adverse weather as the main cause of disruption worldwide, up from 29 percent in 2009. Unplanned IT and telecommunication outages and the failure of service provision by outsourcers were cited by 35 percent of supply chain professionals who participated in the survey, up from 20 percent in 2009.

The “Supply Chain Resilience Report 2010” concludes that companies on average reported five supply chain delays in the past 12 months, but some organizations experienced more than 50 incidents. Survey respondents came from 35 countries across 15 industry sectors, with the majority outside the UK, so the findings are not limited to one region in the world.

Half of companies surveyed have tried to optimize businesses through outsourcing, consolidating suppliers, or adopting lean manufacturing techniques. And note that businesses that shift production to low-cost regions significantly increase their risks of supply chain disruptions, with 83 percent experiencing problems. I reported on this earlier this decade.

We only had to wait about 10 years for an organization to confirm what we already knew. Executives at third-party logistics companies have been telling supply chain professionals for years that outsourcing will cost more in the long term. Actually, the findings are quite shocking. Fifteen percent of respondents do not review their business continuity plans with key suppliers; 18 percent do not seek evidence of business continuity; and 50 percent do not validate that key supplier business continuity plans actually work in practice.

The study looks at financial services, manufacturing, government, education, retail, and more. What have you done in the past 10 years to lower supply chain costs? And how long did it take for your company to reap the return on investment?

7 comments on “Weather, Outsourcing, Telecom Outages, Hurt Supply Chains

  1. AnalyzeThis
    November 4, 2010

    We only had to wait about 10 years for an organization to confirm what we already knew. Executives at third-party logistics companies have been telling supply chain professionals for years that outsourcing will cost more in the long term.

    I have to say that I disagree with this statement. Sometimes outsourcing will indeed cost more in the long term, but sometimes you will save lots of money in the long term.

    Just because something is outsourced doesn't mean its chances of long term profitability suddenly diminish. Like anything, a poorly conceptualized or planned project/endeavor will likely lose money and a well-planned and conceived project will likely have a better chance of success.

    There is so much variation in outsourcing that I think it is a bit foolish to say that just because something is outsourced, that means that it is not a worthwhile long term proposition. Outsourcing can mean far too many things, its scope can vary so widely, and the locations involved can range from 10 feet away to halfway across the world. A “low-cost region” could mean India, or it could mean Indiana. Pretty big difference!

    Anyhow, I'm not saying I disagree with your whole point: I generally agree with you! I just had a quibble with that one statement.

  2. Laurie Sullivan
    November 4, 2010

    Hello DennisQ, 

    Thank you for sharing your view. I don't expect everyone to agree with me. Thank goodness they don't or the world would be a boring place. Can you provide one example of a company that benefited from outsourcing and didn't have to pay the price in one way or another? If they outsourced Q&A, can they really trust the company to put out a quality product, and did it save the company money in the long run? Or did the company end up having to delay so many planes that eventually consumers chose another airline? I won't name names. I'm sure there are success stories, but would you share?

    Laurie

  3. Ariella
    November 4, 2010

    Laurie, it stands to reason outsourcing for the sake of lower cost would come at the price of increased delays.  Any time you add more variables to the mix — and outsourcing abroad, certainly adds a number of variables due to distance, politics, service, and weather — you increase the risk of something untoward happening that will affect your supply chain.  Every company should go over the numbers to assess the ratio between risk and benefit before deciding to outsource.

    I know that many people seek to outsource to sources of cheap labor abroad by using services provided by companies like oDesk.  That puts buyers in contact with service providers all over the world.  Compensation for work can drop to $1 an hour, and I've seen job posts that wanted work done for even less.  Then the buyers complain that the workers don't really work (oDesk enables snapshots of what is on the computer during the time people log in for their work hours) but chat or shop online during the time they bill.  There is an object lesson there in “you get what you pay for.”

  4. DataCrunch
    November 4, 2010

    Hi Laurie, I just want to clarify that you are referring to offshore outsourcing rather than all outsourcing on this post.  I would find it strange that 3PL executives would say that outsourcing would cost more for companies in the long term, since 3PLs are by definition an outsourced function. 

  5. Laurie Sullivan
    November 4, 2010

    Yes, Dave, you are correct. I was referring to offshore outsourcing. 

  6. Laurie Sullivan
    November 4, 2010

    Thanks for your thoughts, Ariella. I do think some company execs who made the decision to outsource offshore in the early days didn't have the complete picture, though they tried to cover all bases. 

  7. Barbara Jorgensen
    November 8, 2010

    For the first time since owning my home, I was affected by extreme weather–what we call the 100-Year Storm. We had two feet of water in our basement, our heater and hot water were gone, and everyone within 50 miles was in the same–no pun intended–boat. No sump pumps, no generators–nothing. What I learned about the supply chain is this: the single most important factor is being a good customer. People will move heaven and earth if they can for you. The folks that ripped out our carpet; our electrician and plumber and the guys that carted our damaged stuff away we'd used before; always offered to recommend them to other customers; and treated them with respect. We were moved to the top of the list every time. People around here were months getting service. We were dry–but far from normal–in less than a week.

    I have finally accepted there is nothing you can do about water, fire and nature's other elements. But you can be a good partner all the time.

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