Supply chains are the lifeblood of retailers, distributors and manufacturers. However, threats abound all over the world and – with globalization making supply chains longer and more complex – the risks keep increasing.
Terrorism has been the major focus of supply chain security recently, even though these threats are remote. Meanwhile, there are more immediate and disruptive threats that are more likely to impact supply chains. Consider Hurricane Katrina, toy recalls or even the Minneapolis bridge collapse. A recent beef recall also forced a nationally known meat company out of business.
Properly securing supply chains actually goes beyond mitigating risk – it also makes them more flexible and efficient. A 2006 study by Stanford University, the National Association of Manufacturers and IBM found that improvements in supply chain security led to:
- 38 percent reduction in theft, loss, or pilferage;
- 12 percent increase in reported on-time delivery;
- 14 percent reduction in excess inventory;
- 49 percent reduction in cargo delays;
- 29 percent reduction in transit times.
That’s why companies should change from the traditional thinking of supply chain security as a necessary evil, and instead think of it in terms of the bottom line.
The keys to securing global supply chains involve visibility – being able to track material or product regardless of whether it’s with a supplier, in-transit or anywhere else in the distribution network. Besides visibility, processors also need the ability to immediately take action when disruptions occur.
Here are six steps companies can take:
1. Identify the threat. A company must first understand which threats it is most susceptible to and which have the most potential impact on its business. A company should first consider those threats most likely to occur. A food company would fear product contamination. A pharmaceutical company’s main concern would be counterfeiting. Theft might be the biggest problem for retailers.
In order to prioritize potential threats, a matrix should be set up that has the likelihood of occurrence along one axis and severity of impact along the other. A company should start working with those threats scoring highest on both axes and work its way down.
2. Create a disruption map. Once key threats are identified and prioritized, it is important to evaluate where they most likely could occur. A “disruption map” overlays these threat locations onto the global supply and distribution network to see where a company is most vulnerable, highlighting the areas of greatest impact.
The flip side to this analysis is to identify opportunities. If a company manufactures or sells products in high demand before or after a natural disaster, a surge strategy quickly stocks high-demand items in stores and nearby distribution centers. Planning alternate distribution routes is critical here.
3. Design security and recovery plans. Mitigating risk reduces the opportunity for threats to impact the supply chain, while carefully planning responses to threats a company cannot control minimizes the impact and aids quick recovery.
To prevent threats from significantly harming a business, companies must think in terms of redundancy. When examining the disruption map, companies should look for alternate ways to source, ship and distribute products so no link in the chain becomes a chokepoint – and a major liability – during a disruption.
Creating this redundancy does not necessarily mean added cost. In many cases, multiple suppliers, carriers and distribution centers already are part of the supply chain. Plan alternatives and get agreement from all parties ahead of time to be flexible and handle surges in volume. Adding additional suppliers or carriers also may spur competition, leading to lower prices, innovation and improved service.
Disruptions can impact the supply chain no matter how well a company plans because so many things are beyond its control. Recovery plans can get networks back to normal quickly and efficiently. They should define alternate supply sources, rerouting of supply and distribution lines, and movement of people, equipment and supplies into the impacted area. Where disruption events can be forecast (i.e., hurricanes or blizzards), pre-staging equipment and supplies speeds their deployment into impacted areas.
Security and recovery plans should be written out in detail and agreed upon by all parties involved, both internally and externally.
4. Leverage technology. Technology is critical to securing global supply chains, providing visibility to products and assets across extended networks so companies can immediately take action.
Examples of different – yet integrated technologies – would include network-wide applications to ensure visibility, asset management, transportation and global trade management, demand forecasting, quality assurance and recall, and workforce management.
By more effectively leveraging existing technology, operations become more agile, efficient, and resilient, and better able to quickly recover from disruptions.
5. Test, Test, Test. Periodically testing security and recovery plans is the only way to know whether they will actually work when a real disruption occurs. A thorough testing program simulates disruptions and defines benchmarks for recovery processes. Separate test plans should be developed for each disruption scenario. It is important to accurately simulate each disruption’s impact on inventory, physical plant, people and external parties.
There are two stages to testing. First, conduct well-communicated, controlled tests to walk the organization and third parties through the process. This identifies gaps in the plan and gets everyone comfortable with reacting to each scenario. Then conduct surprise tests to see how the plan – and people – hold up under pressure.
Depending on the extent of the test, a company may want to let customers know ahead of time just in case the test results create temporary glitches in delivery. Many customers will accept this small risk if they understand it means a company will be better able to serve them during a disruption. Others will not and the test plan will need to work around them.
6. Re-evaluate Risks. Supply chains are never static, and neither are the threats. It’s critical to re-evaluate potential disruption scenarios. This creates further supply chain efficiencies, turning these efforts into a de facto continuous improvement program.
These six steps mitigate as much as possible the risks these threats pose to a supply chain. They also make the supply chain more agile and efficient, turning security from a necessary evil to a source of greater efficiencies positively impacting the bottom line.
Jim Le Tart is director of marketing for RedPrairie, a supplier of consumer-driven E2e solutions, synchronizing people and product throughout, from the retail shelf back to manufacturing. He welcomes questions at firstname.lastname@example.org, or learn more at www.redprairie.com.