The butterfly effect
The “butterfly effect” was a term coined by mathematician, meteorologist and chaos theory expert Edward Lorenz around 1960. It refers to how one small incident can have a huge impact later on down the line.
The recent West Coast ports cargo-handling disruption is an example of the butterfly effect. The labor dispute caused freight bottlenecks. Companies using West Coast ports had to spend additional millions to cover extra inventory costs and shipping delays. US trade deficits rose to a massive $46 billion in December 2014.
Have you got what it takes to bounce back?
Labor disputes, bad weather, and IT outages are just some examples of disruptions that could affect an otherwise well-designed supply chain. They are unpredictable, inevitable, and can cause substantial damage to business operations and financial performance.
What do you do when a wrench is thrown in the works? Scrambling for solutions puts you at risk for being left behind your competitors.
What you need is a supply chain that is designed to be resilient in the face of disruptions.
But what makes a supply chain resilient?
The foundation of a resilient supply chain is end-to-end visibility. While most businesses already have some sort of visibility, end-to-end visibility helps planners detect problems that could happen at second- and third-tier supplier levels. Your direct supplier may not be able to cater to a sudden surge in demand if their suppliers in China have halted operations due to a flood. Knowing the impact of disruptions up and down the supply chain is crucial to making the right remedial decisions. Extended visibility gives you the power to avoid hitting snags, or worse, coming to a complete halt.
There is a Malay proverb that goes something like this: “Prepare an umbrella before it rains”. What if one of your main suppliers goes bankrupt – do you have backup suppliers? What if a manufacturer has to stop operations for a day because their machinery broke down – do you have enough safety stock to last until operations resume? Supply chains need several contingency plans that can be put into place when something unexpectedly goes wrong.
While contingency plans can save you from total disaster, agility is the flexibility and speed at which your supply chain can adapt to changes. The way your decisions flow through the supply chain needs to be fast and accurate, so that you can immediately respond to customer demands. Your supply chain needs to be flexible enough to be able to implement the changes. Good decisions are crucial, but agility is key to staying ahead of the game. Learn how to stay agile in tough times.
Are you making the most of your supply chain? Optimization is about making sure that you’re utilizing your resources in the most effective manner, without compromising rules and KPIs. For example, is your safety stock at the right level or is it leading to unnecessary costs? Can you reduce the idle time of your workforce to improve productivity without violating labor rules? An optimized plan is something that can only work if it takes into consideration constraints, business rules, and KPIs, so that you can measure the outcome of your decisions and improve upon them.
Disruptions come in all shapes and sizes
When disruptions occur in an environment that is already so competitive and unpredictable, businesses can’t afford to scramble for solutions at the last minute. A resilient supply chain is key to nipping problems in the bud, minimizing damage, and staying ahead of competitors in times of trouble.
What risk mitigation strategies do you have in place to handle disruptions? Let us know in your comment below or drop us a tweet @Quintiq.