“Chain, chain, chain – chain of fools,” sang Aretha Franklin in 1967. It’s now 2012, and companies can’t afford to be foolish about their supply chain efforts, indicates Deloitte.

What’s going on in the world?

  • In 2011, Japan was rocked by a powerful earthquake that created an enormous tsunami and shifted the earth’s axis. The catastrophe resulted in nuclear power plant accidents and destruction of infrastructure (roads and bridges). It all came as a complete surprise. Devastation had a significant impact on global economy.
  • In October 2012, the US northeast region was walloped by Hurricane Sandy, which washed away beaches and shut down operations in the upper New Jersey/New York City region. In a flashback to the mid-1970s, gas in the hardest hit areas had to be rationed. Interstate commerce was severely affected.

There’s not much you can do about the seemingly increasing natural disasters. As these two situations indicate, the circumstances are unexpected.

Best Response
But companies can do things to help better prepare and respond. Response needs to be proactive, reactive and diligent, indicates Siva Paramasivam, the senior manager in Deloitte Consulting LLP’s Strategy & Operations practice.

“Such disasters are virtually impossible to predict. That makes it hard to prepare for the risk,” he says. “So the best way for companies to deal with this is by looking at the vulnerabilities in their supply chain – that is, where are the most significant vulnerabilities? What creates the greatest liabilities?”

Four Critical Supply Chain Elements
Diminishing the risks—and exposing the most dangerous vulnerabilities—can be accomplished by focusing on four key supply chain elements that make a supply chain more resilient. Deloitte defines these key characteristics as:

  • Visibility – “That’s foremost,” says Paramasivam, “and it means developing the ability to monitor what is going on in the value chain.”
  • Flexibility – “This refers to the ability to react,” Paramasivam adds.
  • Collaboration – “A company needs to build collaborative relationships with key suppliers,” he points out.
  • Control – “Put all of the processes and plans in place, and then you can do all of the above,” he says.

True, Hurricane Sandy wasn’t as devastating as the disaster in Japan. Still, companies need these elements in place. “The impact of ‘Sandy’ was much less, because a storm’s approach can be measured,” says Paramasivam. “Still, some companies didn’t arm themselves with resources or develop a backup plan.”

More Key Points
As a reminder why proactive risk management is so important, Deloitte points to these elements:

  • Globalization – Manufacturers have become involved in so many global areas; as such they could be impacted by regional circumstances such as hurricanes, cyclones and typhoons.
  • Inventory – It’s a modern move to cut inventory (the “leaning” of manufacturing), but little or no stock can prove disastrous to a company when disaster strikes.
  • Outsourcing – When a company becomes more involved with contract manufacturers, that company becomes more tied to those manufacturers’ disaster recovery plans, which may be inadequate and even non-existent.
  • Suppliers and product lifecycles – If a disaster, such as a flood, devastates a key supplier right before product launch, you might as well forget about it.

Deloitte Strategy & Operations – Consulting Practice