It is almost a universal given that unanticipated disruption of critical supply is a huge risk to an organization - large or small, public or private. For organizations with global supply chains, disruption takes on added dimensionality because of the extended time required to adjust to the disruption. What compounds the disruption is the lack of visibility into global the supply chain and the inability of the organization to respond quickly and appropriately. To mitigate the effects of a critical supply disruption organizations require a comprehensive perspective of the context of the disruption, the options to resolve problems and the ability to act. Here are some of the effects of a critical supply chain disruption: (see: The Effect of Supply Chain Disruptions on Long-term Shareholder Value, Profitability, and Share Price Volatility)
- 107 % drop in operating income
- 7 % lower sales growth
- 11 % growth in cost
- Lower sales and growth for several years following the disruption
There is a lot of literature on how an organization should prepare for a significant disruption to its supply chain, and it is the correct thing to do. However, given that disruptive events are unplanned and unexpected, planning has its limitations. From a very practical position most organizations do not have the resources to adequately plan for disruption. Therefore, more than planning for disruption, I believe that being able to respond or react quickly and effectively is more critical than planning, even for the largest organizations. Companies that are agile in responding to disruptions have a much greater chance to reduce the negative effects than organizations that lack the response mechanisms.Disruption takes on many forms from geopolitical uncertainty and unrest, to geographic (tsunamis, earthquakes, volcanoes, etc.), to financial (currency fluctuations, controls) to business (bankruptcy, litigation, reputation, supply). Experiencing supply chain disruption is common in business but its impact on the business can vary dramatically depending on the circumstances. What is an insignificant disruption in one instance can be catastrophic in another instance.How a business is structured also impacts the way disruption plays out. Companies that operate in a just in time supply environment are more exposed than companies that carry significant safety stock. There are costs and risks to both strategies. However, whatever the strategy employed, critical supply disruption is exacerbated when SKU level availability and visibility is lacking or absent. 2 steps to limit the effects of serious disruption to your supply chain:
- Ensure that you have visibility into your supply positions at a SKU level from a total supply side perspective. With proper SKU level visibility across the supply chain you can quickly analyze whether you can replace the affected stock by repositioning inventory from other locations.
- Ensure that you have visibility into alternate sources of supply so that you can quickly move to replace the affected SKU.
These 2 steps are easier said than accomplished. Successful supply chain disruption control requires the ability to aggregate and view inventory across companies, divisions, suppliers, geographies, and modes of transport at the SKU level, with the ability to drill down to the specific SKU quantity details to determine the optimal response to mitigate the damage. Very few organizations have total SKU visibility across their supply chains and are therefore exposed to damaging results from a serious supply disruption. This situation is easily remedied with current solutions that are both affordable, easy to implement. One might argue that having global SKU level visibility is a powerful solution for normal inventory control and global supply chain excellence.
About 3rdwave:
3rdwave simplifies global trade through automation. 3rdwave is a GTM platform that delivers total global supply chain visibility, minimizes manual data entry, streamlines business process, and provides contextual information enabling its users to make informed decisions to reduce global supply chain risk. It's a cloud-based platform that requires minimal IT resources for quick implementation. 3rdwave ensures that companies meet the highest levels of GTM execution and Trade Compliance conformance.
Ned Blinick is Chief Product Officer of 3rdwave.co. He has been involved in global trade for too many decades and he loves making the global supply chain simpler for everyone. If you would like to engage with Ned he would really enjoy the opportunity of communicating with you. He can be reached at (416) 510 8800 ext 234 or at eblinick@3rdwave.co
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