Hanjin: A Wake-Up Call
“The owners of some $14 billion in cargo stranded on Hanjin Shipping Co. vessels are considering desperate measures to recover their goods. Courts in Korea and the U.S. have said the company’s ships can enter ports without being seized by creditors, but it’s unclear who will pay to unload them if they dock, the WSJ’s Erica E. Phillips and Costas Paris write. Some shippers aren’t waiting to find out. Samsung Electronics, which has $38 million in cargo on Hanjin ships, is considering chartering 16 cargo planes. Others say they don’t even know where their freight is, let alone have a plan to rescue it. Trans-Pacific shipping rates have spiked as much as 50% amid the uncertainty, with brokers describing the situation as 'a total mess.' ”
Too busy to read this blog trying to find a fix? Then this blog is for you!
The majority of my postings have centered on the use of analytics on big data to directly increase profitable performance. However, the smart use of analytics goes beyond the need to find opportunities to generate more profit. It should also include the capability to support the mitigation of significant supply chain disruptions. The ROI for using analytics on big data to enhance profits is more than enough to justify the investment. The ROI is multiple times larger when you leverage the same data with additional analytics to protect profits. Therefore, the next four postings will now focus on the protection of an enterprise’s ability to generate profits.
Today’s supply chain executives are constantly dealing with disruptions to their supply chain operations. According to British Standards Institute, in 2015 global supply chains incurred a combined $56 billion in extra costs due to crime, extreme weather, terrorist threats and the migrant crisis that swept across Europe. One of the most insightful research efforts was done by Vinod Singhal from Georgia Institute of Technology and Kevin Hendricks from University of Western Ontario with the following results:
As depicted in the top section of the visual below, most disruptions are managed through a Supply Chain Crisis Management process. This often involves activating a “Situation War Room”, gathering the right people and beginning to process information about the situation in order to determine how to get the operation back up and running. This is a reactionary approach to handle supply chain disruptions. This approach uses valuable time in putting a game plan together while being unable to meet specific customer orders.
Using the insights gained from supply chain analytics, the right approach is to focus on Supply Chain Risk Mitigation activities that minimize the financial impact of a disruption before it actually occurs. Mission Impossible you say? Not so. The use of analytics to increase the profitable performance of an operation can also be used to create another set of operational lenses. Lenses that offer insights that empower the organization to mitigate the financial impact of prioritized, potential disruptions.
In addition to being a founding member of the American Logistics Aid Network (ALAN) (www.alanaid.org), Competitive Insights has been studying Supply Chain Risk Management best practices for 11 years. During that time, we have participated in creating the first Industry Standard of the subject, ASIS's Supply Chain Risk Management: A Compilation of Best Practices, published numerous industry articles as well as offered executive education in both conference and university settings.
Therefore, I offer the following definition for Supply Chain Risk Management (SCRM); “the development of strategies to minimize or eliminate the financial impact of supply chain disruptions through the identification and prioritization of possible disruptors at all points in the supply chain, from sources of raw materials to the final delivery to customers”.
The continuation of this blog series will address the following SCRM points:
- Why are today’s global supply chains more susceptible to significant disruptions?
- Who needs to be involved in creating, implementing and maintaining an effective SCRM program?
- What can you do that goes beyond Crisis Management activities?
- How do you determine that your SCRM strategies are working?
Remember, the amount you gain far exceeds the cost of change.
I would love to hear your comments.
All the best,