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Wake Up Call for Global Supply Chains

Photo credit: Washington State Department of Transportation (WSDOT)/Flickr

XL GAPS team members Martin Vinkenflügel and Pascal Matthey draw some conclusions from recent natural disasters

 A Wake Up Call for Global Supply Chains

 

The breaking down of trade barriers, outsourcing of a global scale and plummeting transport costs have over the past 20 years changed how goods are manufactured and distributed beyond recognition.  Two decades of shift toward global outsourcing and ‘just in time’ deliveries leave little room for error.

 

A study by the MIT Centre for Transport and Logistics of 300 major global corporations found that 51% of these firms’ component manufacturing, 47% of their final assembly and 46% of warehousing takes place outside of the home country, requiring a complex global network of just-in-time delivery. These tight delivery deadlines pose extreme transport challenges. With supply chains getting longer, even the smallest disruption can quickly reverberate into a complex production shutdown. Perhaps unsurprisingly, some 90% of executives surveyed believe that the size and frequency of supply chain shocks were increasing. As a result many firms are looking at risk engineering to manage their exposures.

 

The devastating impact caused by the Thailand floods and the Japanese earthquake were felt around the world. Despite Japan having some of the highest building standards to withstand earthquakes and tsunamis, the scale of the disaster caused significant damage to the power supply and the country’s transport infrastructure.  Damage or destroyed roads, bridges, ports and airports caused unprecedented disruption to the global supply chain network, with motor, aviation and high-tech manufacturing industries impacted especially hard. With Japan producing around 30 percent of the world’s flash memory and around 15 percent of its D-Ram memory any disruption to the delivery process would always be felt beyond its shores. Large car manufacturers were also being hit hard. Toyota had to push back the launch of two new models and manufacturers such as Peugeot in France were forced to source an alternative supplier when Hitachi, their primary manufacturer of diesel engines, was not able to provide parts.

 

Despite devastating natural disasters, events such as volcanic ash clouds, winter storms and strike action and power supply disruption can have a severe effect on the supply of goods. Still, the importance of transportation as a critical supply chain function is often underestimated. In Europe alone, around 7.7 billion tones of goods on average are shipped along the road network every year. All of these need to be protected not only from theft, but also delays.

Extending delivery times by holding sufficient stock and diversifying the global supplier base could obviously reduce the disruption, but also prove costly and impact margins.

 

Marine and property risk engineers take a holistic view to identify dangers across the whole system and are able to spot the most likely causes for disruption. The risk engineer’s broad perspective will also include the security of warehouses and distribution platforms with respect to fire, natural hazards and access control or perimeter protection.

 

Practical solutions to minimize potential problems could include:

 

•   Gain a thorough understanding of the goods shipped and the routes used, including the primary hubs and distribution locations

•   Prepare a cargo risk assessment and loss prevention recommendation to minimize exposure

•   Identify key products, business processes and locations as well as the types of events that could cause disruption

•   Develop a security concept for key warehouses and distribution platforms taking local requirements, culture and circumstances into account

For goods moving around the world the solutions providing effective loss mitigation can vary significantly. They include using solid security seals for containers, GPS tracking or avoiding appealing advertisement markings on boxes. Other areas to consider include the security of warehouses and distribution platforms with respect to fire, natural hazards, and access control or perimeter protection.

 

Planning is essential to building resilience into the global supply process. Plans should include: procurement strategy, engineering management, transport planning, and physical and organizational security measures. If these measures become part of the strategic management, a company can respond to a shortage of supply quickly and immediately after the occurrence of a problem and successfully get the business back on track.

 

Not only since the Japanese earthquake and Thailand floods organizations recognize that a well prepared risk mitigation strategy for the transport network can be a competitive advantage. By planning for “what-if ” scenarios, reducing sources of risk and putting the right processes in place, companies can manage variability in their supply chains to mange future uncertainties in an economy with global outsourcing and ‘just in time’ deliveries.

Pascal Matthey, Head of Marine Risk Engineering
pascal.matthey@xlgroup.com  +41 32723 0167

Martin Vinkenfluegel, European Engineering Manager

martin.vinkenfluegel@xlgroup.com     +41 43555 4602

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