How Vulnerable Is Your Supply Chain? Find Out From This 8 Point Checklist.

 

Two powerful earthquakes hit Kumamoto, a manufacturing hub in south-western Japan, killing at least 41 people and causing severe supply chain disruptions to numerous Japanese manufacturers. Some of the companies affected are Sony, Nissan, Honda, semiconductor manufacturer Renesas, and the company that wrote the book on “lean” production – Toyota. Toyota is suspending operations at most of its vehicle assembly plants for at least a week as it is having difficulty sourcing parts from some of its suppliers.

Toyota, the Master of “Just in Time” Production

Toyota is the master of “just in time” manufacturing. Components and parts arrive at their assembly plants the moment they are needed. Only hours worth of inventory is held. An extremely efficient way to run a manufacturing plant but what happens when a natural disaster hits the parts supplier? That is exactly the situation Toyota find themselves in right now.

However Toyota and other manufacturers have learned valuable lessons from the tsunami in 2011. Both Toyota and Nissan have built an extensive supply chain database enabling them to very quickly switch suppliers in an emergency. Japanese parts suppliers built new manufacturing plants in other parts of Japan. If one plant is damaged production can be ramped up at another.

It often takes a tragedy like this to realize how vulnerable supply chains are to natural disasters. The question is “are you going to do a risk assessment on your supply chain, and take remedial action, before you get hit by a disaster or after you get hit by a disaster?”

8 Principles of Supply Chain Risk

Our friends at Inbound Logistics have published a very timely white paper titled “8 Principles of Supply Chain Risk.” I’ve summarized those eight principles below:

  1. What you don’t know can hurt you! You need a very clear picture of your entire supply chain before you can even start assessing risk.
  2. Identify weak links before there’s a break. Use the map you’ve built in step one to identify choke points and other areas of concern.
  3. A map on the wall is décor, not a tool. You may have mapped out your supply chain but it is a fluid and dynamic system. Goods are always in transit and you need to make constant real-time adjustments to avoid risk events.
  4. Big data doesn’t have to be a big problem. Overlay your global supply chain map with real-time risk data.
  5. Learn from mistakes when the risks are low. Risk preparedness requires regular rehearsals of failure in the supply chain. Drill, drill, drill and put what you learn into practice.
  6. Bad news does not get better with time. Effectively communicate before a crisis, through a crisis and after a crisis.
  7. Move your team from reactive to proactive. Apply your best supply chain “firefighter” to determining where the next big risk could come from.
  8. Risk can easily become an opportunity. Stay ahead of the challenges caused by risk events, recover quick, and grab market share from your weakened competitors.

Toyota have taken the lessons they learned from the 2011 tsunami to heart. They appear to have weathered this tragic earthquake well and are poised to resume full production shortly. If your supply chain suffered this kind of disruption would you be able to bounce back as quickly? If you don’t know the answer start by downloading “8 Principles of Supply Chain Risk”  and undertake an internal risk assessment. You might be surprised by what you find.

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