…world output is projected to expand by 2.2 percent in 2009, down by some ¾ percentage point of GDP relative to the projections in the October WEO. In advanced economies, output is forecast to contract on a full-year basis in 2009, the first such fall in the postwar period. In emerging economies, growth is projected to slow appreciably but still reach 5 percent in 2009.
During this economic downtown there inevitably going to be casualties, whereby companies will determine they cannot weather the storm and have to go out of business. If one of the key vendors in your supply chain goes out of business, what impact will this have on your organization? With a global economy, many suppliers are located offshore, and managing a disruption in supply will become more difficult to manage.
Although many of these situations are unforeseen, you have to consider risk elements when you try to assess vulnerabilities within your supply chain. It could be in the form of an attack by a terrorist organization to a major seaport, which could cause a major disruption to shipments of key raw materials or finished products.
For an organization connected to a global supply chain, sometimes issues arise whereby a licensed subcontractor to the manufacturing organization engages in unlawful business practices (such as child labor, or poor labor and environmental practices). These elements can have a negative impact on your brand. Alternatively, outsourced suppliers may consider substitution of lower-cost and unapproved raw material substances without advising anyone. One example of this was when lead paint was found on children’s toys destined for North American consumers and when melamine was found in both pet food and in toothpaste.
As many key commodities are sourced on a global basis, it’s not improbable that a key component in a process may be manufactured in a global region which is struck by a natural disaster like a hurricane or earthquake. This can have a destabilizing impact on a manufacturer’s ability to procure vital raw materials and meet customer orders. There have been notable cases where an unforeseen incident has caused an organization considerable harm. One well documented case occurred in 2001, when a fire occurred (the result of a lightning strike) at a semiconductor plant where Swedish cell phone manufacturer Ericcson was single-sourcing a supply of semiconductors. This fire caused Ericsson to lose significant market share to their key competitor (more details here).
Redundancy is the first line of defense to minimize supply chain disruption. This means adhering to safety stocks of finished goods to minimize the impact of demand variability, managing available capacity within the manufacturing location, and managing a wide variety of multiple vendors in your purchasing database.
Flexibility provides many options when faced with supply chain disruptions, including the ability to standardize operations in any location where a manufacturing organization is sourcing the same parts from the same vendor or multiple vendors. Having a similar set of machinery and training personnel will ensure that if there is a disruption, manufacturing operations elsewhere can partially fill the void until the effects of the disruption are known and managed.