RETHINKING SUPPLY CHAIN STRATEGIES

RETHINKING SUPPLY CHAIN STRATEGIES

GOPAL R says that in the context of Thailandʼs floods and Japanʼs disaster, supply chain strategies can ensure disaster recovery is rapid and help minimize impact of future unforeseen scenarios.

Thailand’s logistics industry estimated to be valued at US$70 billion is certainly impacted due to the largest contributing segment of manufacturing adversely impacted due to the fl oods. Trade oriented automotive, high tech and consumer goods industries’ shut down has impacted the entire supply chain of these industries thereby resulting in negligible trade and consequently drop in logistics industry contribution.

The industries certainly get back on track, but do leave behind valuable lessons to rethink the future supply chain strategies to manage risks.

1. Supply chain risk management: It is observed that nearly 60 percent of the fi rms do not have any eff ective supply chain risk management policy. This completely wipes off any uncertainties at sourcing, manufacturing, storage, distribution and last mile delivery. It is time to ensure adequate policies are in place to manage risks at all levels of the supply chain. Supply chain risk management would involve reviewing supplier contracts with risk management standards, analysis of supplier dependencies, and evaluating inbound logistics to avert potential issues. Also ensuring adequate safety stock relatively closer to the customer to manage demand and supply variations. Ensuring common platforms with vendors, leveraging partner agencies for distribution and deploying multimodal transportation solutions can also be seen to manage supply chain risk.

2. Don’t hoard, distribute: It was common to see companies after the Japan disaster to say we will start hoarding components, intermediates and inputs. This statement also is visible as a knee-jerk reaction to the Thailand fl ood scenario. It certainly isn’t quite an appropriate strategy. It is wiser to plan for inputs from diverse sources than hoard. In the longer term, we will realize the cost benefi t of distributed or leveraged sourcing will far outweigh hoarding. Taking on cues from these challenges, organizations should plan to balance their input and distribution through multiple points and create that as a strategy to adapt to demand variations. This will ensure this strategy comes in handy in the event of any crisis.

3. Cross-border collaboration: Companies should leverage trade and economic cooperation arrangements like ASEAN Free Trade Area, ASEAN Economic Cooperation and bilateral country agreements to build complementing and mirroring supply chain facilities to ensure disaster recovery is rapid. Normal scenarios can leverage these facilities to balance demand spikes and troughs. This collaborative process will also result in cost advantage over medium to long term through the various value add incentives provided by these economic cooperation agreements. These incentives and discounts will certainly justify investments over a period of seven to 10 years or even shorter depending on the scale and location of investments.

4. Dynamic forecasting: Demand forecasting is still deterministic and routine across various manufacturing segments. This feeds in assumptions that weather in unfavorable economic and natural scenarios. It is therefore essential to bring in stochastic scenario planning to ensure preventive steps are made to the supply chain ahead of crisis, than mending ways after. This essentially means mocking potential challenges in demand and supply at periodic planned intervals to ensure learning on how the system reacts and subsequently correcting those. This would make the demand forecasting more robust. This is akin to running fi re drills in the building as a periodic exercise. It does take time and resources to run these drills periodically, but it also minimizes and avoids loss when the actual event happens as people are conditioned to the most suitable disaster management response.

5. Cultivate concept of sustainability: In today’s rampant depletion of resources, we seldom consider aspects on how sustainable our eff orts are. If we pause to think of sustainability in what we do, we certainly would have been reminded of social and ecological implications in our every day routine. This would have helped us be more vigilant and planned to mitigate the loss resulting from such calamities. Sustainability is not futuristic; it is constantly refreshing the basics. Sustainable business practices should be inculcated as one of the core values of how people respond to day-to-day business demands and interactions. It should not be another KPI initiative, but should be seeded to stem from within each corporate citizen as a social concern for the place we live and do business in. In the context of the Thailand’s fl oods or Japan’s disaster, the above supply chain strategies can ensure the disaster recovery is rapid and also help manage any future unforeseen scenarios with minimal impact. Today’s high level of expectations from every aspect of life and produce makes organizations assume high reliability across the supply chain. For a moment, we need to pause at opportunities and ask the question of how to address it when reliability of the system goes down. This will present a borderless solution. Supply chains are borderless; let’s not chain them.