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Planning for Supply Chain DisruptionsYossi SheffiMIT,Cambridge MAPlanning for Supply Chain Disr1OutlineThe threatPast disastersSupply chain preparednesspreliminary research findingsOutlineThe threat2Terror Threats:wPhysicalwChemical/biologicalwNuclear/”dirty”wCyber attackTerror Threats:PhysicalChemica3The Economic Targets:InfrastructurenAgriculturenTourismnTransportationnElectric gridnBanking&finance systems nOil and gasnCommunicationsnContinuity of governmentnMedical services delivery nWater supplynFood supplyThe Economic Targets:Infrastr4Learn From Past DisastersKobe Earthquake-Jan 16 1995,6,300 killed,100K buildings destroyed,80K damaged.Total damage:$250BBhopal-Dec 2nd,1984,Union carbide factory,2500 dead,50,000 hospitalized.Chernobyl April 26,1986,15M people affected,Belarus still affectedLearn From Past DisastersKobe 5Learn From Past DisastersInfluenza 1918 675,000 dead in the US alone;Started in army barracks and prisons in the US;30 50 million worldwide(“the Spanish Flu”)The Mont Blanc-Dec.6,1917 the Mont Blanc explodes in Halifax port(400,000 lbs.Of TNT,2,300 ton of Citric Acid,10 tons of gun cotton,35 tons of Benzol).2500 dead;9,000 injured;shock wave felt in Cape Bretton(270 miles away).Foot and Mouth Disease(FMD)and Mad Cow Disease UK,2001,quarantines and slaughter of suspected animals;$3B-$5B hit.Learn From Past DisastersInflu6Danger Government ResponseOn 9/11:Ford idled several production lines intermittently due to delays at the Canadian borderToyota came within hours of halting production since a supplier was waiting for steering wheels shipped by air from GermanyAfter Flight 587 crashed,Nov.12,2001Bridges to NY were closed for several hoursIn UK FMD Farmers costs$1BTourism costs(after the government issued a ban)$2B-$4BJapanese government bankrupted many private hospitals in the Kobe areaDanger Government ResponseOn7Preparing for Another DisruptionSupplier relationshipsCore suppliers vs.public auctionsUse of off-shore suppliersDual supply relationshipsInventory managementThe vulnerability of JIT manufacturingAdvantages of JIT manufacturingStrategic Inventory(SoSo management)Knowledge backupDeveloping backup processesBacking up the companys knowledgeStandardization and cross-trainingCRM and customer relationshipsPreparing for Another Disrupti8Supply Chains under UncertaintyBetter visibilityTransportation visibility involves multiple handoffsNeed for full supply chain visibility,including detailed handlingIndependent data acquisition sourcesBetter collaborationLast decade:VMI,CMI,EDR,QR,JIT,JIT II,CPD,CPFR Now:implementationNew:joint emergency planning(alternate shipping methods;alternate suppliers)Also:security knowledge sharingBetter forecastingPostponementBuild-to-orderProduct variability reductionsCentralized inventory managementSupply Chains under Uncertaint9Industry-Government partnershipsClear role for cooperation happening alreadyIndustry participation in Free and Secure Trade(FAST)and Customs Trade Partnership Against Terrorism(C-TPAT)“Known shipper”and“known carrier”programsDifficult to get terrorism insurance role of government as insurer of last resortInsurance companies are only starting to model terrorism threats.Industry-Government partnershi10Efficiency vs.redundancy(who pays for cells,electricity,medicines,etc.)Collaboration Vs.Secrecy(example:hazmat placards)Centralization vs.dispersion(physical vs.I/T attack)Lowest bidder vs.known supplier(whats in the container)Security vs.privacy(vs.efficiency of search)New Business Trade-offs:Efficiency vs.redundancy(who11When Disaster StrikesCrisisImpactPrepared ManagementUnprepared managementHurricane Mitch(Nov.1998)Floods destroyed banana plantationsChiquita leveraged existing alternative sourcesDole took time to find alternatives and lost sales andTaiwan Earthquake(Sep.21 1999)Component supplies to PC OEMs disruptedDell priced to steer customers to available componentsApple could not change config.-faced backlogs and lost salesMad Cow&FMD(Spring 2001)Shortage of hides for leather manufacturersGucci,Wilson supply contracts;Naturalizer,Danier-inventoriesEtienne-Agner suffered cost increases9/11Closed bordersDaimler-Chrysler Alt.modes based on contingency plansFord idled several plantsWhen Disaster StrikesCrisisImp12Preliminary Research DataTwo responses:active and“do nothing”Active:Past bad experienceCorporate culture(defense business,work in dangerous places around the world,etc.)Security departments staffed with experience“Do nothing”:Believe 9/11 is a one-time eventCannot find a way to payBelieve government will helpAll companies most concerned about government response to terrorist attacksAll companies report a large increase in cyber attacksPreliminary Research DataTwo r13Preliminary Research Data(Active Respondent)Build redundanciesTighten collaboration with partnersWork with government to understand and influence security initiativesLook for technology to help(RFID,GPS,e-cargo seals,biometrics,sensors,etc.)EducationAwarenessContingency planning(including drills with supply chain partners)Preliminary Research Data(Act14SummaryA long term adjustmentIn past incidents:the economic impact was a lot less than initially feared“collateral benefits”of preparedness:Better collaborationBetter supply chain operationsBetter controls(less theft,IP loss,better standards)Participation in communitiesSummaryA long term adjustment15Any Questions?Yossi SheffiSHEFFIMIT.EDU?Any Questions?Yossi Sheffi?16
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