In last month's issue of RVCF Link, we discussed the labor dispute involving the major West Coast container ports and its effect on the retail industry. Although an agreement was reached, serious issues remain, and the disruptions caused by this close call with disaster have caused the retail industry to look at the impact of supply chain disruptions as a whole with renewed focus.
According to research from BSI Supply Chain Solutions and the Business Continuity Institute, 35 percent of manufacturers are "extremely concerned about potential supply chain disruption." 77 percent point to an increasingly complex supply chain as the most significant emerging threat to business continuity, far ahead of cybercrime and a stricter regulatory environment.1
This supply chain complexity is due in large part to global sourcing, which increases the risk of manmade disruptions like the West Coast port labor dispute and political unrest as well as natural disasters and the inability of some countries to effectively deal with such events. The BSI-BCI study found that the apparel sector, which has a high percentage of manufacturing taking place in unstable regions of the world, is exposed to the greatest risk of a natural disaster at 85.6 percent, followed by the automotive (53 percent) and aerospace (51 percent) sectors.
Additional data shows that supply chain concerns have reached the C-suite. The 18th Annual Global CEO Survey from PwC found that 55 percent of industrial manufacturing CEOs are "somewhat or very concerned" about supply chain disruptions, and with good reason.2 Without supply, you have no product. Without product, you have no fulfillment. Without fulfillment, you have no revenue.
As a result, the retail industry is looking for ways to better understand and reduce the risks associated with supply chain disruptions. Unfortunately, the pressure to reduce costs and operate a lean, efficient supply chain often creates vulnerabilities that make the supply chain less resilient. When these vulnerabilities break down, customer expectations aren't met, revenue is lost, and brand reputation suffers. Many companies first need to determine if their cost-reduction initiatives are increasing risk beyond an acceptable level.
Areas of vulnerability need to be identified by gaining visibility across the entire supply chain, not just the final few links. Instead of simply tracking product, work to gain insight into the origins of raw materials. What are the weakest in links the supply chain? What are the upstream and downstream effects of a disruption at each of these stages? How much would a disruption cost in terms of both dollars and brand equity? What parts of your supply chain operations are being outsourced and what are the risks related to those vendors?
What suppliers operate in regions that could be impacted by political instability and severe weather events? How technologically and financially resilient are each of these suppliers? Do they have redundant systems and robust business continuity plans in place? What shipping routes have similar risks? By reducing dependence on a single supplier or a small number of suppliers and developing secondary shipping routes and transportation channels, organizations can mitigate the risk of a disruption.
The key is to take a holistic view of the supply chain. Quantify and prioritize each risk through analysis, use your analytics to uncover hidden risks, and proactively develop a plan for minimizing the cost and impact of disruption. The goal needs to shift from cost-reduction to gaining the flexibility to maintain the flow of goods and meet customer demand regardless of the situation. The ability to have the right product at the right price in the right place at the right time requires a supply chain that is resilient to disruption. Critical to this resiliency are end-to-end visibility and accuracy of supply chain data, collaboration between trading partners that encourages sharing of that data, and the agility to respond quickly and effectively to disruptions.
What is your company doing to mitigate the risk of supply chain disruptions? What challenges are you facing? What supply chain vulnerabilities present the highest risk and what can be done to address those vulnerabilities? Please visit the RVCF forum boards and share your thoughts, ideas and frustrations about supply chain disruptions and what can be done to minimize their impact.
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