Snow fooling — the supply chain risks of not asking the right questions

The last time you made an outsourcing decision did you consider the Blizzard of ‘08 in China? Of course you didn’t. Why would supply chain managers have a better crystal ball than the weather forecasters, who didn’t see it coming until it was too late?

Unlike weather forecasters, supply chain managers need to consider the worst case risks of their decisions even if they can’t predict when the risks might occur. If the Blizzard of ‘08 caught you off guard, it says something about your risk management assumptions.

China’s worst weather in 50 years (a series of storms in the past two weeks) has tied the infrastructure in knots, stranding millions of migrant workers who were traveling to visit their families to celebrate the lunar new year, shutting power plants due to delayed coal deliveries, and snarling a rail and highway system already on overload.

As for the impact on the electronics industry, the only evidence is anecdotal. Technology Forecasters consultants have heard stories of lost productivity, delayed shipments (weeks not days), and suppliers not returning calls or emails.

The implication for risk management is clear to Jon Gilbert, TFI logistics consultant and principal of the Gilbert Group:

“When you outsource to a foreign country you’re not just buying the capabilities of the plant, but the whole distribution network in that country, and the infrastructure that supports it. We should not be surprised when we hear about large-scale transportation interruptions in China from this snow storm because their infrastructure is challenged even under normal conditions.”

“Reduce excess inventory,” is the electronics industry mantra when planning supply chains, but the flipside is having too little inventory due to delays caused by weather, fires, earthquakes and human-caused destruction. The challenge is to find the proper balance between the risk of excess inventory and the risk of being caught with none.

At this stage in the industry’s maturity, it is easier to take inventory out of the system than to be more cautious; supply chain managers get incentives for the former, not the latter. At the very least, they need to ask the right questions. Our experts can help.

How do the decision makers in your supply chain balance inventory risks? We’re interested in hearing from you.

Posted by Bill Roberts, February 8th, 2008