Of Water, Snakes and Alligators: The World of Supply-Chain Risk
So you think you've anticipated every possible disaster in your supply chain risk-management plan? How about snakes and alligators in your clean rooms?
Western Digital Technologies, Inc. was among the many high-tech companies to get hit hard by the 2011 flooding in Thailand. One of just three major players in its sector, the maker of memory-storage products ships and installs more than 500 million disk drives annually.
Western Digital operates in multiple locations, including Japan, where it was seriously affected by the 2011 earthquake and tsunami. In that case, the company was able to recover operations within about three months.
The Thailand flooding, which occurred later that same year, was a different matter entirely, according to Rubik Babakanian, senior vice president and chief procurement officer. One of Western Digital’s largest factories is located within an industrial park outside of Bangkok. Overnight, the location was flooded with two and half meters of water, which took a week to recede.
The company couldn't wait that long, Babakanian said at a meeting earlier this year of theGlobal Supply Chain Resiliency Council in Santa Clara, Calif. It brought in divers and cranes that could operate over water, to begin pulling out equipment. That’s where the snakes and alligators came in. “It took a lot of heroics,” Babakanian said.
Much of the equipment, of course, was ruined, so Western Digital needed new machines that typically require long lead times to acquire. By accelerating the process, it got the Thailand factory back to working condition within just 46 days.
Not without a high price, however. At the time, says Babakanian, the global disk drive industry was turning out 180 million drives per quarter. “That came to a screeching halt.” Western Digital alone lost between 60 million and 70 million devices, and was reduced to production levels that were one-tenth of that number. Some of the company’s key suppliers were co-located within the Thailand factory, so were similarly affected.
During the time it was struggling to resume normal operations in Thailand, Western Digital had to undergo the agonizing exercise of deciding which customers would get an extremely limited supply of product. The company had another factory in Malaysia, but it was indirectly impacted by the strangling of supply in Thailand. So Western Digital needed to dole out devices to those customers that absolutely needed them to keep their businesses running. In the process, it temporarily starved its own retail channel and brand.
The company learned some valuable lessons from the experience. It has since worked with the Thai government to fortify area dikes, which weren’t strong enough to withstand the rising waters. In addition, it built a concrete wall around its entire facility. And it moved critical equipment, including backup generators, one level higher.
Beyond those quick and local fixes, though, Western Digital was moved to take a more holistic view of its global supply chain. Executives asked some tough questions: Where would we be in the event of another such disaster? What things would be at risk? Can we simulate those risks, and understand them better through improved analytics?
“There are a lot of things that can go wrong in the bottom 20 percent of things you don’t pay too much attention to,” said Babakanian.
Prior to the floods, he said, Western Digital wouldn't have imagined that all of its suppliers within a given area would be simultaneously affected. Since then, it has shifted some production to other countries, even if that has meant incurring some additional costs, in the form of longer transit times and under-utilization of certain factories.
Most of all, the disasters of 2011 made Western Digital keenly aware of the value of risk management that addresses all kinds of potential disruptions, including geopolitical events, port congestion and labor strife. “We think we should invest more,” Babakanian said.
He was speaking to a receptive audience. The Silicon Valley event was the first annual meeting of the Global Supply Chain Resiliency Council, launched by Resilinc this year as a means of highlighting the issue of risk management. The group brings together supply-chain executives, resiliency practitioners and educators, in hopes that the issue will gain visibility in the C-suite.
Resilinc chief executive officer and co-founder Bindiya Vakil said there’s a need to “cross the chasm” in order to make supply-chain risk management a mature and widely accepted discipline. She laid out four key elements: executives and educators who understand the need for a strong risk-management capability, success stories from early adopters, collaboration and trust with suppliers, and “community building” – the coming together of those who are experiencing the same obstacles, in their efforts to fully embrace risk management.
A new study by PricewaterhouseCoopers LLP and the MIT Forum for Supply Chain Innovationsuggests how far the industry has yet to go. It looked at 209 companies with a global footprint, to understand variances in their risk-management efforts, according to Kevin Keenan, principal of supply-chain resilience with PwC.
It should come as no surprise that companies focusing on both general supply-chain and risk-management capabilities achieved the best performance and highest levels of resiliency. “Supply-chain management has been a discipline unto itself for a long time,” said Keenan. “Same with risk management. But bringing those two elements together is really what drives your journey toward resiliency.”
The study identifies seven “enablers” of a mature and resilient supply chain: proper risk governance; flexibility and redundancy in product, network and process architectures; alignment between supply-chain partners; integration of upstream and downstream supply chains; alignment and integration between internal business functions; the ability to standardize and simplify networks and business processes; and the use of data, models and analytics to support key management functions.
Efforts in that direction are still in their early stages – and they won’t necessarily protect you against alligators. But the new Global Supply Chain Resiliency Council, which already counts nearly 700 members and is open to all who wish to join, looks to be a big step forward. It indicates that supply-chain managers, instead of responding to disasters on an event-by-event basis, are beginning to acquire the attribute of long-term memory.
No comments:
Post a Comment