As I’m writing this department, the news is centered on Japan—the loss of life, the physical damage, and the nuclear reactor situation have caught the world’s attention. In the business press we are seeing stories of plant shutdowns and suppliers’ inability to support businesses.
The situation in Japan is just the latest challenge for our global supply chain. There have been storms, earthquakes, and fires in China and Taiwan. Middle East political problems still could influence oil prices. There is worry over the new Egyptian government’s ability to keep the Suez Canal running. Finally, there is the work of the Panama government in enlarging the Panama Canal and the effect this will have on global shipping.
All of this brings the following questions to mind: Have you planned for problems in your supply chain? Or have you just wished for the supply chain fairy to wave her magic wand, and all will be well? It’s amazing how many articles, speeches, and books are out there on supply chain strategy; globalization; and the need for careful preparation, risk analysis, and contingency planning in case of both natural and man-made disasters. What is even more amazing is how many companies have no real strategy in place to deal with disasters. It seems business leaders at these organizations are, indeed, counting on that supply chain fairy.
For further insights, consider the “consultant test.” If I came to your company today and asked for a walkthrough or briefing on your supply chain analysis and plan, what would I learn? Specifically, I would want to know who your critical suppliers are; their performance levels with regards to quality, schedule, and price; and your grade of these areas ongoing as of last week. Then, I would ask you to tell me about risks, such as the likelihood of these suppliers getting bought out. I’d want to know about their financial strength and the quality of your relationship with them. I would expect you to know about their locations and the associated risks. Finally, I would ask how often you update your plan—and your answer should be once per quarter or per year.
After reviewing the analysis, I would ask to see the specific action plan you have for each supplier. Do you have
My final questions would be: Who is in charge of monitoring your suppliers? And why is he or she the best person for the job?
- a list of companies you could shift work to, if necessary
- estimates of how long it would take to shift work
- an understanding of how much it would cost you?
Your plans could be multiple-page documents or simple checklists of actions. The level of response depends on your company and what it has the resources to do. The key is that you have a plan that comes from some serious thinking based in reality.
How do you get started? First, identify your major suppliers of unique parts or services. They should represent 10 to 25 percent of your supplier network. Next, perform a thorough analysis of these companies. Start with how well they perform their duties. Measure their performance on a week-to-week basis. Then, ask how much research and development they are doing. Determine how long they are likely to stay in business. Are they in danger of a buyout or merger? Finally, consider your suppliers’ locations and the types of disaster issues they may face.
Pose these questions to your suppliers in writing and get written responses in return. Create a process for monitoring these businesses, and make sure all plans are up to date.
Inaction is not caused by belief in fairy tales, but by lack of time, resources, and money. Make the effort to determine if your organization can handle a major shutdown. Remember: Your company’s livelihood depends on what you do right now.
Philip E. Quigley, CFPIM, PMP, is a senior application portfolio manager for Computer Sciences Corporation. He teaches at Chapman University’s Argyros School of Business and Economics and California State University at Fullerton. He may be contacted at email@example.com or (310) 616-8095.