Procurement Intelligence Unit

This article brings up a good point about supply structures. The issue of whether or not all freight terminals are fully operational remains to be seen as well. Is electricity available? Are there sufficient personnel in the wake of the crisis? What is the availability of inland trucking? What freight and Customs infrastructure remains? The primary importance now is upon the supply of emergency aid/relief that needs to be injected into Japan. Then secondary is the recovery of normal freight operations, which may impact the global market for quite some time.

As far as I can make out, Kerry, much of the economic activity has been maintained throughout the crisis, demonstrating the resilience of the Japanese economy after years of natural disasters. The emerging threat appears to be the concerns surrounding the unstable nuclear plants. I read that Infosys has pulled its 200+ workforce out of Tokyo, and importing countries have expressed fears over the safety of Japanese food. 

The supply chain appears to have emerged (relatively) undisrupted from the earthquake - but the nuclear issue may leave a more lasting impact. 

Kerry, looking at the recent reports, north Japan appears to be the most affected. However, this is where some of the Japanese manufacturing and engineering powerhouses are located. In addition, the nuclear problem is now at the forefront of people's minds now. It’s really how one deals with the worst problems first. Also, you will find that supply chain of say electronic components will be more affected than others.

I agreed your concern about this huge disaster occurred in Japan, it really caused the heavy influence on the global supply chain, especially for Japan itself. We here in Taiwan encounter rather big strike against the eartrhquake and tsunami, because we are very rely on import from Japan for electrical parts and internal demand commodity.
At this moment, all profesiionals involved in SCM field should stretch out our hands to help them stand up with our utmost effort and cooperate hand in hand together to rebuilt the global supply chain system in perfect order, that's my personal wishes.

Yes, absolutely......I think solidarity will help in overcoming this terrible event.

Whilst many multinationals are now pulling out their expatriates and moving them far from the area near the devastation area, apparently support is coming in from nearby cities to support those left behind.

Let’s face it, many of those who perished were skilled workers, doctors, engineers, and etc who made the electronic products or components we consume. Therefore, it may take some time to fill this void. There is news this morning that Toyota will not be opening its plants until the 22nd of March.

What they need that's overall support while there is a humanitarian crisis and authorities and people are fighting for avoiding nuclear disaster. Those, temporarily displaced lack foods, medicines, hygiene supplies, heating; As per BBC and Voice of America, most Japanese airports have 10 days of jet fuel supplies remaining.
Just wonder: where is an International Community? It has been a week, Japan is struggling, and it does not seem that there are not too much helping hands given. Is that all world is capable for Emergency Response?!

Clearly this is very disappointing. I suppose the threat posed by the nuclear explosion to human health is a key determinant. I also agree that the global community appears to lack action to support a nation which has been generous in donating to poor countries. At the same time, Middle-East and North Africa challenges seem to be stretching resources of those willing to help. Look at New Zealand, how many reports do you hear about the earthquake in Christchurch?
However, from a procurement point of view, you need to have the logistics infrastructure to allow the flow of goods and services in and out of the affected earthquake zone. I am not sure that the structure is able to cope with such demands.

Dear Tamricko, I don't think the global Emergency Response work. Even the International Community doesn't exist always. We Chinese here in Taiwan particularly caring the disaster happened in the world, we always stretched out our hands automatically in the beginning but I found that not so many countries will give a hand to others if nothing related themselves, that's what I thought.

Fellows, you're correct a way or the other. However, I'd like you to consider the point of "Outsourcing". No, it's not outsourcing anymore. It should be Out-reaching. Japan and many other countries are contributing many of what we consider as 'High-Tech' products and components we can't live without. Out-reach is to not only contribute to any local (Country's) economy but to produce the products and or components in the region that it serves. Spread out the Risks. Think about it! Isn't that what we do when we try 'Qualify' a particular potential supplier? Isn't that on the questionnaire when we ask the question "How do you respond any disasters?" We preached the importance of 2nd sources, manufacturing facilities also need backup production capabilities. It is especially true on vital components.

Given the growing interdependence among economies worldwide in our global economy, must make us to rethink about the trend of outsourcing and globalization.
On how to manage the risks that they generate.
Of course a global SC is more cost-efficient but facing with disruptions such as what we see now we can very well feel their weaknesses; this is especially very challenging because any local abnormal event is not local anymore, it quickly spreads through whole SC and affect all firms and actors.

Behzad, what sorts of mechanisms can we have in place to mitigate the potential risks posed by unexpected and catastrophic events to the supply chain?

Companies now have longer and thinner strands of supply chains to remote areas of the world, and some of the products sourced from these regions are integral to other manufactured products.

Maybe we should be thinking about changing consumer behaviour?

Right now most well known charity foundations such as American Red Cross,Save the children, Salvation Army, International Medical corps, Americorps. are mobilizing supplies; AmeriCares for instance through its relief workers in Japan are working to deliver medicines and supplies to hospitals, shelters and health responders to treat and care for survivors. The AmeriCares team began mobilizing within hours of the first reports of the dual disasters, dispatching an emergency response manager to Tokyo to direct the efforts of their relief workers in Sendai, the largest city closest to the impact zone. I'm afraid that the International community get distracted by the Lybia's situation, and forget to continuos rasing help for the people of Japan. We might be able to get the message out there through this link and hands on the transportation and logistics needs.

The Libya situation has been addressed with 'military precision'; this is reflected in how quick they have deployed fighter jets, destroyer ships and military personnel in the Mediterranean. The whole logistic operation has been precise.
Now, if we could have spent the same time planning post earthquake rescue in Japan, perhaps the post humanitarian disaster would have been mitigated.
However, there was a report on the BBC about a British rescue team who arrived in Tokyo within hours of the quake only to be refused entry because of bureaucracy / refusal to be granted entry documents by the British Embassy. It goes to show that people want to help but sometimes governments are pre-occupied with other things.....

Dear Ben, it is not an easy question and I must say “it depends” on the specific company and supply chain. In general there are two things we can do:


Firstly, we can reduce the “probability” of disruption happening. How? For example we can move our sites to safe places or supply from safe suppliers. Another thing that may reduce disruption is to reduce the “Complexity” of our supply chain (if possible). Based on the Perrow’s “NAT (Normal Accident Theory)” when our system is very complex (the complexity is defined by him with two dimensions: 1) coupling; when there is low buffer in the system; and 2) interaction: when there is high level of interactions in the system), then the accident in the system is normal and unavoidable. What this means for SC? Well, just some implications: for example, if you want to have a lean SC with low buffer, to avoid the disruption, try to make interactions less and processes easy/linear; globalization and outsourcing means higher level of complexity, avoid them when you can or rethink about them, …


Second approach to handle these disruptions, is to reduce/manage the “impact” of them. How? At least three ways: 1) use mitigation/substitutive strategies, e.g., have a second supplier; 2) contingency planning (that is especially more recommendable for rare events, such as case we are discussing here, because when the probability of an event is low, it might be more cost-efficient to just have the plan when the event is materialized ); 3) transfer the risk(e.g., by insurance or through contracts).

I witnessed firsthand these types of disruptions here in the gulf coast during hurricane Katrina and subsequently during hurricane Rita. The resulting disruption over such a large area forced many companies to rethink their supply chain contingency plans.

Here are a few best practices from my experience to mitigate the disruption:

•Supply Chain Disruption Mitigation Plan
•Supply Chain Disruption Agreement With Vendors And Customers
•Multiple Inventory Locations
•Multiple Supplier Options
•Strategic Seasonal Inventory Carry
•Offsite or Mobile IT and IS Capabilities

While no supply chain is immune to disruptions, these are just a few suggestions for supply chain disruption mitigation. What is your current supply chain disruption mitigation plan?

Behzad, Colby, based on your comments, it seems much easier to source within country than travel various corners of the world for a desired product. This means developing supplier bases that have the capacity to deliver technical products but based on best price available globally. It means a drastic change in established cost structures, but it could also result in job creation and such like. It also makes the whole process of sourcing pain free because you are certain of delivery, certain of price and certain you can influence the supplier. However, this idea hinges upon having known alternative suppliers should your own source be affected...
Managing risk using your 'best practice' suggestion or the use of 'NAT' become less tiresome.
But we are where we are............and therefore the returning supply base within country would take time, cost money and businesses may not want to invest in such scenarios.

Dear Ben, the main point from my perspective is that the 90’s trends in business such as “Lean Production” or “global outsourcing” or “single sourcing” were superior and (cost-effective) options for “stable” environments. But, when we want to work in a complex turbulent environment of 21st century business with volatile demand for customers, short product life cycles … we might need to revise some of our decisions and may change our mindset.
Of course, I still believe that “cost (value) efficiency” must be the first criterion for making decisions but we must also think more carefully about the risk might we face when we make decisions about design or operation of our SC. Let’s suppose that we have a new IT company has made a huge investment to launch a new h-tech product in next month and the only supplier of his chips was a company in Japan that has to stop production for several weeks (and of course, after recovering it may take time to produce your orders because probably you are not the only and maybe the most important client of that company). So what would happen for that IT company? To me, it is not just a delay in presenting the product; it might be also loosing the market share or low return on investment. The dream is destroyed.
So, when we want to make such decisions, I can think, for example, “do I need to have backup supplier”.
About global sourcing, the story is the same. I do not say “no global sourcing” because, again, I highly believe in the cost efficiency but I say when I want to design a global SC, I must think about the involved risks as well. Just as an example, I know that some of European manufacturers start thinking to move their facilities from, e.g., China, to (more) local places such as east of Europe. Because not only labor cost is quite low in those regions (or they feel that the labor cost in China is going up), but also the transportation cost is much less, particularly, if they want to fulfill the Europe market. More importantly, they have reduced the exposure of their supply chain to lots of risks involved in the global business in our complex unpredictable world: risk of transportation, risk of currency fluctuation, risk of social instability, etc.
Or another example, most of experts in risk management field believe that for “rare events (or LL-HI events) such as what happened in Japan, we must have a “contingency plan” (making a plan beforehand that will be executed after the disruption occurs); but I read an article that a while ago mentioning that about 40 percent of companies studied do not have any business continuity plan to manage those disruptions. To me, this means that some people think that risk in SCM is like a “joke”. Of course, I can partly understand what those managers might think that “nobody gets bonuses in the business for the things that has not happened” and “I am just a temporary manager in this company”.

We do not give the credit must be given to “Risk” in managing our SC.

So, to conclude, nowadays the things happening around us must be a hint to think more carefully about “Risk” involved in our decisions regarding our SC.

You raise quite a lot of good points. I suppose the risk management models themselves need to be adjusted to reflect the likelihood of more frequent and catastrophic risk. Only then will people see the potential havoc events can have on supply chains. Otherwise, people forget, and the usual extreme profit maximising behaviours return to market. These tend to be short term, and therefore, the impact of risk 10 years hence becomes someone else's problem.