BY ART VAN BODEGRAVEN AND
KENNETH B. ACKERMAN
basictraining
Déjà vu all over again?
WE DON’T WANT TO PICK ON AMERICAN HONDA MOTOR
Co. It’s a good neighbor here in Ohio and manufactures very fine
products. And it suffered mightily in the wake of last spring’s
earthquake, tsunami, and nuclear uncertainty in Japan.
Honda, as was the case with Toyota, couldn’t get parts, couldn’t
get cars, was forced to cut back U.S. production, and watched
somewhat helplessly as sales and inventories (and profits) plummeted. At the time, we waxed eloquent about the apparently forgotten lessons of enterprise (and supply chain) resilience, citing
the teachings of the Massachusetts Institute of Technology’s Dr.
Yossi Sheffi.
Then, late last fall, floods in Thailand brought a double whammy
to Honda (and also to Toyota), cutting off parts
supplies, slowing production, dragging down
sales, and threatening financial performance.
The suppliers’ plans should also include how
to handle manufacturing/assembly/conversion
process continuity, as must plans for your operations. More planning, more testing, more time.
And it’s not just a matter of devising
workarounds for the more common types of
disruptions, such as a transient power outage,
roads temporarily impassable because of snow
and ice, or work stoppages (although things of
that sort need concrete plans, for sure). All links
in the supply chain must deal honestly with
plans for the unthinkable, including one set of
unimaginable events being
closely followed by highly
improbable additional negative developments.
WHY IS THIS SO DIFFICULT?
It’s not that Honda and Toyota are slow learners.
Far from it. It is exponentially more difficult to
implement resilience measures than it is to
comment on their desirability. Contingency
plans and procedures take time to put in place,
time to secure approvals for, and significant
financial and human resources to create (which
adds seriously to the time needed for approval).
They also can significantly affect longstanding business—and
personal—relationships with upstream and downstream supply
chain partners.
The stark reality is that building resilience into the supply chain
begins with suppliers and a company’s relationships with them.
The first consideration is the establishment of alternate supply
sources, and committing enough business to them that they can be
viable options when a primary supplier cannot deliver.
Easy to consider in a rational world, but not so simple when
tight supplier relationships have been in place for decades, for generations. And as important as they may be, new relationships are
neither easy nor quick to build.
At minimum, a company must insist, as a condition of continuing to do business, that primary suppliers have realistic resilience
plans in place—OK, contingency plans, if you prefer. These might
involve—and in the best instance should involve—alternate suppliers for the suppliers. That raises the longstanding relationship
issue, with attendant time considerations, all over again.
WHAT THE CFO DOESN’T
WANT TO HEAR
Inevitably, much of the
solution to the resilience
equation involves redundancy—things that, in the
ideal and in the abstract,
aren’t necessary. They all
cost money, and they all consume human and
other resources.
Start with inventories—yes, your own as
well as your suppliers’. The just-in-time devotees make fun of the just-in-case realists, but
there needs to be stock somewhere in the end-to-end chain to smooth over the inevitable
hiccups—or to buy a little time in the event of
catastrophe.
This is a difficult solution. Inventory, by definition, is the most expensive form of a product at its particular location in the chain; it
contains all the labor and all the components
that define it at the moment, and can only
deteriorate in value from that point forward.
But some of it is part of the resilience solution.
(How much is too complicated to define
either generically, or in this space at this time.)
