Rethinking supply chain strategies in the context of disasters

11 November 2011, (Global Logistics Media), Thailand’s logistics industry estimated to be valued at US$ 70 billion is certainly impacted due to the largest contributing segment of manufacturing adversely impacted due to the floods.

Trade-oriented Automotive, High Tech and Consumer Goods industries’ shut down has impacted the entire supply chain of these industries thereby resulting in negligible trade and consequently drop in logistics industry contribution. Impact of earthquake, tsunami and nuclear disaster in Japan and Arab Spring disruptions have all impacted different industries and their lengthy sourcing, manufacturing and distribution supply chains. The industries certainly get back on track, but do leave behind valuable lessons to rethink the future supply chain strategies to manage risks.

1.Supply Chain Risk Management: It is observed that nearly 60% of the firms do not have any effective supply chain risk management policy. This completely wipes off any uncertainties at sourcing, manufacturing, storage, distribution and last mile delivery. It is time to ensure adequate policies are in place to manage risks at all levels of the supply chain.

2.Don’t hoard, distribute: It was common to see companies after the Japan disaster to say we will start hoarding components, intermediates and inputs. This statement also is visible as a knee-jerk reaction to the Thailand flood scenario. It certainly isn’t quite an appropriate strategy. It is wiser to plan for inputs from diverse sources than hoard. In the longer term, we will realize the cost benefit of distributed or leveraged sourcing will far outweigh hoarding.

3.Cross-border collaboration: Companies should leverage trade and economic cooperation arrangements like AFTA, AEC and bilateral country agreements to build complementing and mirroring supply chain facilities to ensure disaster recovery is rapid. Normal scenarios can leverage these facilities to balance demand spikes and troughs.

4.Dynamic Forecasting: Demand forecasting is still deterministic and routine across various manufacturing segments. This feeds in assumptions that weather in unfavorable economic and natural scenarios. It is therefore essential to bring in stochastic scenario planning to ensure preventive steps are made to the supply chain ahead of crisis, than mending ways after.

5.Cultivate concept of sustainability: In today’s rampant depletion of resources, we seldom consider aspects on how sustainable our efforts are. If we pause to think of sustainability in what we do, we certainly would have been reminded of social and ecological implications in our every day routine. This would have helped us be more vigilant and planned to mitigate the loss resulting from such calamities. Sustainability is not futuristic; it is constantly refreshing the basics.

In the context of the Thailand floods or Japan’s disaster, the above supply chain strategies can ensure the disaster recovery is rapid and also help manage any future unforeseen scenarios with minimal impact. These strategies can also support regional economies back each other during times of crisis and ensure regional stability is maintained. Supply chains are borderless; let’s not chain them.

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