03 May 2006

The Risk of External Supply-Chain Interdependencies...

In what countries do you operate? Do you source raw materials from politically unstable regions of the globe for your end products? Are you subject to a myriad of taxes, tariffs and duties including new security measures in our ports? How complex is your sales and distribution channels? At the end of the day the big question is: What is my financial, operational and economic risk exposure in the event of a disruption in our external supply-chain?

The risk of external supply-chain interdependencies has been talked about for many years. Monte Carlo simulations, scenario analysis and other methods have been effective in the determination of what the magnitude of a loss event may look like. Once the dollar analysis is done and you know that your exposure is $XXM. or $XB., then what do you do with that information?

Much of the outcome of this exercise may go into the next strategic planning phase on who you need to partner with or create an alliance with in order to satisfy certain future contingencies. Once you realize that you need more than one source for a raw material or a key service to run your business, then the real analysis begins. Who and where do I find the best alternatives for this vital component in my global supply-chain?

If you begin your due diligence now on the top 10 vital components in your supply-chain contingency planning exercise you might have these all completed, through the legal department and signed within a few months time. If you are lucky. Then you must really test the new supplier or source for your product or service to determine how smooth they operate when you pick up the phone or send the "Alert".

The ultimate architecture requires an "Adaptive Supply-Chain" that will provide cross-border agreements and resilient mutual-aid partners to assist in times of crisis. Just shifting production from one country to another may not be enough to mitigate the disruption in a vital component of the manufacturing process or delivery of services. Having a reflexive and responsive supply-chain is only one of many contingencies in a robust Business Crisis and Continuity Management plan.

When was the last time you reviewed your key suppliers and sourcers plans for continuous operations and their record for testing these plans? This will be the place you find your greatest weakness in external supply-chain management. In the US, it is now less than 30 days away from the next hurricane season. Gasoline prices and fuel costs are impacting every sector of the economy. One thing is for sure. You are in complete control of your readiness factor. And your readiness factor is directly proportional to your interdependencies in your supply-chain.

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