Supply Chain Management
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Narrator: Cataclysmic events, such as the Japan or New Zealand earthquakes, demonstrate how quickly businesses can be decimated when their supply chains are disrupted. ILSTV spoke with Robert Reeves, a Partner in the Insurance Claims Services of Ernst & Young, and he says although companies cannot plan for every contingency, there are two key factors that should be implemented into every supply chain management strategy.
Robert Reeves: Number one, get buy in from the whole organization from the top on down. You have to have them setting a tone. Your procurement people are generally graded an compensated based on how well they reduce the costs of procurement. Reducing costs though often means having a lot of the suppliers in one area and limiting the number of suppliers, and having them hold less inventory. So on one hand they’ve got incentive to make the process as lean as possible, but in doing that, it increases risk.
Making sure there is a balance; understanding you don’t just want to reduce costs, but you need to do it in a way that makes sense. If you’ve got a certain component that supplies constrain throughout the system, make sure you’ve got some back up; make sure you have some more safety stock.
The other thing I would say is it’s a continuous process. You can’t do an assessment of your supply chain risks and not look at it for three years. There can be components which are in plentiful supply in January every year, six months later they may be severely constrained. So you’ve got to continuously update your analysis of supply chain risk. Work with your procurement team and other people and make sure you’ve got your risk identified because they are going to change time to time.
A lot of people focus on the very tangible events, whether it’s a windstorm, it’s a hurricane, it’s an earthquake. But political risk is another thing that has to be considered whether it’s in the Middle East, whether it’s in Pakistan. We had clients that would source a lot of products from Venezuela a few years ago. Well, now it’s riskier and still a very important market for them for both selling their goods and getting some supplies from there. You’ve got to focus some consideration on the fact that there is some instability in there that might impair your supply chain.
The other thing that clients tend to overlook is it’s not just the suppliers it’s the logistics. Again, we will see clients that will focus on if something happens in a certain area, they want to ship a different way. Well, Japan, another example where everyone has the same back up plan, and if everyone has the same back up plan, that’s constrained. Be creative with how you can use logistics to solve supply chain issues.
