Recent Disruptions and Preparing Your Supply Chain for the Unforeseen

From droughts that reduced the capacity of the Panama Canal to the collapse of the Francis Scott Key Bridge in Baltimore to missile attacks on ships in the Red Sea, this year has brought a lot of global supply chain disruption in a short period of time.

In fact, global organizations are constantly adjusting to unforeseen events. Recall the 2010 eruption at Eyjafjallajökull, Iceland, which interrupted air travel across Western Europe for weeks. Companies that had never contemplated a volcano contingency plan suddenly rushed to implement one.

The trouble is that disruptive events rarely repeat in precisely the same way. They’re called “surprises” for a reason. Making a detailed playbook for something that won’t happen again seems like a waste of time.

So, what’s the best approach to mitigating supply chain surprises? Shift your focus from prediction to preparation. Instead of trying to anticipate events that might cause disruptions in the future, prepare for their effects through scenario planning.

A Five-Point Plan for Planning

Let’s start with the difference between events and effects. The universe of possible events that can affect the demand, supply and flow of goods is endless, but the effects of events are relatively few.

For example, low water levels at the Panama Canal added lead times for importers of products from the Pacific Rim. But any number of things can delay transit times. Slow steaming, weather, port congestion, trade friction — they all have a similar effect on routing.

What specific effects should you plan for? Shardul Phadnis, Ph.D., an associate professor at the Asia School of Business in Kuala Lumpur, Malaysia, and I identified five core effects or impacts that companies should consider in Driving Forces Influencing Future Freight Flows, a 2013 report for the Transportation Research Board. These effects haven’t changed much since:

• Sourcing pattern: This captures any changes in the location of the origins for most freight movements, including the procurement of raw materials, manufacturing and distribution.
• Flow destination: This captures shifts in the locations of final demand, such as increased urbanization.
• Routing impact: This captures changes that affect the path or duration of the product’s movement from origin to destination.
• Flow volume impact: Changes to a region’s flow volume imply an increase or decrease in the total tonnage or volume.
• Value density impact: This can affect mode choice and supply chain network design; products with a higher value density, such as diamonds, tend to be shipped by faster, more expensive modes like airfreight than such lower-value products as bricks.

With only a handful of effects to plan for, you can present a team or an organization with a concise set of future scenarios to which they can react.

The Successes of Scenario Planning

Think of scenario planning as warm-up exercises to prepare your team or company for potential disruptions. By immersing yourselves in multiple future scenarios that are equally likely and unlikely, you can become nimbler and more flexible in your capability to respond.

Interestingly, this capability improves regardless of the specific scenarios the organization reacts to. It is the effort and the process of reacting that is being exercised. Using scenario planning exercises for, say, a trade war will reap organizational benefits in responding to a different disruption that produces a similar outcome.

Humans are historically horrible at predicting disruptions. (Indeed, we are terrible at predicting and forecasting in general.) However, supply chain professionals are exceptional at preparing. Scenario planning is an approach successfully used by companies, government agencies and other organizations to better prepare for the effects of an uncertain future.

And it’s a lot more productive than sweating over an event that probably won’t ever happen again.

(Image credit: Getty Images/The Lightwriter)