Many companies, especially in the manufacturing sector, have been busy implementing a number of different operational changes across their businesses. Given that the manufacturing sector is one of the more global industry sectors, it is not surprising that decentralising operations or spreading the production risk to multiple countries has become a key theme of many companies. Let me now go through some of the more popular ways that companies have been making operational changes to their businesses.- Near Shoring- Establish a ‘Global Plant Floor’- Shift Production to New Locations- Map Out Supply Chains/Networks- Introduce Dual Sourcing Strategies- Implement Control Towers/Crisis Management Centres- Appoint a Business Continuity Manager
During the most recent economic downturn, companies were quick to establish manufacturing locations in low cost emerging markets or in countries with an abundance of high quality suppliers. Due to the increasing length of some supply chains, companies started to look for sourcing locations closer to their home markets, with the ultimate aim of trying to shorten logistics networks to speed up the delivery of goods. The recent natural disasters, especially in Japan have forced some manufacturers to move production back to their home markets at an accelerated rate. Near shoring or Reverse Globalisation has become a necessity for some companies to stay in business.
One example of a manufacturer moving production back to North America is Caterpillar. They decided to move production of one of their more popular mini-excavators from Japan to their plant in North America. The increasing value of the Japanese Yen has also provided another reason for companies to look for alternative manufacturing locations outside of Japan. In fact interestingly, I have seen more inward investment in North America in the first five months of this year than at any other time since I joined GXS six years ago.
An alternative to near shoring has been to ramp up production at alternative production sites around the world. For example rather than manufacturing one type of product in a specific country, companies are trying to ensure that they can manufacture a specific product at multiple locations. This is essentially spreading the manufacturing risk so to speak and thus ensuring continued production during a period of significant disruption.
In addition to spreading the manufacturing risk, many automotive companies for example have been working to de-centralise their design departments. This had been driven by a need to bring the design process closer to the end market. For example BMW and Volvo have established design centres in China and Honda announced at the Detroit motorshow this year that they would be designing and manufacturing their next generation super car, the NSX, at a new facility in Ohio where their production facilities are based. This de-centralised approach to the design of future cars has driven an increasing need to be able to transfer very large CADCAM files.
As is always the case in these types of situations, other countries were very quick to start marketing themselves to the companies that had been severely impacted in some way. Some governments started to announce investments in state of the art science and technology parks and also offering significant tax breaks if companies invested in their country.
An example of this is Taiwan who was very quick to promote their country to the high tech companies that had been impacted by the Japanese Earthquake and Tsunami. Taiwan is keen to raise their profile as being one of the leading countries for high tech companies to invest in.
One key area that has been highlighted for immediate improvement is mapping out supply chains. It is one thing to have end-to-end visibility of supply chain transactions but how many companies know every single company involved in their supply chain?. In the case of an automotive company the car manufacturer would leave it to their Tier 1 supplier to manage their downstream suppliers, ie Tier 2, Tier 3 and Tier 4 and smaller. When Toyota were impacted by the earthquake they had no idea how their supply chain was going to be impacted and they had to rely on key tier 1 suppliers such as Denso to help them out. Mapping out supply chains has become a key activity over the past 12 months and many companies have been able to increase their supply chain resilience through embracing this process. Of course once a company has mapped out their supply chain, the various inter-company relationships need to be maintained on an ongoing basis to ensure that contact information is correct.
In this example from Honda, a researcher at Ohio university spent three years mapping out every single supplier of components to the centre console of one of their cars. The fact that it took three years helps to illustrate why it is important to map out supply chains right at the beginning of the production life of a vehicle rather than trying to do it retrospectively. Mapping out suppliers in this way has helped Honda to identify key points of weakness across their global supply chain and has allowed them to implement alternative sources for components should disruption occur at one of their plants in the future.
Identifying alternative sources for components, more commonly known as dual sourcing, has become one of the simplest ways that companies have been able to build additional resilience into their supply chains. These alternative suppliers need to be identified very quickly during a time of crisis and they must have components or parts available should they be required. Dual sourcing may not be required for every component in a product but it should certainly be considered for key parts. Over the last few years companies have been persuaded to reduce their buffer stocks as a way to reduce operational costs, but lean manufacturing, as in this case, is not always a good strategy. In this case we have started to see many companies start to increase their buffer stocks once again so that they can ride out the storm so to speak.
Many companies have implemented control towers or centralised locations for being able to monitor supply chain related transactions and activities. Recent natural disasters have seen these control towers take on a new area of responsibility, namely becoming crisis management centres. During a time of crisis a company needs a centralised approach to how they send out mass communications to trading partners and supply chain participants across the extended enterprise. Once again, as highlighted earlier, unless you have your suppliers’ contact details in a centralised location it is going to become very difficult to send out mass communications in any sort of organised manner.
One increasing trend I have noticed on professional networking web sites such as LinkedIn or Xing has been the emergence or rise of the business continuity manager role. This person becomes the go-to employee during a period of disruption, they become the central person who is responsible for steering a company through a period of supply chain disruption. Sometimes referred to as the ‘Masters of Disaster’, these people are key to making today’s supply chains operate efficiently and seamlessly. The ability to proactively monitor supply chains and almost sense when disruption is likely to occur has become a key competitive weapon that companies have been keen to implement. Increasing regulatory compliance has also made the business continuity manager more visible in today’s extended enterprise. In summary, being unprepared is bad for business.
So taking all of these operational improvements into account, there are a number of common themes that start to appear.Companies need to improve the management of their contact informationThey need to increase the day to day interaction and collaboration with suppliersThey must have a better understanding of the structure of their supply chains so that they can be easily mapped outNeed to review mass communication procedures so that trading partners can be contacted as soon as disruption occursIntroduce a crisis management process which allows a business continuity manager to take control and orchestrate proceedings as required.
Adapt to Survive Supply Chain Disruptions – Part 2
Adapt to Survive SupplyChain Disruptions – Part 2 Mark Morley, Industry Marketing Director