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Add Resilience toSupply Chains
WHITE PAPER
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C.H. Robinson | Add Resilience to Supply Chains 2
In brief
Natural disasters and other events have exposed
weaknesses in lean global, regional, and domestic
supply chains, disrupting connections between
companies, their suppliers, and their customers. In the
next phase of supply chain development, companies
are creating ways to circumvent disruptions andminimize their impact on the business. This white
paper looks at issues that companies should consider
when developing a more resilient supply chain.
ContentsDeveloping Supply Chain Resilience: The New Frontier 3
Case Study: A Lean Supply Chain Deals With Disaster 4
Mapping the Supply Chain to Find the Gaps 5
The Process flow map 5
Network modeling 6
Hi-Viz Supply Chain maps 7
Developing Options for Resilience 8
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Developing Supply Chain Resilience: The New FrontierFor decades, finding efficiencies has been the primary driver in evolving supply
chains. Companies have promoted problem solving to drive out waste and rely
on just-in-time flow, a process that is determined by customer demand.1As
efficiencies have increased with Lean and similar systems, highly optimized
networks have been developed, lowering inventory and other costs. But a series
of well publicized events that compromised supply chains has prompted many
leaders to wonder if an operation can be too lean.
In the past, disasters were felt primarily by companies in an affected region.
Now, problems that used to be isolated to a region can have far-reaching
impact on many supply chains, especially those that are lean and global. Their
suppliers and customers can be located anywhere in the world. Inventory that is
strategically positioned for lean operations may be poorly situated to serve keycustomers if disruption occurs.
While gaining efficiencies and reducing costs will remain high on the list of
priorities, analyzing different levels of risk and building in resiliency is the nextfrontier in supply chain management. Financial models assess different levels
of supply chain risk on the overall balance sheetcarrying costs, inventory, and
cycle times. C-level executives seek mitigation strategies for natural disasters
or man-made events that could interfere with business interests. In this era of
scrutiny, managers with compelling ways to add resiliency to the global supply
chain and help the overall companys profit and loss will have arguments that
leadership is ready to hear.
Developing a resiliency plan is now a must for any company. But global
companies, especially those with high-value, high-demand products coming
from multiple locations, are most likely to need such plans. Certain industries
are particularly vulnerable to disruption. Retailers and brand name pharma-ceutical companies require speed to market to keep sales channels open
and customers satisfied. Manufacturers need raw materials and supplies at
planned intervals to prevent downed plant lines and maintain machinery. Food
and beverage companies must be able to trace problems back to their source
in multi-tiered supply networks, and understand divergent regulations for food
quality around the world.2
Developing a resiliency plan is now a must for any company. But
global companies, especially those with high-value, high-demand
products coming from multiple locations, are most likely to
need such plans.
1 Miller, Jon. The Necessity of Redundancy in Lean. Quality Digest, April 30, 2010.2 Deloitte Insights. Supply Chain Risk: Answers to Five Often-asked Questions.The Wall Street Journal,
April 19, 2013.
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For global organizations, it may be less obvious where process and supply gaps
exist. Even though many of these companies use transportation management
systems (TMS) to achieve efficiencies, few of those systems provide global
visibility. Incompatibilities in technology, language, culture, and regulation
between and across continents can prevent identification of transportation and
operational chokeholds.
Yet, certain considerations can help build backup plans for more resilient supplychains and help companies adapt to changing circumstances while maintaining
their central objectives.3Companies with resilient global supply chains are more
likely to have goods available when they need them, and to be able to continue
serving customers without disruption. And because they can see their inventory,
they are less likely to spend unnecessarily to transport emergency supplies.
The hardened enterprise will be able to not only withstand all manner of
disruption but also increase its competitiveness. Unforeseen disruptions can
create shortages that are not dissimilar to the demand spikes caused by
supply/demand imbalances; resilient enterprises can thus react to changing
market demand ahead of their competitors.4
A motor manufacturer had
operations and suppliers
in North America and the
Asia Pacific region. After
outsourcing their global
supply chain to a third
party logistics provider
(3PL), order cycle mapping
revealed that internal
groups duplicated efforts
in customs documentation.
Poor global visibility
prevented accurate answers
about manufacturing/
delivery timelines. Inbound
transportation costs were
bundled into the total price
of goods. Freight was not
optimized.
The 3PL obtained weight
and dimensions of all SKUs
and consolidated less than
container loads (LCL) into
full container loads (FCL)
for fewer containers to lower
costs. Raw materials from
all global suppliers came to
one bonded warehouse in
Laredo for optimization and
delivery in the United States.
Technology provided visibility
into when raw materials
would actually arrive for
less stress on warehousing,
receiving, manufacturing, and
customer service.
While these efficiency
measures were underway, the
tsunami struck Japan. Years
before, the company had
worked with U.S. suppliers,
but gradually turned to
lower-cost Asian suppliers.
When that distribution
channel was disrupted, the
company was no longer a
preferred customer with
U.S. suppliers, and their
raw materials went to
competitors.5
Todays backup plan
includes:
A significant increase in
raw materials orders with
U.S. and Mexican suppliers;as preferred customers,
they can obtain materials if
disruption occurs.
Balanced North American
supply with strategic
orders from Asia to gain
redundancy and help
prevent supply interruptions.
Opened a new plant in
Houston to complement the
one in Vietnam. They can
respond during a disasterand when orders exceed
demand forecasts.
CASE STUDY:A Lean Supply Chain Deals With Disaster
3 IDC Energy Insights. Predictions: Oil & Gas ICT Systems Need to Be Resilient to Counteract DisruptiveFactors. IDC Energy Insights 2014 Predictions: Worldwide Oil & Gas, December 11, 2013.
4 Sheffi, Yossi. Building a Resilient Supply Chain. HBR Blog Network, August 14, 2007.5 Glendon, Lee, and Lyndon Bird. 5th Annual Supply Chain Resilience Survey. Business Continuity
Institute (BCI), April 2013. The company in the case study is similar to companies surveyed by BCI. Theyasked 519 global shippers whether key suppliers would declare them a priority customer in the event ofa disruption; 64 percent said they either did not know where their organization would be in the ranking orknew for only some key suppliers.
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Mapping the Supply Chain to Find the GapsIdentifying potential chokepoints in the global supply chain is the first challenge.
Maps can be simple or highly complex, but they help the company visualize
where the greatest risks can be found. Three types of maps are explored here,
from high-level to extremely detailed views of operations.
The process flow map (high-level view)
As a neutral third party, a consultant or provider can work with key stakeholdersfrom across the organization and provide insight on the supply chains current
state. As each stakeholder explains how orders flow from supplier to customer,
the consultant combines all perspectives in a single page map. Process flow
maps simultaneously reveal efficiency gaps and potential risks for analysis (see
Figure 1).
FIGURE 1 PROCESS FLOW MAP
ManufacturingInternationalRaw Goods Supplier
DomesticRaw Goods Supplier
End Customer
Packaging SupplierLocal
Port
If the raw materials come
from overseas, they must
go through sterilization
before manufacture.
Expedited shipments are
shipped directly from
manufacturing
Primary DC
Distributor Network
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Network modelingAs companies experience significant changes in their operations (e.g., mergers
and acquisitions, factory closings, customer gains or losses), they can enlist
help from a logistics expert to model the current and future network. Network
modeling reveals where materials and inventory are located and how end
customers are served through distribution channels. The map shows where the
company has the biggest inefficiencies and the greatest risk. Detailed analysis
leads to recommendations on where vendors and distribution points are, and
where they ideally will be positioned (see Figure 2).
Global network modeling requires not only data but deep knowledge of local
and regional complexities. It is not equally easy to do business in all regions
of the world. Some countries have complex provincial and state government
regulations. These regulations make it essential to carefully choose the ideal
location and type of warehouse (i.e., free trade zone, bonded logistics park, etc.)
to perform the necessary operational tasks.
FIGURE 2 NETWORK MODELING MAP
Companies that plan for service disruptions gain an advantage over less prepared
competitors in providing continuous service to customers.
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FIGURE 3 HIVIZ SUPPLY CHAIN TOOLS
Hi-Viz Supply Chain mapsDr. Bruce Arntzen, researcher at Massachusetts Institute of Technologys Center
for Transportation and Logistics, is developing Hi-Viz Supply Chain displays that
gather data from corporate databases, such as enterprise resource planning
(ERP) systems. The program automatically generates several types of flow
diagrams and maps of the companys supply chain. Visual displays of risk events
can be superimposed on top of supply chain images to show chokeholds.
Information that can be
displayed includes:
Locations of plants, suppliers, customers, and major transportation lanes
Alerts of natural disasters, strikes and protests, infrastructure failure, etc.
Heat maps (frequency diagrams) of hurricanes, floods, earthquakes, etc.
Inventory deployment (dollars and days of supply) across the network
Risk pathways (most vulnerable segments) across the network
Risk exposure and value at risk for each location in the network
Predicted customer blackout days from the loss of any site or lane in
the network
With Hi-Viz Supply Chain maps (see Figure 3), companies can identify whichnodes of a supply chain could be disrupted and answer questions like these:
Where is the weakest link? What is the probability that the node will be
disrupted?
What are the downstream ripple effects of the loss of a node or link in the
network? What downstream plants, DCs, and customers will be disrupted,
and at what cost?
What supply chain actions would make the company less vulnerable
(e.g., backup suppliers, extra inventory, overlapping DC coverage)?
Where to begin: across the network, what is the highest risk?
Hi-Viz Supply Chain tools offer a variety of maps and flow diagrams of the supply
chains plants, suppliers, customers, and major transportation lanes. This map
shows a high-level, strategic view of risk pathways after a natural disaster in
Europe (in red) that is suitable for the boardroom. Other areas of potential risk are
noted in yellow; locations with the least exposure are shown in green.
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Tips to help reduce risk Find alternate sources for critical materialsif there is only one supplier. Also
verify that suppliers have assessed risk with their own vendors, and that they
have more than one source for essential materials.
Consider interchangeable parts or products.If certain materials become
unavailable, there may be similar materials or products that could be
substituted. For example, U.S. cities banned the use of triclosan from anti-bacterial hand soaps when the ingredient was linked to brain damage and
cancer.7Manufacturers responded by substituting a similar product without
this ingredient to satisfy regulations and customers.
Ensure there are alternate distribution solutionsif suppliers and customers
are in the same region. If disruption occurs, suppliers may need to reroute
products to keep manufacturing underway, or open a facility closer to key
customers to keep product flowing.
Developing Options for ResilienceWhile it is impossible to prevent all supply chain risk, global companies can and
should assess how much risk they can tolerate and develop a plan to mitigate
the most likely risks to their business.
SUPPLIER RESILIENCE
Establish direct supplier relationships and have a
person who knows the culture and language perform
due diligence.6
6 Simchi-Levi, Professor David. Making the right decisions to strengthen operations performance.PriceWaterhouseCoopers and the MIT Forum for Supply Chain Innovation, 2013.
7 Huff, Ethan. FDA may ban antibacterial soap ingredients such as triclosan. Natural News.com,December 20, 2013.
TECHNOLOGY
If operations technology
is disrupted, corrupted,
or destroyed, how
quickly can data be
recovered?
If you use a providers
technology, what is
their plan for data
redundancy? Forbackups? For security?
TRANSPORTATION
& DISTRIBUTION
If there is a disaster, what
transportation alternatives
can keep product flowing?
How easy is it to
import and export from
distribution locations?
INVENTORY
Where is inventory
located? Is it at the right
levels?
Are most-used SKUs
close to key customers?
Should there be a plan for
safety stock or forward
stocking?
Which key lanes cannot
afford to have financially
optimized inventory
levels?
SUPPLIERS
Which SKUs come from
which suppliers, and
what regulations exist in
supplier locations?
Are there backup
suppliers for critical
components, and do the
suppliers sources of
rare raw materials havealternative sources?
Should vendors be
changed to provide the
necessary safety stock?
QUESTIONS TO ANSWER TO ADD RESILIENCE TO THE SUPPLY CHAIN
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Tips to help reduce risk Develop plans for safety stock.Regional strikes can shut down a supply chain,
making it impossible to serve customers. Having a critical part held up at an
international border can shut down a production line. Smart, well intentioned,
lean inventory management can present more areas of risk that can disrupt
a supply chain. Consider what it will mean if key customers cannot be served
for a day, a week, or a month. Some companies maintain a day or more of
safety stock close to key customers. If a temporary disruption occurs, they can
examine forecasts and point of sale data to determine priorities and deploy the
safety stock until regular shipping can resume.
Set up forward stocking locations.Consider positioning non-critical parts close
to customers. That enables better speed to market during temporary disruptions
while lowering costs.
Create parallel supply chains.When product launches are essential to profit-
ability, a parallel supply chain can directly connect independent production
facilities with sales sites, bypassing the traditional supply chain.
Consider postponement.Ramping up all inventory increases carrying costs
and inventory expenses. To control costs and add resilience, shippers can
hold off on deliveries until they have a better sense of when a disruption will
be over, or until they can gain more clarity on customer demand. Fast-moving
SKUs can be positioned regionally, close to customers; lesser-used SKUs
or products can be moved further back in the supply chain and sent to the
regional DCs as needed. Similarly, manufacturers can place most-used
components closer to manufacturing facilities for faster access when they
need to step up production.
Consider tradeoffs and riskswhen choosing locations for sourcing or dis-
tribution. During the threatened West Coast port strike, shippers developed
alternate strategies to bringing product to the West Coast and trucking it east.
Some shipped from Asia through the Panama Canal and to the West Coast
and from Asia to Canada to the U.S. Others moved supply sources to Mexico;
for them, having lower transportation costs and inventory closer to U.S.
customers outweighed the risks of potential crime, theft, and
governmental issues.
INVENTORY RESILIENCE
Supply chains are dynamic. As changes occur in
labor rates, country of origin decisions, and more,
companies with a single global TMS are betterpositioned to initiate alternate plans for
built-in resiliency.
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TRANSPORTATION RESILIENCE
As junior logistics employees gain experience and
move up in the organization, routing decisions are
made by people with the least tenure in transportationand logistics. Because they may not know their
options, they can make unnecessarily costly decisions
when disruptions occur.
Tips to help reduce risk Leverage all types of transportation.Introduce newer members of the team
to the full range of logistics options, and help junior employees recognize the
best options.
Teach employees how to evaluate the risk/cost/service tradeoffs.Velocity ofdelivery is a consideration in air-to-ocean, consolidated-air-to-direct-air, and
truck-to-rail combinations. Even within a single transportation type, there are
tradeoffs. Ocean freight that goes to direct port of call has a shorter transit
time, but costs more; ocean shipments that stop at multiple ports of calls have
longer transits and lower costs for transportation. But the more vessel stops
there are, the greater potential there is for delays and disruption.
Have an expediting strategy.Not all freight needs to be expedited if disruption
occurs. For instance, rather than sending whole truckloads by air after a
disaster, work with customers to airfreight only what they need immediately,
and truck the rest.
Conduct thorough due diligence on potential transportation providers.Aswith suppliers, working with reputable providers can help reduce unexpected
supply chain failures.
TECHNOLOGY RESILIENCE
There is no substitute for data redundancy to protect
a companys orders, sales, and costing information.
Tips to help reduce risk Make sure all data has a backup.Whether the system belongs to the company
or a provider, ask what the disaster recovery plan is and how often it is tested.
Your backup should have a backup.If the backup goes down, a good, resilient
plan will be ready for continuous or fast recovery.
Safeguard critical data. Employ vigilance and advanced security measures to
protect the companys information and reputation, and ensure system stability,
integrity, and performance.
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8 Curkovic, Sime, and Thomas Scannell. Identifying the Factors for Successfully Managing Supply ChainRisks. The World Financial Review, September 26, 2013.
9 Glendon, Lee, and Lyndon Bird. 5th Annual Supply Chain Resilience Survey. Business ContinuityInstitute (BCI), April 2013. The company in the case study is similar to companies surveyed by BCI. Theyasked 519 global shippers whether key suppliers would declare them a priority customer in the event ofa disruption; 64 percent said they either did not know where their organization would be in the ranking orknew for only some key suppliers.
Does Redundancy Have a Place in Lean Systems?How lean is too lean? As well-known brands have suffered through highly-
publicized service disruptions in recent years, that question has gained renewed
attention in corporate boardrooms. The focus on hyper-efficient supply chains
reveals that fewer parts and fewer suppliers can drive down material costs
and radically simplify operations. But when a strategic supplier of a critical
part encounters a hiccup, it can have crippling and costly implications for the
enterprise.9
Complete redundancy is cost-prohibitive, but some redundant stock, systems,
and resources can help avoid the waste of system breakdown if a disasteroccurs, even in a highly efficient supply chain. Companies can look at key raw
materials, customers, and lanes where having a solely financially-driven plan
is not an option the business can afford. In addition, shippers can consider
questions about suppliers, inventory, transportation, and technology to discern
how much risk is tolerable and develop the what if questions and solutions
that can lead to resilience.
Supplier failure/reliabilityBankruptcy, ruin, or default of
suppliers/shippersLogistics failure
From a survey of 46 supply chain managers; participants could choose more than one response to this question.8
89%
48%
44%
TOP PERCEIVED THREATS8
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1. Technology.Supply chain resilience is easier to achieve with a global
TMS. Having visibility to global operations enables optimization and
identifies chokepoints and areas of risk that should be analyzed.
2. A global transportation provider.Many companies can manage air
or ocean shipments globally. But very few have the capability to tell
where everything is, in any mode, around the world. Experienced
transportation experts who understand how to use a global TMS can
help companies manage the level of risk thats acceptable and plan
for contingencies.
3. A very specific carrier strategy.Shippers can review their allocation
of modestruckload, rail, intermodal, ocean, and airand create
options for moving freight in other ways if the supply chain is
disrupted.
4. A balanced approach to supply.Global companies can analyze how
to balance sourcing across regions to gain preferred customer
status with suppliers in key regions. That way, the company can still
obtain materials and products if other supplier routes are disrupted.
4
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SUPPLY CHAIN
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