Best-Practices in Protecting Your Supply Chain from Natural Disasters



As a manufacturer, you know the importance of protecting your supply chain for your company’s future. So you might be interested in an academic study — lessons from the earthquake that resulted in a tsunamis and nuclear catastrophe in Japan.

The study’s three authors were able to provide the lessons after studying the recovery efforts of four Japanese companies – either they manufactured products or they depended on devastated companies for parts.

It was an analysis of how supply chains will survive if companies spread their distribution of information and vary the location of their assets. After all, companies won’t survive unless they strategize so their supply chains meet the expected standards of their customers.

Entitled “Supply Chain Lessons from the Catastrophic Natural Disaster in Japan,” it was authored by YoungWon Park, Waseda University; Paul Hong, University of Toledo; and James Jungbae Roh, Rowan University. The publisher is Business Horizons; vol. 56, no. 1.

It was also summarized in April 2013 by Booz & Company at strategy-business.com. (Note: The consulting firm provides a newsletter I highly recommend. The firm was the source of material in the article, How to Avoid Failure in Risk Management and Strategic Planning.)

You recall what happened after the 8.9 magnitude earthquake hit Japan. It was the catalyst for the tsunami that cost lives and damage estimated at $235 billion. As a point of reference, the damage from Hurricane Katrina totaled $81 billion.

The multiplier effect was huge – for U.S. auto plants’ inability to get parts — and for tech companies to get silicon for semiconductor chips.

Naturally, plant-location diversification is a common practice. But the authors identified a best practice in supply chains –portability, the capacity to speedily circulate records in design and operations.

Researchers’ case studies of the four companies:

Iryou

Medical device manufacturer Iryou was impacted by challenges of it suppliers. Its main plant is in Japan, but it operates in the Philippines and U.S. So Iryou was able to increase production overseas.

Hampered by a government mandated three-hour power shutdown each day, Iryou hustled to construct a gas pipeline.

Also, it created a 24/7 crisis center, which led to an enduring disaster-readiness operation, and tentatively compressed its organizational structure to facilitate communication.

Kenki

Formerly a world leader in construction-equipment manufacturing, Kenki fell on hard times after it failed to evolve in the marketplace. But it had launched a new It system.

It gave the company the capability to better monitor key parts of its supply chain – production, sales and distribution. Kenki also managed the crisis better than expected because it had expanded to emerging markets.

During the disaster’s aftermath, Kenki refocused and power was no longer a problem thanks to its generators for self-sufficiency.

Sangyo

Sangyo manufactures industrial machinery. It had a leg up in the disaster because it had already moved some manufacturing to China. It also took steps to be timely in communicating data between its home operations with foreign plants.

Sangyo was hampered for half a month because it couldn’t get component parts. Now, in real time, it supervises the inventory of its suppliers.

The company has since performed a natural-disaster risk analysis. As a result, Sangyo maintains one-month inventory of parts in the event of any future disasters. It also uses more generic parts.

Zyuden

Zyuden, devastated more severely than the other three companies, manufacturers generators and vehicles. Its capabilities were wracked by problems in communication, electricity and transportation.

Zyuden’s challenges were alleviated because it had the foresight to install a data tracking system – sensing devices in production. Although the company had to install new sensors, it was able to get up-to-speed more quickly.

This meant a “restoration roadmap for Zyuden’s production lines, helping the company to integrate “all sectors of its business, including those in the damaged region,” wrote the researchers.

Conclusion

The authors believe that businesses must take steps to upgrade their information-gathering and sharing capabilities at each manufacturing site. This also means following Kenki’s example by performing a natural-disaster risk analysis, and physical diversification of locations.

In addition, my sense is that retailers would be well-advised to research their suppliers – to see if they use such best practices to minimize delivery issues.

From the Coach’s Corner, recommended reading:

“If you’re a supplier and you think nobody cares if you’re alive, try missing a couple of delivery dates.”

-Bill DuBois


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.



Seattle business consultant Terry Corbell provides high-performance management services and strategies.