Financial crisis. Check. Environmental catastrophes. Check. What’s next? Is this the year of political disruption?
Working in supply chain is like starring in a Rocky movie. You keep getting knocked down and you have to keep getting back up.
You don’t need to go back any further than a decade to understand the many challenges supply chains have endured over the years. Interestingly enough, the first episode of Breaking Bad that aired in 2008 reflected what it was like being in supply chain risk management at the time: “Hey, a science teacher is cooking meth, how much worse could it get?”
If you were a fan of the series, you were on the edge of your seat amazed at the plot’s crazy twists and turns. My guess is people who didn’t see the show were the supply chain practitioners too busy trying to ride the storm of the 2008 financial crash.
Supply chains had to deal with squeezing margins and dramatically cut costs, which included significant downsizing. Doing more with less wasn’t an option; it was a necessity. Maybe the one good thing to come out of it was some companies figured out how they could survive with lower inventories. Some suppliers weren’t so lucky. In 2009, I’m sure most we’re thinking, “How much worse could it get?”
With Hurricane Matthew, the most powerful storm to threaten the Atlantic Coast in over 10 years that has already brought severe damage to Haiti, the Bahamas and several Southeastern U.S. states, obvious disruptions to supply chains and supply chain risk management were a given. Many of the states affected contained key ports and supply destinations, as well as transportation and logistics hubs. These ports accounted for 18.3% of U.S. container import shipments and 49.8% of east coast and Gulf of Mexico imports in September, according to an article from the Business Information Industry Association.
Starting with Miami, this port primarily handles containerized cargo with small amounts of breakbulk, vehicles and industrial equipment. It is the largest container port in the state of Florida and ninth in the United States.
Going up the coast in Jacksonville, FL, there is a huge port that receives the second-most automobiles in the US along with all types of cargo.
Heading further north along the coast is Savannah, GA, home to the largest single container terminal in the United States. In 2015, the Port of Savannah moved 8.2% of total U.S. containerized loaded cargo volume and more than 18% of the East Coast container trade.
A little more northward up the coast is the port of Charleston, SC. In 2016, this port handled 1.1 million containers, moved 1.2 million tons of non-containerized cargo and had the most productive crane moves in the U.S.
A few days ago, the world’s seventh largest container shipping company by volume, Hanjin Shipping, filed for bankruptcy protection. A lot of the products being shipped by Hanjin are headed to U.S. and European retailers (toys, electronics, clothing, furniture, etc) getting ready for the holiday season. However, many ports are not allowing these ships to dock due to the risk of creditors seizing the ships, and any such event will cause congestion in the ports.
According to sources, Stevedores are demanding advance payment in cash. As Hanjin is fighting to prevent seizure by creditors, several ships remain marooned in the sea. A contact of mine with firsthand knowledge of the matter commented that it is a nightmare to claim containers from a bankrupt shipper. In short, it is a mess!
Such risks are on the rise. Companies are spending more on outsourced products and services than in the past. There is a constant push to free up working capital by leaning down on the inventories. Lead times are in weeks and months in cases where manufacturing is outsourced to firms on the other side of the earth. Linear supply chains as we know them are turning into supply networks with more players and parties than ever before. To understand the geopolitical risks, all you need to do is to turn on network news. Given all this, one would think that supply chain risk management is more prominent now. However, a 2014 report by University of Tennessee on managing risk in global supply chains points out that 90% of the firms surveyed do not quantify risk when outsourcing production!
Tumultuous weather is perhaps the most commonly thought of supply chain risk related to Earth’s climbing temperature. Undoubtedly, the impact of wild weather is substantial. An increase in the number of devastating hurricanes, earthquakes, wildfires, floods and droughts should be worrying to everyone, not just those concerned for their supply chains. In 2014, three of the top five biggest supply chain disruptions were related to natural disasters. Typhoon Halong in Southeast Asia capped the list, causing a 41-week disruption at a cost of more than $10 billion for companies doing business in the region. Are we looking at a future where Mother Nature is responsible for the majority of disruptions?
Companies will need to evaluate the risk of losing a supplier in a specified geographic region, and whether there’s a case that needs to be made to diversify where raw materials are coming from, having multiple suppliers, and how far to take contingency plans. The same can be true for evaluating different transportation options. Severe weather can cause substantial delays, or even total shutdowns, of certain routes or modes of transportation. Supply chain managers need to have backup routes and options available and at the ready, and need to be able to quickly and effectively run scenario simulations to determine which course of action will allow for the smallest overall impact.
Another thought I had is whether these severe weather phenomenon will cause shortages of certain raw materials, like what we’re currently seeing with cocoa. What will that do to already unstable price fluctuations in some global commodity markets? Will supply chains be able to cope with the potential added costs? Can we expect to see an increase in civil unrest (and the associated supply chain challenges) as communities fight over dwindling resources? A good supply chain risk plan should take into account all of these factors.
It’s not often that a weather phenomenon becomes part of the pop culture zeitgeist. But that’s exactly what happened in the late 1990s, when El Niño became a household name—and even a character played by Chris Farley on Saturday Night Live.
El Niño is a blanket term for the effects of an unusual warming of water in the Pacific Ocean that occurs once or twice a decade. A massive El Niño occurred in 1997-1998, unleashing record rains in California, deadly tornados in Florida, and a brutal drought in Indonesia, thus landing the term firmly on the radar (no pun intended) of millions of people around the globe.
With its whimsical name, El Niño became a punchline—the cause of anything and everything that might be going wrong (hence that Chris Farley sketch on SNL). But El Niño was no joke then. And it still isn’t, despite the headline of this post. That liberal paraphrasing of a classic Prince song refers to particularly strong El Niño conditions predicted by the National Weather Service for winter 2015-2016—the likes of which haven’t been seen since 1998.
The term crowdsourcing—the process of obtaining ideas, services or information by soliciting feedback from a large group of people—has existed since 2005. But its fundamental concept predates the name by centuries. In 1714, the British government offered the public a monetary prize to the person who created the best solution for measuring a ship’s longitude.
As has been this case with so many concepts, the internet has given crowdsourcing phenomenal reach and influence. We’ve already seen the significant impact that crowdsourcing has on modern business product development, production and delivery, and that effect will undoubtedly only grow over time. Here are three ways that crowdsourcing is revolutionizing supply chain management today—and in the future.
Amazon consistently ranks on or near the top of lists touting the best supply chains—and for good reason. It drives an innovative fulfillment strategy through its vast distribution center network and independent delivery fleet that enables it to guarantee two-day delivery. Amazon’s achievements in supply chain management have led consumers to establish an incredibly high bar for timely and accurate product delivery. The Amazon customer satisfaction standard has changed the game for every retailer of every size.
Crowdsourcing transportation presents a solution for smaller enterprises to compete in this environment. One such service provider is Cargomatic, who connects local shippers with carrier companies who have extra space in their trucks. The “last-mile” phase of the traditional fulfillment process is often the most expensive (accounting for as much as 50 percent of a company’s logistics costs), but crowdsourced transportation can sometimes enable same-day delivery at the cost of standard shipping. And crowdsourced traffic apps like Waze are helping a multitude of delivery drivers find the most efficient routes with real-time help from other drivers.
Hi, my name is Alexa and I am a chocoholic. It’s been less than a day since my last indulgence.
There’s no two ways about it. When it comes to the cocoa-laden confectionery, I’m hooked. It doesn’t matter if it’s milk, dark or white. Anything with even a hint of chocolatey goodness will suffice – and sadly for my waist line, one little taste is never enough.
What’s even more unfortunate than the effect on my figure is that it’s about to get a whole lot more difficult to feed my addiction thanks to a lack of insight into supply chain risk. The Wall Street Journal (WSJ) recently posted an article about the huge shortfall in the cocoa crop in Ghana. Dry weather coupled with the late application of vital pesticides to cocoa trees has caused the crop to shrink significantly, and sparked fears growers may not be able to deliver enough cocoa to fulfill their contracts. That means manufacturers will likely be scrambling to find enough cocoa to satisfy their chocolate producing needs.
Skyrocketing prices aside, this latest news is enough to send any chocolate lover to the store to stock up, and really puts the spotlight on a major supply chain risk in the $7 billion cocoa-futures market. As the WSJ points out, there is a drastic over reliance on the Ivory Coast and Ghana when it comes to the global cocoa supply chain. Together they account for more than half of the world’s cocoa supplies!
With that much of the world’s supply coming from one region, it’s no wonder the price and availability of chocolate fluctuates as wildly as it does. Natural disasters, poor growing conditions, pandemics, war, political and social unrest, terrorism and accidents can all have huge consequences on supply chains relying on either a single supplier, or suppliers who are all in the same geographic region.
SupplyChainBrain attended our annual Kinexions user conference, and while there, they completed a number of video interviews with customers, analysts, and Kinaxis executives. And, we’d like to share them!
In the age of the Internet of Things, how can companies extract meaningful insights from the mass of data that is available to them today? We get answers from Yogesh Amraotkar of the Innovation and Solutions Group of Cognizant.