A supply chain is only as strong as its weakest link; a break can wreak havoc with everything from a manufacturer’s production to profits.
Take one best-selling pickup truck, the Ford F150. In May, one of its component suppliers had a major fire and was forced to stop production. This in turn caused Ford to halt production of its highly profitable F-150. The markets reacted immediately and Ford’s stock price fell by 2%.
The F150 sold 900,000 units last year and contributed $41 billion in revenues to Ford. The fire at Meridian Magnesium Products in Eaton Rapids, Michigan, caused Ford to halt production of the F150 for six days. Six days in the life of F150 production might cost Ford something like $675 million in revenues (based on 2017 revenues); 7,600 workers had to stay home. This happened all because a single-sourced component in the supply chain was no longer available.
The chain broke. Most likely the problem arose because Ford did not know the part was single sourced or it made a bad trade-off of risk versus cost savings. Both problems stemmed from not understanding the ramifications of its actions.
So what is the solution to ensuring a break-proof supply chain? A combination of risk identification, mitigation and management is a good start. You can ID risk either as it happens or in advance through simulation.
Identifying a risk event when it actually occurs requires analyzing current orders, expected demand requirements and the supply location(s) being impacted by the risk.
Simulation identifies the impact of these same risk events without the actual risk taking place. This enables trade-offs like: “If I single source a component, what is the impact on my supply chain which allows for financial analysis?”
Management means taking action after an unacceptable level of risk in the supply chain arises, such as obtaining a back-up or secondary supplier for a critical component of a critical revenue product. The time it takes to respond is the critical aspect - and automation is key to responding faster.
Mitigation is the act of identifying potential risks, the likelihood of the occurrence and the severity of the impact of the risk occurrence.
All of the techniques are required to orchestrate a resilient supply chain and leveraging a single platform for all of the techniques enables simplicity and collaboration among stakeholders. This allows for informed decisions to be completed across the entire organization.
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