Sifting through the ashes
What can supply chain executives learn from the Iceland volcano?
In late March, reports of minor volcanic eruptions in Iceland were buried in the news. Talk was limited to thrill-seekers getting too close and the impact of flooding on farmland in the immediate vicinity. After all, how could a volcano in Iceland impact countries thousands of miles away? That all changed when a major eruption of the Eyjafjallajokull volcano sent a stream of ash into the sky, shutting down British airspace within 24 hours. Within 48 hours, a major part of European airspace was closed. The world watched as air travel chaos unfolded.
Stories of stranded travelers immediately made ...view middle of the document...
However, a just-in-time supply chain is more vulnerable to the short-term disruptions caused by the volcano’s airborne ash.
Low-cost country sourcing and offshoring.
Lessons For The Longer Term
Companies have taken advantage of global markets for low-cost labor by replacing local suppliers with suppliers in low-cost countries, many of them thousands of miles away. Similarly, companies have relocated manufacturing to places with lower wage rates, trading higher transportation costs for lower production costs. This has stretched supply lines, leaving companies vulnerable to transportation disruptions.
Of course, no one can predict when a natural disaster will strike, or even the global impact of something as seemingly localized as a volcano eruption in Iceland. The ability of scientists to foresee a natural disaster may improve incrementally, but the real lesson in this crisis will be to develop more dynamic supply chains that can help mitigate the impact. Dynamic supply chains are shaped by examining the exposure to all risks, identifying vulnerabilities and then building in the flexibility to adapt to sudden changes in the environment without disrupting the enterprise or impacting market value. New capabilities in several areas can help to create a more dynamic supply chain: Sole-sourcing and using low-cost country suppliers are great strategies for reducing costs, but need to be balanced to create flexibility. A more streamlined process for bringing new suppliers on board allows companies to quickly find and use new sources of commodity goods in an emergency. And for critical materials, a diversified supplier strategy may offer the flexibility needed to mitigate risk.
High Performance From Uncertainty
The Short-Term Impact
In the short term, many companies scrambled to find ways to move goods as cargo flights were grounded. Road, rail and ocean freight companies saw a surge in activity. For some, it was too late. Produce and fresh flowers are already being destroyed by the ton. Countries are only beginning to be able to estimate the extent of the economic impact, which will certainly reach into the billions of dollars for many. With many economies navigating a fragile recovery, could this be enough to tip them back into recession?
It’s hard if not impossible to predict the next natural disaster, political turmoil, terrorist attack, labor unrest or other event that might cause havoc with supply chains. The ability to anticipate the impact would be valuable, but when the next major event does occur, it will be the ability to respond with a dynamic, flexible supply chain that will distinguish high performance businesses from the rest. Those companies with resilience built into their...