What we’ve seen is that manufacturers are now looking for more reliable supply chains which can withstand the test of such disruptions.
Natural disasters, large scale accidents and political unrest can all cause wider repercussions in a company’s supply chain. Transport and logistics expert Gopal Ramasubramaniam says that by planning for the worst, supply chains can be kept rolling in times of upset.
Almost every industry has felt the impact of recent disruptions like the earthquake, tsunami and nuclear disaster in Japan, the floods in Thailand and the repercussions of the Arab Spring across the Middle East and North Africa – not to mention the wave of economic uncertainty caused by the global economic downturn.
Raw materials got stuck in one location, stock and supplies got washed away in others and customers faced long delays to receive their products. While most companies have got back on track again, these events have left behind valuable learnings about how supply chains can handle – and better prepare for – such risks in the future.
“What we’ve seen is that manufacturers are now looking for more reliable supply chains which can withstand the test of such disruptions,” says Gopal Ramasubramaniam, Vice President Transportation & Logistics Practice for Asia Pacific and Country Head for Malaysia at consulting and research company Frost & Sullivan. “They’re rethinking their inventory management and lean manufacturing principles. They want their suppliers to hold additional months of specialised parts and materials for them, to make sure that they have a stock supply in the event of such disruptions.”
Gopal believes the picture is more complex than ever due to the fragmentation of a huge supplier base scattered across the globe.“ And, as our environment has become more global, risk management has also risen a few levels,” he says.
Another issue which has had a negative effect is the constant cost pressure. “Customers are trying to get the best possible options at the lowest price to get maximum value,” says Gopal.“ Squeezing suppliers increases the element of risk as the more they squeeze, the more they risk pressurising their supplier into cutting corners.
”The risk of the weakest link continues. “Sacrificing quality for the sake of saving a few dollars can be a costly experience,” he warns, referring to mass product recalls which are not only expensive but which also destroy the product’s brand image and result in irate customers.
Unfortunately, this often means that logistics companies get squeezed on both sides – from the manufacturer and the end user. But Gopal believes that this can be turned to everyone’s advantage. “There’s a great opportunity for logistics service providers to help their customers mitigate the risk by taking full responsibility for the movement of goods from country A to country B. Being able to do product pre-delivery inspections in the country of origin and to fix any damage at the destination before the product goes to the end user is a win-win situation.”
In his work at Frost & Sullivan, Gopal has noticed that people are starting to factor in risks in their supply chain processes and contracts. They are also trying to shorten their supply chains to monitor production and reduce risks.
Besides taking ownership of the cargo from beginning to end, the logistics service provider, he believes, also has an important role to play in helping to ensure product availability. The trend in recent years has been on lean production and just-in-time delivery, but the crisis in Japan, for example, highlighted the vulnerability of supply chains as suppliers struggled for weeks for parts and products to be delivered.
“It’s good, in such cases, to spread the risk across different locations by not holding all your stock in one place,” says Gopal. “We can’t control natural disasters but we can take some precautions. For example, leverage free trade arrangements between countries or within regions to hold stock in multiple locations that can help mitigate a natural disaster quickly.” Tracking goods effectively goes hand-in-hand with risk management. Today many logistics firms have elaborate electronic systems which can help to monitor stock availability, control risk, and, in a worst case scenario, play a vital role in the event of a product recall. “For example, if a company needed to recall a product, it could turn to its logistics provider to track the issue back to a specific factory or location, instead of having to do a mass recall for all factories,” Gopal explains.
Another risk today is the lack of integration in the supply chain. According to Gopal, this has caused delays in several large projects and the launch of some high-value products. “If the supplier architecture is not well defined and coordinated, these delays are inherent in new product launches. This is an opportunity for logistics service providers, as they can play the role of integration between suppliers, thereby eliminating this risk.”
So how will risk management fit into future business planning?
“Just-in-time delivery and lean production will continue but these processes will diversify to factor in risk,” he says.“ And, just like regular fire drills, companies should also hold mock-up scenarios so they can plan for unexpected events.”
About Gopal Ramasubramaniam
Job title: VP Transportation & Logistics Asia Pacific at Frost & Sullivan, Country Head of Malaysia at Frost & Sullivan.
Family: “Happily married!”
Background: Masters in Applied Economics & Management. Worked as Commercial Director for Caterpillar Logistics in South East Asia and in financing, public administration and market research before joining Frost & Sullivan in 2000.Motto: “Dream, Deploy, Demonstrate”Hobbies: Running in marathons, travel, reading, movies
3 favourite books:
The Monk who sold his Ferrari (Robin Sharma)“It’s an interesting tale about fulfilling your dreams and reaching your destiny. It gave me perspectives to think about during my journey.”
Art of war (Sun Tzu) “A very reliable strategy guide from the tested past. Something I can use to help myself think differently in a strategic environment.”
Macroeconomics (Samuelson & Nordhaus)“My foundation. Had to read this years ago to get my grades, but I realised later that it makes a lot of sense... Helps me evaluate the economics behind every scenario.”
Gopal’s tips on managing risk in the supply chain
1. Ensure you have an effective supply chain risk management policy in place.
2. Don’t hoard your inventory – distribute it across different locations.
3. Focus on cross-border collaboration through economic cooperation agreements to build complementing supply chain facilities so disaster recovery will be rapid.
4. Like running a regular fire drill, mock potential challenges in your demand and supply chain to see how your systems react and to fix them before, and not after, a disaster.
5. Make sure you use sustainability as a core value in your daily business.