Managing Automation - March 2009 - (Page 19)

Risk is buffeting supply chains from every direction. Today manufacturers must prepare for every possible disruption. BY JEFF MOAD or Tom Dadmun, it all started back in 2004 when he and other executives at communications equipment manufacturer Adtran Inc. read about the bird flu virus said to be sweeping through Asia. Adtran had already moved much of its production to low-cost electronics manufacturing services contractors in China. And, as experts warned that the H5N1 virus could blossom into a pandemic, disrupting power supplies and transportation and closing plants across Asia, Dadmun and his colleagues began to panic. “We started going to our contractors and asking for their contingency plans,” says Dadmun, who was then vice president in charge of Adtran’s supply chain. “What would they do if there were an electricity shortage? Then we started asking ourselves what we would do if we suddenly had to find another contractor. It was the first time we’d had to think seriously about those kinds of risks.” But it wasn’t the last time, not by a long shot. Although bird flu — at least so far — hasn’t caused the business disruptions once feared, Adtran officials took the scare as a wake-up call. They began to explore other risk scenarios that could undermine Adtran’s extended supply chain, and they began to put in place contingency plans to mitigate those risks. “Since then, much more of our focus has been on risk avoidance and mitigation,” says Dadmun, now Adtran’s program management office vice president. “It’s become an unavoidable reality.” Dadmun certainly isn’t the only manufacturing executive obsessing over the myriad things that can blow up, blocking their companies from quickly and profitably responding to demand. The globalization of most manufacturing businesses has made supply networks less visible and more vulnerable to disruptions. And a series of unprecedented and uncontrollable global events — from the worldwide recession, to gyrating energy prices, to high-profile product quality scandals — have combined to make supply chain executives feel that they are perched precariously on a high wire in a risk windstorm. As a result, experts say, savvy manufacturers realize that managing a supply chain today requires much more than simply seeking out the lowest-cost suppliers or generating a demand plan based on historical patterns. It also demands understanding all the risks to which your supply network is exposed, creating early-warning systems so that you’ll know when risk is about to become reality, and having workable response plans in place. “The impetus for understanding and preparing for supply chain risk is coming from up and down the enterprise today,” says Kevin McCormack, president of DRK Research and a professor at North Carolina State University. “CEOs and other C-level executives want to protect their companies from loss of market capitalization, a very real threat. And the folks in the trenches want to be more informed about risk so they can mitigate them before they have to clean up the mess.” The consequences of unmitigated supply chain risk can be messy indeed. According to a recent study by PriceWaterhouseCoopers, public companies announcing supply chain disruptions have seen their share price fall an average of 9% in the first two days compared with a benchmark group of companies. The study also found longlasting effects. Two years after an incident, share prices of companies that experienced supply chain disruptions were almost 19% lower than the benchmark average. And that’s just the impact on share price. Manufacturers worry that supply chain risk can also lead to higher production costs, finished goods shortages, quality disasters, and, in the end, unhappy customers and irreparable harm to brand equity. In a well-documented 2000 case, a 10-minute fire at a Philips semiconductor plant in Albuquerque, NM, contaminated millions of chips and delayed deliveries to customers, which were primarily makers of mobile phones. One of those customers, Ericsson, later reported a $400 million loss resulting from the delayed chip shipments. Manufacturers are well-aware of such horror stories. In a recent Managing Automation reader survey, 54% of manufacturers reported that their companies face substantially more or somewhat more risk today than a year ago (see charts, p. 21). And 63% said they expect their company’s focus on supply chain risk to increase over the next 12 months. Manufacturers said supply disruption 19 March 2009 ma

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Managing Automation - March 2009 Contents Take 1 Sober Outlook, Cost-Cutting Techniques Dominate at Automation Conference Sale Canceled, i2 Searches for Its Focus Accenture Unveils a Service for the Factory Floor Solar Is Bright Spot for MES Player Eyelit Other Industries Outspent Auto on Robots in 2008 Integrators to Play a Bigger Role at ILS Technology Notes Deep Dive Supply Chains Reader Poll Technology Directions Expert Q&A User Resources Special Report Transformation Product Scan Advertiser Index Next

Managing Automation - March 2009

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