Port Shutdowns Highlight the Advantage of Modeling for Supply Chain Risk Management
The massive strikes among dockworkers on the California coast brought the reality of supply chain continuity planning to the forefront once again for global businesses. The Los Angeles and Long Beach ports handle nearly half of the nation’s cargo, and are the main gateway for imports from Asia including automobiles, furniture, clothing, electronic products and crude oil. Worker shortage and shipping delays throughout the country caused billions in lost or delayed revenue and massive backups and protracted lead times.
Not only do the port strikes cripple the pace of moving goods and extend lead times, but the slowdown leaves the goods already in route in limbo. This is particularly concerning for perishable items. Food and beverage companies, grocery stores, pharmaceutical companies and more are seeing profits literally thrown away.
A scenario comparison chart simplifies analysis of potential alternate supply chain structures and policies
Supply Chain Modeling Identifies Contingency Plans for Disruptive Events
Supply chain design technology can help organizations combat these concerns with the ability to model, optimize and simulate their supply chain network operations, transportation routes and inventory levels. Businesses can proactively prepare for potential supply chain events by building end-to-end models of their existing supply chains and then creating contingency plans by running various “what-if” scenarios associated with future disruptive events, such as port closures, to determine the best response. This scenario analysis can be used to prepare for other potential supply chain disruptions resulting from an over-concentration of activity or reliance on a limited or single provider. Examples include supplier and production sole sourcing, using a handful
of carriers or a single mode of transportation to transport goods, or customer revenue concentrated in areas prone to significant weather events.
In the event of unplanned supply chain events such as natural disasters, strikes or political upheaval, companies that have already built and maintain supply chain models can quickly respond by incorporating new scenarios to identify the best response plan for minimal disruption to operations and revenue and then test these alternate response plans under detailed real-world conditions prior to execution to evaluate their performance and feasibility.
Evaluating Near-Shoring Strategies to Minimize Risk
Many U.S.-based businesses are rethinking overseas manufacturing strategies as formerly significant cost advantages begin to evaporate. Rising labor costs, turnover and quality concerns, combined with West Coast port headaches and variability and lengthening of ocean transit times are contributing to increasing risk of manufacturing in Asia. “Nearshoring” to North American countries such as Mexico appears favorable in many regards. Among the potential benefits are Mexico’s shorter lead time, favorable trade agreements with 44 countries and long-established, growing manufacturing footprint.
In making fundamental facility location decisions, companies often fall into the trap of focusing only on a subset of the costs and forget to focus on entire end-to-end supply chain considerations, which include the interdependencies of many cost factors including transportation, inventory and tax. Modeling helps companies make decisions that are optimized across the entire supply chain by identifying the tradeoffs across all the different cost elements and service levels.
Supply chain models can also incorporate cloud-based industry recognized risk metrics for different regions around the world; including political instability, logistics performance, corruption, climate risk and ease of doing business indices.
Three Elements of an Effective Supply Chain Risk Management Strategy
By creating living models of the supply chain, businesses enable three key elements of supply chain risk mitigation:
- Visibility: What is the current structure and flow of goods through the supply chain?Network visualization can help businesses understand things like sourcing, product flow paths, revenue impact of disruptions and products that are single-sourced or have a high concentration or reliance on limited providers.
- Scenario analysis: What if we try this? How would our costs or service be affected by this?Once the digital model of the as-is supply chain is built, businesses can develop optimal strategies to redesign their supply chains to reduce or mitigate risk, increase their resiliency to recover from a risk event and develop contingency plans to respond to potential risk events depending on which present the biggest risks to the business at any given time.
- Rapid response: How should we react to an unplanned event?Businesses that are armed with a continuously-maintained digital model of their supply chains can react rapidly and intelligently when unplanned events occur, and test various alternatives responses rather than guessing or delaying their response.