We don't want to pick on American Honda Motor Co. It's a good neighbor here in Ohio and manufactures very fine products. And it suffered mightily in the wake of the earthquake, tsunami, and nuclear uncertainty earlier in the year in Japan.
Honda, as was the case with Toyota, couldn't get parts, couldn't get cars, was forced to cut back U.S. production, and watched somewhat helplessly as sales and inventories (and profits) plummeted. At the time, we waxed eloquent about the apparently forgotten lessons of enterprise (and supply chain) resilience, citing the teachings of the Massachusetts Institute of Technology's Dr. Yossi Sheffi.
Then, late last fall, floods in Thailand brought a double whammy to Honda (and also to Toyota), cutting off parts supplies, slowing production, dragging down sales, and threatening financial performance.
Why is this so difficult?
It's not that Honda and Toyota are slow learners. Far from it. It is exponentially more difficult to implement resilience measures than it is to comment on their desirability. Contingency plans and procedures take time to put in place, time to secure approvals for, and significant financial and human resources to create (which adds seriously to the time needed for approval).
They also can significantly affect longstanding business—and personal—relationships with upstream and downstream supply chain partners.
The stark reality is that building resilience into the supply chain begins with suppliers and a company's relationships with them. The first consideration is the establishment of alternate supply sources, and committing enough business to them that they can be viable options when a primary supplier cannot deliver.
Easy to consider in a rational world, but not so simple when tight supplier relationships have been in place for decades, for generations. And as important as they may be, new relationships are neither easy nor quick to build.
At minimum, a company must insist, as a condition of continuing to do business, that primary suppliers have realistic resilience plans in place—OK, contingency plans, if you prefer. These might involve—and in the best instance should—alternate suppliers for the suppliers. That raises the longstanding relationship issue, with attendant time considerations, all over again.
The suppliers' plans should also include how to handle manufacturing/assembly/conversion process continuity, as must plans for your operations. More planning, more testing, more time.
And it's not just a matter of devising workarounds for the more common types of disruptions, such as a transient power outage, roads temporarily impassable because of snow and ice, or work stoppages (although things of that sort need concrete plans, for sure). All links in the supply chain must deal honestly with plans for the unthinkable, including one set of unimaginable events being closely followed by highly improbable additional negative developments.
What the CFO doesn't want to hear
Inevitably, much of the solution to the resilience equation involves redundancy—things that, in the ideal and in the abstract, aren't necessary. They all cost money, and they all consume human and other resources.
Start with inventories—yes, your own as well as your suppliers'. The just-in-time devotees make fun of the just-in-case realists, but there needs to be stock somewhere in the end-to-end chain to smooth over the inevitable hiccups—or to buy a little time in the event of catastrophe.
This is a difficult solution. Inventory, by definition, is the most expensive form of a product at its particular location in the chain; it contains all the labor and all the components that define it at the moment, and can only deteriorate in value from that point forward. But some of it is part of the resilience solution. (How much is too complicated to define either generically, or in this space at this time.)
So lean priniciples mean nothing?
They continue to mean everything, up to a point. But one portion of the resilience solution involves conscious and deliberate construction of redundant production capacity within the system. That allows transfer of processing facilities that have not been affected by the latest disruptive event, whether it's a volcano in Iceland, riots in Greece, or wars of liberation almost anywhere.
But until the overcapacity is needed, it will sit idle, creating anxiety and confusion in many quarters.
To complicate matters further, for that expensive capacity to be actually useful in an emergency, the technology and processes (and workforce quality and level of training) need to be totally consistent throughout all facilities. Another "wasted" investment to challenge the CFO's sense of control, frugality, and financial responsibility.
What this means to many companies
So, we can't get all superior and expect global enterprises (or even neighborhood candy stores) to create resiliency plans with the snap of a finger.
These are major efforts, major resource commitments, major paradigm shifts, and major internal selling jobs, with possible major relationship fallouts.
But because of the time and struggle involved, and because of the apparently neverending string of amazing events that cripple and shut down supposedly invincible business powerhouses, the process of building supply chain resilience needs to be undertaken.
It's grueling work, and the options to be considered are often frightening and seldom uplifting. But the consequences of not planning and putting the required protections in place become more clear with every passing catastrophe.
And given the time and complexity of thorough—and practical—solution development, there's no better time than right now to get to work on the issue and try to make up for lost time.
