Recently, someone asked via Twitter, “If oil refineries are regularly being impacted by floods, why do they put them so close to water?” The answer to many responders was clear…shipping. Oil is moved through the world on ships so, refineries need to be at or near ports, which represent a huge part of that industry’s supply chain. A supply chain is the entire process of taking raw ingredients, manufacturing products from them and distributing the end products to consumers. Along the way, there are many opportunities for the supply chain to be compromised, resulting in down-time, lost/stolen products and other factors that can have a widespread impact on the company’s operation. Our global economy demands that products are brought in and sent out across borders. This creates risk. The automotive industry is an example of one where the supply chain has seen an increase in supply chain risk.
“You Can Have Any Color You Want…
…as long as it’s black.” These words, purportedly said by Henry Ford, founder of Ford Motor Company, about his Model T car, points to a time when car manufacturing was relatively simple compared to today. Back during Ford’s creation of the assembly line, raw materials came into the factory and were manufactured into cars. Customers would even pick the cars up at the factory. But then, cars became more affordable so, there was more demand. That led to increased manufacturing levels. In the 1950s and 1960s, the boom in car sales pushed automobile manufacturing even further, requiring that parts be made in other factories by other companies and then assembled by the car brand (Ford, Chevrolet, etc.). The brand gave up total control over the manufacturing process and had to trust in the integrity/competence of other companies. Thus, the car supply chain was extended and put at risk. Today, products are made all over the world and transported to different countries along the supply chain. And with each step, the risk of something occurring to negatively affect the supply chain increases. A labor uprising in Mexico, a flood in Korea, and government collapse in the Middle East, all can impact manufacturing and delivery. Supply chain protection is critical.
World Customs Organization Assists with Border Issues
In June 2005, the World Customs Organization (WCO) adopted the SAFE Framework of Standards to Secure and Facilitate Global Trade. This unique document represents a unanimous agreement of the WCO members to adopt minimum standards to secure the movement of international trade. As WCO members are comprised of the customs administrations involved in the movement of 99% of global trade, the minimum standards in the SAFE Framework allow both customs administrations and companies to work under uniform worldwide standards to better ensure the security and safety of their products. They also help customs officials by providing “leadership, guidance and support to Customs administration to secure and facilitate legitimate trade, realize revenues, protect society and build capacity.” They work to enhance legitimate international trade while working with authorities to reduce fraudulent activities that have ripple effects on that trade.
Unexpected Disruptions to the Supply Chain
Several other elements, mostly out of the control of companies, can affect the supply chain, which is why analyzing the risk in advance is key. Natural disasters, like Hurricane Sandy or the Japanese tsunami, can virtually shut down operations that supply companies with products, parts and materials. Shipping lanes can be closed temporarily. Entire companies can be out of commission for months. A company needs to know where they are most vulnerable, such as if they get key components to their products from one manufacturer in a region prone to damaging weather, earthquakes, etc. What is the plan if this company suffers a complete shut-down of their operation? Terrorism is another threat to the supply chain. This can come in the form of physical threats, such as the destruction of property, vandalizing machinery or transportation modes, abduction of key employees or other disruptions to business continuity. Cyber-crime, which is on the rise, is a form of terrorism that can have long-lasting effects on the supply chain. A hacking of the company’s computer system can throw the entire system off, requiring hours, days, or weeks of recovery time. Whether these attacks affect your company directly or one of your suppliers, they can bring a supply chain to a halt if the possibility of the attack is not anticipated and a plan put in place. Government shutdowns, labor strikes, mass power outages, product recalls, lawsuits, transportation issues…all of these elements and many more can become weak links in the supply chain. Are you prepared to deal with them so that your business remains operational? Question for comment: What do you believe is the biggest issue affecting supply chain management today?