Adapt to Survive Supply Chain Disruptions – Part 1

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This presentation provides an overview of how global supply chains, particularly across the manufacturing sector have been impacted by disruptions over the years. From Earthquakes, flooding and limited export of rare earth materials from China, companies are having to redesign their supply chains and B2B infrastructures to build extra resilience against future disruption. This particular presentation discusses the various disruptions that have impacted global supply chains over the past couple of years. Updated April 2013

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  • I will begin by briefly recapping some of the major disruptions that have occurred over the past couple of years and I will describe how supply chains have been impacted by various disasters.I will then go on to discuss some of the more relevant research studies that have been carried out in the areas of business and operational risk before going on to discuss some of the operational changes that companies are making to minimise future supply chain disruption.I will finish this series of video presentations by describing how B2B solutions and services can help to minimise supply chain risk.So let me begin by discussing some of the ways in which supply chains have been disrupted in recent years.
  • I am not sure if this is an effect of El Nino but it does seem strange that various corners of the earth have experienced significant natural disasters over the past couple of years. Just as companies think they are recovering from one disaster, another one strikes in quick succession, so I firmly believe that supply chain disruption is a recurring theme and it is certainly here to stay.As a result of this disruption companies are now being forced into building more scalable and flexible supply chains that are more resilient to disruptions, either from natural disasters or otherwise.
  • The eruption of the volcano in Iceland in 2010 led to much of Europe’s airspace being shutdown due to the spread of volcanic ash in the atmosphere. As a result, global air freight shipments were severely affected. I have heard a few stories of large manufacturers chartering 747 cargo planes to make sure that they could import/export goods very quickly before the airspace was shutdown completely.
  • Early last year Japan faced one of its most disruptive natural disasters in its history, with the East coast being severely affected by the earthquake. Many factories and utility infrastructures were destroyed and logistics networks ground to a halt. Japanese manufacturers are being told to expect further disruptions to their supply chains this summer due to the nuclear power stations being taken offline and power companies asking their industrial customers to reduce power consumption by 5%
  • As we know now, the resulting Tsunami in Japan caused more longer lasting damage to it’s infrastructure and as a result supply chains have been impacted for more than 12 months.
  • Then towards the end of 2011, global high tech supply chains were severely impacted by the floods in Thailand, at one point it was estimated that the delivery of 90% of the world’s supply of hard disks had been affected.
  • Honda’s factory was severely affected by the floods and as a result millions of dollars worth of cars had to be written off. Due to the increasing value of the Japanese Yen and Honda’s need to continue building cars in the region, they have decided to rebuild the factory and make it more resilient to future floods rather than pull out of the country altogether.
  • Another unexpected source of supply chain disruption has come from the Somali pirates, many of whom have been hijacking oil tankers, container ships and ocean going liners. Goods exported from the West coast of India have had to be re-routed around the problem areas adding valuable time to ocean freight based logistics networks in the region.
  • Ocean freight is susceptible to disruption when a major container ship runs in to trouble. Most of the containerised cargo has to be written off.
  • And in some cases where containers do make it to land, there is very little chance of the goods getting to their intended customer in one piece, as depicted by this photograph of people removing a brand new BMW motorbike from a container that landed on a beach in the south coast of the UK. You can just imagine BMW Customer Services saying– “Sorry Sir, we cannot seem to trace your new motorbike which was enroute from our factory in Germany!”
  • China exports millions of tonnes of rare earth materials each year, some have estimated this to be up to 90% of the world’s supplies. This material is a core ingredient to the manufacture of electronic components used in many consumer electronic devices. The Chinese government last year tried to restrict the export of these materials and this had an effect on the global distribution of electronic components across high tech supply chains. Rather than being held to ransom by the Chinese government again, many companies are looking to find alternative sources of rare earth materials, for example Japanese companies are looking to source from former Soviet Union countries instead.
  • The UK almost ground to a halt a few years ago due to a tanker driver strike and this was nearly repeated earlier this year. Even though the planned strike did not take place in April, it did not stop the UK government from sending out advice for drivers to stock up on fuel, this advice caused nationwide panic buying and inevitable fuel shortages. The retail and grocery industry is always first to feel the painduring this kind of disruption.
  • An explosion at the Evonik Industries factory in Germany caused a global shortage of CDT, a key ingredient of PA12 which is widely used across the automotive industry. Quite how the industry can rely on one or two suppliers for such a key material is beyond belief in this day and age.
  • So let me now discuss some research studies which highlight how companies could build increased resilience through improved information sharing.
  • The world economic forum has undertaken a number of studies in the area of risk management and their most recent global risk report highlighted how companies are impacted by business and operational risk and how a domino effect ripples through a company once disruption takes place. So in this example when a natural disaster takes place, companies may experience property damage, then some form of business interruption, this then impacts supply chains which in turn impacts brand reputation which leads to a drop in sales which ultimately impacts cash flow.
  • This study from the Bank of Japan shows how they assess companies using 18 metrics to see if they are suitable for loans or mortgages. As expected most companies faired quite well in the top right quadrant but the area of the chart where many companies were weak was in what can be described as the Information management and communications sector shown on the left hand side of the diagram. It is interesting to note that on average most of the companies applying for some form of loan struggled to get a high assessment number relating to the deployment of information management systems across their extended enterprise.
  • Another study from APICS, the association for operations management in the U.S, highlights other forms of supply chain risk and in this case two results that I wanted to bring to your attention on this slide are how inadequate relationship management and lack of information sharing can have an impact on supply chain risk. Strange to think that this has a higher focus than suppliers actually going out of business.
  • In a similar manner, research from APICS also highlighted that many companies failed to understand the full structure of their supply chain. In fact very few had taken the time to actually map out their supply chain from end to end. Knowing the potential weak points in your supply chain should be a key requirement for any supply chain director.
  • Adapt to Survive Supply Chain Disruptions – Part 1

    1. 1. Adapt to Survive SupplyChain Disruptions – Part 1Mark Morley, Industry Marketing Director
    2. 2. Slide 2 | © 2013 GXS, Inc.Today’s Agenda• How Are Today’s Global Supply ChainsBeing Impacted?• Managing Business & Operational Risk• Minimising Supply Chain Risk ThroughOperational Changes• How Can B2B Help Minimise SupplyChain Risk?
    3. 3. Slide 3 | © 2013 GXS, Inc.Today’s supply chains need to be highly resilient,scalable and flexible to meet the challenges of doingbusiness during a period of significant disruptionSupply Chain Disruption is Becominga Recurring Theme….Slide 3 | © 2013 GXS, Inc.
    4. 4. Slide 4 | © 2013 GXS, Inc.Icelandic Volcano - 2010Much of Europe’s airspace was shutdown due to the spreadof volcanic ash in the atmosphere. As a result, global airfreight shipments were severely affected.Slide 4 | © 2013 GXS, Inc.
    5. 5. Slide 5 | © 2013 GXS, Inc.Japanese Earthquake - 2011Japan’s East coast was severely impacted by the earthquake,many factories and utility infrastructures were destroyedand logistics networks ground to a halt.Slide 5 | © 2013 GXS, Inc.
    6. 6. Slide 6 | © 2013 GXS, Inc.Japanese Tsunami - 2011The Japanese Tsunami caused more longer lasting damage toJapan’s infrastructure and as a result supply chains havebeen impacted for more than 12 months.Slide 6 | © 2013 GXS, Inc.
    7. 7. Slide 7 | © 2013 GXS, Inc.Thailand Floods - 2011Many high tech companies were impacted by the Thaifloods, at one point it was estimated that up to 90% of theworld’s supply of hard disks had been affected.Slide 7 | © 2013 GXS, Inc.
    8. 8. Slide 8 | © 2013 GXS, Inc.Thailand Floods - 2011Honda’s factory was severely affected by the floods and as aresult millions of dollars worth of cars had to be written off.Honda is now re-building the plant.Slide 8 | © 2013 GXS, Inc.
    9. 9. Slide 9 | © 2013 GXS, Inc.Somali Pirates - 2011Somali pirates have hijacked oil tankers and container ships.Goods exported from the West coast of India have had to bere-routed around the problem areas.Slide 9 | © 2013 GXS, Inc.
    10. 10. Slide 10 | © 2013 GXS, Inc.Sinking of the Rena Container Ship -2012Ocean freight is susceptible to disruption when a majorcontainer ship runs in to trouble. Most of the containerisedcargo has to be written off.Slide 10 | © 2013 GXS, Inc.
    11. 11. Slide 11 | © 2013 GXS, Inc.Sinking of MSC Napoli - 2007BMW Customer Services – “Sorry Sir, we cannot seem totrace your new motorbike which was enroute from ourfactory in Germany!”Slide 11 | © 2013 GXS, Inc.
    12. 12. Slide 12 | © 2013 GXS, Inc.Chinese Restriction on Export of RareEarth Materials - 2011China controls up to 90% of the world’s rare earth materials.Government export restrictions impacted the shipment ofcomponents across high tech supply chains.Slide 12 | © 2013 GXS, Inc.
    13. 13. Slide 13 | © 2013 GXS, Inc.UK Strike by Fuel Tanker Drivers -2012UK businesses disrupted by ‘potential’ wildcat strikes by2000 fuel tanker drivers. The retail and grocery industry isalways first to feel the pain.Slide 13 | © 2013 GXS, Inc.
    14. 14. Slide 14 | © 2013 GXS, Inc.Factory Explosion Causes GlobalShortage of Nylon12 - 2012Explosion at Evonik Industries factory in Germany causesglobal shortage of CDT, a key ingredient of PA12 which iswidely used across the automotive industry.Slide 14 | © 2013 GXS, Inc.
    15. 15. Slide 15 | © 2013 GXS, Inc.Managing Business andOperational Risk
    16. 16. Slide 16 | © 2013 GXS, Inc.Business & Operational Risk andtheir Domino EffectSource: Global Risk Report 2012 – World Economic Forum
    17. 17. Slide 17 | © 2013 GXS, Inc.Example of Organisation ResilienceBased on 18 Metrics
    18. 18. Slide 18 | © 2013 GXS, Inc.Types of Supply Chain RiskSource: APICS 2011 Supply Chain Risk Report
    19. 19. Slide 19 | © 2013 GXS, Inc.How Well Do You Know Your SupplyChain?Source: APICS 2011 Supply Chain Risk Report
    20. 20. Slide 20 | © 2013 GXS, Inc.Thank YouPhonesUS: 1-800-334-2255, option 3EMEA: +44 (0) 1932 776047GXS web sitesUS: www.gxs.comEMEA: www.gxs.eu

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