Q&A: Sourcing and Risk
Natural disasters such the Japan tsunami of 2011 can cause great disruptions in the supply chain. Read this article on how the supply chain of technology companies has been affected by this event (click here).
What steps can companies take to prevent such disruptions in supply chains?
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Companies need to reconfigure supply chains to better handle disruptions, while accepting any effects on cost efficiency. Companies should not solely rely on sole-source suppliers, common parts and centralized inventories that can leave supply chains more vulnerable to disruptive risks. Also, controlling the amount of complexity in the supply chain can reduce risk, as there is less risk exposure. Supply chain executives need to ensure that the impact of supply chain disruptions can be contained within a portion of the supply chain, because having one supply chain opens the company up to one small problem causing major damage.
This article was a great read and touched on some important points for tech companies to think about. Natural disasters can harshly interrupt supply chains and tech companies are particularly vulnerable. So much technology is manufactured in regions like Japan that are vulnerable to catastrophic natural disasters. Not only can factories and inventories take huge hits, but infrastructure damage like roads and bridges can leave these companies helpless. More flexible supply chains are important to develop, with very comprehensive contingency plans particularly for natural disasters like earthquakes, tsunamis, tropical storms and the like. While developing and incorporating alternate supply chains and contingency plans can be costly up front, it has potential to save companies from taking massive hits due to unavoidable natural disasters. Additionally, perhaps these companies can work with insurance companies to develop plans that are still affordable for them, yet take a lot of the severity out of their delays due to natural disasters.
I think that this article speaks to many different aspect of risk management in supply chain logistics. It is important for all members of supply chains to have contingency plans in place that allow them to be flexible in their sourcing strategies. Relying one a single provider in any step of a supply chain is extremely risky, especially if that player is located in an area prone to natural disasters. While it may be more expensive at first, flexible supply chains with multiple partners help to mitigate risk, and even support geographic growth and expansion.