When the triple disaster of the earthquake, tsunami, and Fukushima meltdown hit Japan in 2011, the global car industry was stricken, with 80% of the country’s automotive plants suspending their production. One of the companies supposed to be worst hit was Nissan, with six production facilities and 50 suppliers severely affected, and a resulting loss of production capacity reportedly equivalent to approximately 270,000 cars.

And yet over the next six months, Nissan’s production in Japan decreased by only 3.8%, compared to an industry-wide decrease of 24.8%. Incredibly, Nissan ended 2011 with an increase in production of 9.3% compared to a reduction of 9.3% globally.

So just how did Nissan manage to emerge in so much better shape than the rest? The company’s
story – a lesson in exemplary supply chain risk management against the odds – is highlighted in Making the Right Risk Decisions to Strengthen Operations Performance, a study by the MIT Forum for Supply Chain Innovation, in collaboration with PwC, published in August 2013.

The report, based on the results of MIT’s 2013 Global Supply Chain and Risk Management Survey, points out that Nissan had a forward-thinking supply chain risk management strategy, with a focus on early risk identification and analysis, and rapid implementation of countermeasures. Nissan also had a continuous readiness plan – including an emergency response plan, business continuity plan, and disaster simulation training – which it deployed along its supply chain. Plus, crucially, Nissan’s supply chain was flexible, with visibility embedded across its entire operations and with good coordination across internal and external business functions. As a result, it was able to rise, phoenix-like, to get ahead of the competition. Others weren’t so lucky, with one carmaker in the region reporting a staggering 99% drop in quarterly profits.

“Our survey indicates that supply chain disruptions have a significant impact on company business and financial performance,” says MIT professor David Simchi-Levi, founder of the MIT Forum, “and companies that invest in supply chain flexibility are more resilient to disruption than mature companies that don’t.” To which the only sane response can be: why wouldn’t a company invest in supply chain flexibility? Well, since the 1990s, “lean” has been the name of the supply chain game. In the rush toward cost optimization, businesses have, for example, based production where labor costs are lowest, introduced outsourcing, employed just-in-time inventory, and reduced their distribution facilities. Measures such as these may make a big difference to an organization’s bottom line, but the downside is often a lack of supply chain flexibility, resilience, and increased risk. When it comes to assessing and dealing with risk, the strategy for many companies over the last 20 years seems to have been: cross your fingers and don’t think about it too much. It’s been low priority, at best.

Increasingly, however, something happens to focus minds. The 2010 Icelandic ash cloud, for instance, which closed European airspace; the 2011 floods in Thailand which caused massive loss of life and disruption to the global supply chain; and  the aforementioned Great East Japan Earthquake, tsunami, and Fukushima disaster.

Getting the Big Picture

These are headline-making events, of course; but supply chain disruption comes in many other – and thankfully more mundane – forms, from power outages and IT failures, to outsourced services provision failure, loss of talent and skills, and new laws or regulations. It is part of business and, particularly in a globalized economy, will never be eliminated. Yet the fact is that supply chain disruptions can cost a company in both sales and loss of reputation. Resilience, therefore, has to be the watchword.

The assessment was an eye-opener because we never looked at risk holistically beforeAn D’haenens, Logistics Manager at DuPont
Traffic Jam: Some risks are mundane. Identifying them is as important as mitigating major supply chain disruptions.

To be properly resilient, however, it is not enough for different parts of a company to understand different parts of their supply chain: instead, getting the big picture – an overview of the inter-connected whole – is key. In its 2013 supply chain risk report, The Ripple Effect, Deloitte notes that a more holistic approach is necessary. This, as its name suggests, is a strategy that understands and assesses the entire supply chain end-to-end, enables early and fully informed decision-making, and thus allows a company to get ahead of the risk curve. Deloitte notes that taking a holistic supply chain risk management view “means establishing clear cross-functional ownership and governance over supply change risk, and investing in organizational and risk management enablers, including the appropriate tools and processes for understanding, tracking, and predicting risk.”

For example, Tobias Larsson and his team from DHL Customer Solutions & Innovation have spent two years creating and developing a supply chain risk management methodology and solution for customers, called Resilience360. A visual tool, Resilience360 has been designed to reduce customers’ emergency costs, maintain service levels and creative competitive advantage, and can be tailored to individual requirements. “DHL has long experience of managing risk in our global logistics networks,” says Larsson. “For example, when the Icelandic ash cloud disrupted supply chains across Europe, grounding flights for over a week in some areas, our contingency plans for using a road based trucking network instead limited delivery to a maximum of 24 hours and the shipments never stopped”

The results of adopting a holistic approach, says Deloitte, will be “greater visibility, flexibility and control.” But there is another benefit. Because holistic supply chain risk management can lead to effective mitigation it can also turn potentially disastrous supply chain disruption into a competitive advantage for a business. “There has been a lot of clustering across sectors in recent years,” says Larssons. “If one company sets up production in, say, China, others follow. Their second and third tier suppliers go, too, to be close to production sites and the customer. Then something happens and the entire industry is affected: the flooding in Thailand, for example, hit the global production of hard drives. But if a company has created resilience in its supply chain, with other suppliers in other parts of the world, its exposure to a disruptive event will be safeguarded or, at least, limited. As a result it can greatly benefit because it will be a step ahead of the competition.”

Resilience360 – available on a totally secure, cloud-based platform – is scalable, easy to set up, adapt and use, and offers organizations a risk and resiliency assessment, plus supply chain incident monitoring. To create a risk assessment, a customer’s supply chain data is input into the tool with the aim of exposing vulnerability in over 20 risk categories, therefore allowing measures to be put into place to increase supply chain resilience. Additional necessary data for the analysis is gathered using a bespoke survey. “The great thing is that it is a visual tool,” says An D’haenens, Logistics Manager EMEA at innovation and science firm DuPont, who recently used the tool to identify the company’s top risks. “The supply chain data we have at DuPont is very complex, but this solution made it easily visible on a map.”

85% of companies with global supply chains had experienced at least one supply chain disruption in the previous twelve months (Supply Chain Resilience 2011 – Business Continuity Institute, November 2011).

17% say that the cost of the most significant single disruption was more than €1 million (Supply Chain Resilience 2011, Business Continuity Institute, November 2011).

48% of executives said the frequency of risk events that had negative outcomes has increased over the last three years (The Ripple Effect: How manufacturing and retail executives view the growing challenge of supply chain risk — Deloitte, 2013).

Creating Competitive Advantages

The tool’s incident monitoring, meanwhile, tracks on a map risk incidents in real-time – combining data feeds from different intelligence companies partnered with DHL – that may have the potential to disrupt a company’s supply chain, flagging up hotspots with notification alerts, feedback loops, and follow-up action triggers. This gives a business full supply chain visibility and the flexibility to react before emergency shipments become necessary, saving time, money, and reputation when disruption occurs.

“Resilience360 offers comprehensive supply chain mapping, including production sites, facilities, suppliers, and logistical flow,” says Larsson. “It also visualizes and tracks shipments and even part or material numbers in a more sophisticated way than traditional risk management tools. The result is that customers can avoid halts to production and/or lost sales.

“Another huge benefit is that it is powered by our specialized knowledge of supply chain management, and run by people with logistics operational skills. These include experts in supply chain consulting who carry out the risk and resiliency assessments; and experts in incident monitoring who can deliver the solution in a control tower offering, if needed. We think this is supply chain risk management methodology that is best-in-class.”

—   Tony Greenway

For further information on Resilience360 contact: 
Tobias.Larsson@dhl.com

Published: February 2014

Photos: picture alliance/abaca, Getty Images