From the forecast for even stronger hurricanes to California’s persistent wildfires to Alaska’s recent earthquakes, natural disasters lurk around every corner, waiting to wreak havoc on the world’s supply chains. And while most people don’t see procurement professionals as superheroes who can ward off and/or mitigate natural disasters, a growing number of buyers are playing leading roles in the battle to reduce supply chain risks associated with natural disasters.
This new role is pushing buyers to drill down into their supply chains; keep better tabs on exactly where their parts and materials are coming from; and then plan ahead to ensure supply levels remain predicable and constant. Lacking a crystal ball, of course, buyers still have to leave some things to chance. However, those who do plan efficiently can offset some of the negative effects of even the most far-reaching natural disasters.
By the Numbers
Consider this: In 2017, there were 10 Atlantic hurricanes (versus an average of six). The three most powerful—Harvey, Irma, and Maria—cost the U.S. a combined $265 billion. Ports were closed for weeks and truck fleets were strained by the dual need to serve customers and disaster relief efforts…to say nothing of the human toll the storms caused, Spend Matters reports in Natural Disasters and Supply Chain Risk.
This year wasn’t as bad on the hurricane front, but Hurricane Florence hit the Carolinas and shut down auto production there for days, Spend Matters notes, while Hurricane Michael targeted the Florida panhandle and wiped entire beachfront towns off the map. Such incidences have a direct impact on supply chain planning, mainly because it doesn’t leave much time to enact contingency plans.
But supply chain-related disasters go beyond just weather-related incidents. According to Resilinc’s latest EventWatch Supply Chain Disruption Report, during the first half of the year the company tracked 1,069 events—with more than 300 of those incidences impacting the continuity of supply. More than 700 events indirectly impacted supply chains, including tariffs, mergers and acquisitions, force majeures, price fluctuations, and cyberattacks just to name a few.
According to Resilinc, supply chain impact events occurred at a record rate in the first half of 2018, reaching 29%, as compared to 25% in 2017 and 19% in 2016. Factory fires were the most frequent event type during that period. “Global business leaders need to understand that their supply chains are vulnerable,” Resilinc’s Bindiya Vakil said in a press release.
“2018 has been a difficult year for global companies due to ongoing operational challenges that have curtailed growth plans and negatively impacted margins,” Vakil continued. “Our data shows that impactful events happen one-third of the time, nearly every day, which should make CEOs and boards of directors take the risk seriously.”
Adapting to the New Normal
Adapting to the “new normal” of supply chain requires deeper visibility into the lower levels of the supply chain and considering just how these sources of supply could be affected by severe weather. “While many companies have a decent picture of who their tier 1 suppliers are and where they have operations,” Spend Matters points out, “the sub-tier details [i.e., the suppliers of those suppliers] are often much less clear.”
Next, establish a “disruption management team” and then foster the correct channels to communicate necessary mitigation strategies to corporate risk councils. By bridging the information and functional gaps between various departments, for example (e.g., logistics, supply chain, and procurement), that team can help to speed up response times. During this exercise, ask yourself questions like: Does our organization have any upstream or downstream dependencies that this storm could affect? Are there any single-sourced components that we need to diversify in case of an event? And, what alternate sources of transportation or routes could we use if our primary option is eliminated?
Buyers should also focus on creating a stable—yet flexible—supply chain that includes contingencies and addresses the “what if?” scenarios that directly relate to their businesses. Diversifying suppliers and methods of transport is another effective strategy, business continuity expert Lowell Grabel points out in Is Your Supply Chain Ready for the Next Disaster?
And remember that any plan is only as good as its execution. So, once you’ve developed one, make sure all internal and external team members are familiar with their roles and responsibilities. “Recovery teams should be comfortable with plan details and procedures. A periodic review and mock test exercise should be conducted, which can be in the form of a tabletop exercise or a full physical and technical exercise using a scripted scenario,” Grabel adds. “This will help team members practice their roles, develop confidence and expertise, emphasize good judgement, and reveal any necessary updates.”