chrobinson supply chain resiliency (1)

7/24/2019 CHRobinson Supply Chain Resiliency (1)

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Add Resilience toSupply Chains

WHITE PAPER


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C.H. Robinson | Add Resilience to Supply Chains 2

In brief

Natural disasters and other events have exposed

weaknesses in lean global, regional, and domestic

supply chains, disrupting connections between

companies, their suppliers, and their customers. In the

next phase of supply chain development, companies

are creating ways to circumvent disruptions andminimize their impact on the business. This white

paper looks at issues that companies should consider

when developing a more resilient supply chain.

ContentsDeveloping Supply Chain Resilience: The New Frontier 3

Case Study: A Lean Supply Chain Deals With Disaster 4

Mapping the Supply Chain to Find the Gaps 5

The Process flow map 5

Network modeling 6

Hi-Viz Supply Chain maps 7

Developing Options for Resilience 8


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Developing Supply Chain Resilience: The New FrontierFor decades, finding efficiencies has been the primary driver in evolving supply

chains. Companies have promoted problem solving to drive out waste and rely

on just-in-time flow, a process that is determined by customer demand.1As

efficiencies have increased with Lean and similar systems, highly optimized

networks have been developed, lowering inventory and other costs. But a series

of well publicized events that compromised supply chains has prompted many

leaders to wonder if an operation can be too lean.

In the past, disasters were felt primarily by companies in an affected region.

Now, problems that used to be isolated to a region can have far-reaching

impact on many supply chains, especially those that are lean and global. Their

suppliers and customers can be located anywhere in the world. Inventory that is

strategically positioned for lean operations may be poorly situated to serve keycustomers if disruption occurs.

While gaining efficiencies and reducing costs will remain high on the list of

priorities, analyzing different levels of risk and building in resiliency is the nextfrontier in supply chain management. Financial models assess different levels

of supply chain risk on the overall balance sheetcarrying costs, inventory, and

cycle times. C-level executives seek mitigation strategies for natural disasters

or man-made events that could interfere with business interests. In this era of

scrutiny, managers with compelling ways to add resiliency to the global supply

chain and help the overall companys profit and loss will have arguments that

leadership is ready to hear.

Developing a resiliency plan is now a must for any company. But global

companies, especially those with high-value, high-demand products coming

from multiple locations, are most likely to need such plans. Certain industries

are particularly vulnerable to disruption. Retailers and brand name pharma-ceutical companies require speed to market to keep sales channels open

and customers satisfied. Manufacturers need raw materials and supplies at

planned intervals to prevent downed plant lines and maintain machinery. Food

and beverage companies must be able to trace problems back to their source

in multi-tiered supply networks, and understand divergent regulations for food

quality around the world.2

Developing a resiliency plan is now a must for any company. But

global companies, especially those with high-value, high-demand

products coming from multiple locations, are most likely to

need such plans.

1 Miller, Jon. The Necessity of Redundancy in Lean. Quality Digest, April 30, 2010.2 Deloitte Insights. Supply Chain Risk: Answers to Five Often-asked Questions.The Wall Street Journal,

April 19, 2013.


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For global organizations, it may be less obvious where process and supply gaps

exist. Even though many of these companies use transportation management

systems (TMS) to achieve efficiencies, few of those systems provide global

visibility. Incompatibilities in technology, language, culture, and regulation

between and across continents can prevent identification of transportation and

operational chokeholds.

Yet, certain considerations can help build backup plans for more resilient supplychains and help companies adapt to changing circumstances while maintaining

their central objectives.3Companies with resilient global supply chains are more

likely to have goods available when they need them, and to be able to continue

serving customers without disruption. And because they can see their inventory,

they are less likely to spend unnecessarily to transport emergency supplies.

The hardened enterprise will be able to not only withstand all manner of

disruption but also increase its competitiveness. Unforeseen disruptions can

create shortages that are not dissimilar to the demand spikes caused by

supply/demand imbalances; resilient enterprises can thus react to changing

market demand ahead of their competitors.4

A motor manufacturer had

operations and suppliers

in North America and the

Asia Pacific region. After

outsourcing their global

supply chain to a third

party logistics provider

(3PL), order cycle mapping

revealed that internal

groups duplicated efforts

in customs documentation.

Poor global visibility

prevented accurate answers

about manufacturing/

delivery timelines. Inbound

transportation costs were

bundled into the total price

of goods. Freight was not

optimized.

The 3PL obtained weight

and dimensions of all SKUs

and consolidated less than

container loads (LCL) into

full container loads (FCL)

for fewer containers to lower

costs. Raw materials from

all global suppliers came to

one bonded warehouse in

Laredo for optimization and

delivery in the United States.

Technology provided visibility

into when raw materials

would actually arrive for

less stress on warehousing,

receiving, manufacturing, and

customer service.

While these efficiency

measures were underway, the

tsunami struck Japan. Years

before, the company had

worked with U.S. suppliers,

but gradually turned to

lower-cost Asian suppliers.

When that distribution

channel was disrupted, the

company was no longer a

preferred customer with

U.S. suppliers, and their

raw materials went to

competitors.5

Todays backup plan

includes:

A significant increase in

raw materials orders with

U.S. and Mexican suppliers;as preferred customers,

they can obtain materials if

disruption occurs.

Balanced North American

supply with strategic

orders from Asia to gain

redundancy and help

prevent supply interruptions.

Opened a new plant in

Houston to complement the

one in Vietnam. They can

respond during a disasterand when orders exceed

demand forecasts.

CASE STUDY:A Lean Supply Chain Deals With Disaster

3 IDC Energy Insights. Predictions: Oil & Gas ICT Systems Need to Be Resilient to Counteract DisruptiveFactors. IDC Energy Insights 2014 Predictions: Worldwide Oil & Gas, December 11, 2013.

4 Sheffi, Yossi. Building a Resilient Supply Chain. HBR Blog Network, August 14, 2007.5 Glendon, Lee, and Lyndon Bird. 5th Annual Supply Chain Resilience Survey. Business Continuity

Institute (BCI), April 2013. The company in the case study is similar to companies surveyed by BCI. Theyasked 519 global shippers whether key suppliers would declare them a priority customer in the event ofa disruption; 64 percent said they either did not know where their organization would be in the ranking orknew for only some key suppliers.


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Mapping the Supply Chain to Find the GapsIdentifying potential chokepoints in the global supply chain is the first challenge.

Maps can be simple or highly complex, but they help the company visualize

where the greatest risks can be found. Three types of maps are explored here,

from high-level to extremely detailed views of operations.

The process flow map (high-level view)

As a neutral third party, a consultant or provider can work with key stakeholdersfrom across the organization and provide insight on the supply chains current

state. As each stakeholder explains how orders flow from supplier to customer,

the consultant combines all perspectives in a single page map. Process flow

maps simultaneously reveal efficiency gaps and potential risks for analysis (see

Figure 1).

FIGURE 1 PROCESS FLOW MAP

ManufacturingInternationalRaw Goods Supplier

DomesticRaw Goods Supplier

End Customer

Packaging SupplierLocal

Port

If the raw materials come

from overseas, they must

go through sterilization

before manufacture.

Expedited shipments are

shipped directly from

manufacturing

Primary DC

Distributor Network


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Network modelingAs companies experience significant changes in their operations (e.g., mergers

and acquisitions, factory closings, customer gains or losses), they can enlist

help from a logistics expert to model the current and future network. Network

modeling reveals where materials and inventory are located and how end

customers are served through distribution channels. The map shows where the

company has the biggest inefficiencies and the greatest risk. Detailed analysis

leads to recommendations on where vendors and distribution points are, and

where they ideally will be positioned (see Figure 2).

Global network modeling requires not only data but deep knowledge of local

and regional complexities. It is not equally easy to do business in all regions

of the world. Some countries have complex provincial and state government

regulations. These regulations make it essential to carefully choose the ideal

location and type of warehouse (i.e., free trade zone, bonded logistics park, etc.)

to perform the necessary operational tasks.

FIGURE 2 NETWORK MODELING MAP

Companies that plan for service disruptions gain an advantage over less prepared

competitors in providing continuous service to customers.


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FIGURE 3 HIVIZ SUPPLY CHAIN TOOLS

Hi-Viz Supply Chain mapsDr. Bruce Arntzen, researcher at Massachusetts Institute of Technologys Center

for Transportation and Logistics, is developing Hi-Viz Supply Chain displays that

gather data from corporate databases, such as enterprise resource planning

(ERP) systems. The program automatically generates several types of flow

diagrams and maps of the companys supply chain. Visual displays of risk events

can be superimposed on top of supply chain images to show chokeholds.

Information that can be

displayed includes:

Locations of plants, suppliers, customers, and major transportation lanes

Alerts of natural disasters, strikes and protests, infrastructure failure, etc.

Heat maps (frequency diagrams) of hurricanes, floods, earthquakes, etc.

Inventory deployment (dollars and days of supply) across the network

Risk pathways (most vulnerable segments) across the network

Risk exposure and value at risk for each location in the network

Predicted customer blackout days from the loss of any site or lane in

the network

With Hi-Viz Supply Chain maps (see Figure 3), companies can identify whichnodes of a supply chain could be disrupted and answer questions like these:

Where is the weakest link? What is the probability that the node will be

disrupted?

What are the downstream ripple effects of the loss of a node or link in the

network? What downstream plants, DCs, and customers will be disrupted,

and at what cost?

What supply chain actions would make the company less vulnerable

(e.g., backup suppliers, extra inventory, overlapping DC coverage)?

Where to begin: across the network, what is the highest risk?

Hi-Viz Supply Chain tools offer a variety of maps and flow diagrams of the supply

chains plants, suppliers, customers, and major transportation lanes. This map

shows a high-level, strategic view of risk pathways after a natural disaster in

Europe (in red) that is suitable for the boardroom. Other areas of potential risk are

noted in yellow; locations with the least exposure are shown in green.


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Tips to help reduce risk Find alternate sources for critical materialsif there is only one supplier. Also

verify that suppliers have assessed risk with their own vendors, and that they

have more than one source for essential materials.

Consider interchangeable parts or products.If certain materials become

unavailable, there may be similar materials or products that could be

substituted. For example, U.S. cities banned the use of triclosan from anti-bacterial hand soaps when the ingredient was linked to brain damage and

cancer.7Manufacturers responded by substituting a similar product without

this ingredient to satisfy regulations and customers.

Ensure there are alternate distribution solutionsif suppliers and customers

are in the same region. If disruption occurs, suppliers may need to reroute

products to keep manufacturing underway, or open a facility closer to key

customers to keep product flowing.

Developing Options for ResilienceWhile it is impossible to prevent all supply chain risk, global companies can and

should assess how much risk they can tolerate and develop a plan to mitigate

the most likely risks to their business.

SUPPLIER RESILIENCE

Establish direct supplier relationships and have a

person who knows the culture and language perform

due diligence.6

6 Simchi-Levi, Professor David. Making the right decisions to strengthen operations performance.PriceWaterhouseCoopers and the MIT Forum for Supply Chain Innovation, 2013.

7 Huff, Ethan. FDA may ban antibacterial soap ingredients such as triclosan. Natural News.com,December 20, 2013.

TECHNOLOGY

If operations technology

is disrupted, corrupted,

or destroyed, how

quickly can data be

recovered?

If you use a providers

technology, what is

their plan for data

redundancy? Forbackups? For security?

TRANSPORTATION

& DISTRIBUTION

If there is a disaster, what

transportation alternatives

can keep product flowing?

How easy is it to

import and export from

distribution locations?

INVENTORY

Where is inventory

located? Is it at the right

levels?

Are most-used SKUs

close to key customers?

Should there be a plan for

safety stock or forward

stocking?

Which key lanes cannot

afford to have financially

optimized inventory

levels?

SUPPLIERS

Which SKUs come from

which suppliers, and

what regulations exist in

supplier locations?

Are there backup

suppliers for critical

components, and do the

suppliers sources of

rare raw materials havealternative sources?

Should vendors be

changed to provide the

necessary safety stock?

QUESTIONS TO ANSWER TO ADD RESILIENCE TO THE SUPPLY CHAIN


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Tips to help reduce risk Develop plans for safety stock.Regional strikes can shut down a supply chain,

making it impossible to serve customers. Having a critical part held up at an

international border can shut down a production line. Smart, well intentioned,

lean inventory management can present more areas of risk that can disrupt

a supply chain. Consider what it will mean if key customers cannot be served

for a day, a week, or a month. Some companies maintain a day or more of

safety stock close to key customers. If a temporary disruption occurs, they can

examine forecasts and point of sale data to determine priorities and deploy the

safety stock until regular shipping can resume.

Set up forward stocking locations.Consider positioning non-critical parts close

to customers. That enables better speed to market during temporary disruptions

while lowering costs.

Create parallel supply chains.When product launches are essential to profit-

ability, a parallel supply chain can directly connect independent production

facilities with sales sites, bypassing the traditional supply chain.

Consider postponement.Ramping up all inventory increases carrying costs

and inventory expenses. To control costs and add resilience, shippers can

hold off on deliveries until they have a better sense of when a disruption will

be over, or until they can gain more clarity on customer demand. Fast-moving

SKUs can be positioned regionally, close to customers; lesser-used SKUs

or products can be moved further back in the supply chain and sent to the

regional DCs as needed. Similarly, manufacturers can place most-used

components closer to manufacturing facilities for faster access when they

need to step up production.

Consider tradeoffs and riskswhen choosing locations for sourcing or dis-

tribution. During the threatened West Coast port strike, shippers developed

alternate strategies to bringing product to the West Coast and trucking it east.

Some shipped from Asia through the Panama Canal and to the West Coast

and from Asia to Canada to the U.S. Others moved supply sources to Mexico;

for them, having lower transportation costs and inventory closer to U.S.

customers outweighed the risks of potential crime, theft, and

governmental issues.

INVENTORY RESILIENCE

Supply chains are dynamic. As changes occur in

labor rates, country of origin decisions, and more,

companies with a single global TMS are betterpositioned to initiate alternate plans for

built-in resiliency.


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TRANSPORTATION RESILIENCE

As junior logistics employees gain experience and

move up in the organization, routing decisions are

made by people with the least tenure in transportationand logistics. Because they may not know their

options, they can make unnecessarily costly decisions

when disruptions occur.

Tips to help reduce risk Leverage all types of transportation.Introduce newer members of the team

to the full range of logistics options, and help junior employees recognize the

best options.

Teach employees how to evaluate the risk/cost/service tradeoffs.Velocity ofdelivery is a consideration in air-to-ocean, consolidated-air-to-direct-air, and

truck-to-rail combinations. Even within a single transportation type, there are

tradeoffs. Ocean freight that goes to direct port of call has a shorter transit

time, but costs more; ocean shipments that stop at multiple ports of calls have

longer transits and lower costs for transportation. But the more vessel stops

there are, the greater potential there is for delays and disruption.

Have an expediting strategy.Not all freight needs to be expedited if disruption

occurs. For instance, rather than sending whole truckloads by air after a

disaster, work with customers to airfreight only what they need immediately,

and truck the rest.

Conduct thorough due diligence on potential transportation providers.Aswith suppliers, working with reputable providers can help reduce unexpected

supply chain failures.

TECHNOLOGY RESILIENCE

There is no substitute for data redundancy to protect

a companys orders, sales, and costing information.

Tips to help reduce risk Make sure all data has a backup.Whether the system belongs to the company

or a provider, ask what the disaster recovery plan is and how often it is tested.

Your backup should have a backup.If the backup goes down, a good, resilient

plan will be ready for continuous or fast recovery.

Safeguard critical data. Employ vigilance and advanced security measures to

protect the companys information and reputation, and ensure system stability,

integrity, and performance.


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8 Curkovic, Sime, and Thomas Scannell. Identifying the Factors for Successfully Managing Supply ChainRisks. The World Financial Review, September 26, 2013.

9 Glendon, Lee, and Lyndon Bird. 5th Annual Supply Chain Resilience Survey. Business ContinuityInstitute (BCI), April 2013. The company in the case study is similar to companies surveyed by BCI. Theyasked 519 global shippers whether key suppliers would declare them a priority customer in the event ofa disruption; 64 percent said they either did not know where their organization would be in the ranking orknew for only some key suppliers.

Does Redundancy Have a Place in Lean Systems?How lean is too lean? As well-known brands have suffered through highly-

publicized service disruptions in recent years, that question has gained renewed

attention in corporate boardrooms. The focus on hyper-efficient supply chains

reveals that fewer parts and fewer suppliers can drive down material costs

and radically simplify operations. But when a strategic supplier of a critical

part encounters a hiccup, it can have crippling and costly implications for the

enterprise.9

Complete redundancy is cost-prohibitive, but some redundant stock, systems,

and resources can help avoid the waste of system breakdown if a disasteroccurs, even in a highly efficient supply chain. Companies can look at key raw

materials, customers, and lanes where having a solely financially-driven plan

is not an option the business can afford. In addition, shippers can consider

questions about suppliers, inventory, transportation, and technology to discern

how much risk is tolerable and develop the what if questions and solutions

that can lead to resilience.

Supplier failure/reliabilityBankruptcy, ruin, or default of

suppliers/shippersLogistics failure

From a survey of 46 supply chain managers; participants could choose more than one response to this question.8

89%

48%

44%

TOP PERCEIVED THREATS8


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C H R bi | Add R ili t S l Ch i 12

1. Technology.Supply chain resilience is easier to achieve with a global

TMS. Having visibility to global operations enables optimization and

identifies chokepoints and areas of risk that should be analyzed.

2. A global transportation provider.Many companies can manage air

or ocean shipments globally. But very few have the capability to tell

where everything is, in any mode, around the world. Experienced

transportation experts who understand how to use a global TMS can

help companies manage the level of risk thats acceptable and plan

for contingencies.

3. A very specific carrier strategy.Shippers can review their allocation

of modestruckload, rail, intermodal, ocean, and airand create

options for moving freight in other ways if the supply chain is

disrupted.

4. A balanced approach to supply.Global companies can analyze how

to balance sourcing across regions to gain preferred customer

status with suppliers in key regions. That way, the company can still

obtain materials and products if other supplier routes are disrupted.

4

TOOLSTHAT SUPPORT

SUPPLY CHAIN

RESILIENCY

14701 Charlson Road, Eden Prairie, MN 55347 | 800.323.7587 | www.chrobinson.com 2014 C.H. Robinson Worldwide, Inc. All Rights Reserved.

About UsC.H. Robinson helps companies

simplify their global supply chains.

Skilled logistics employees apply a

deep knowledge of market conditionsand proven processes to solve

transportation problems. Integrated

technology gathers data from all parts

of the supply chain and provides full

visibility to orders and costs. From

local truck transportation to global

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based on practical experience

to outsourcing, C.H. Robinson

accelerates competitive advantage for

companies of all sizes.

For more information, please

visit www.chrobinson.com or our

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