Isolated supply chain strategies pose future risks

30 January 2009

30 January 2009 | Paul Snell

Many firms are attempting to tackle supply chain problems in isolation, leaving them vulnerable to future flare-ups, according to a report by Diamond Management and Technology Consultants.

The report said last year many businesses responded to supply chain problems such as price volatility with "one-off" strategiest. It said that approach was too risky and companies needed to re-examine their whole supply chain if they wanted to retain competitive advantage.

Diamond found that companies adopted a variety of methods to tackle the rising cost of oil in 2008, such as changing transportation methods or increasing fuel efficiency. But when the price of the commodity began to fall rapidly, companies that had reengineered their chain to compensate had to make further changes.

The study added thinking of supply chains in traditional terms, such as lean or low-cost sourcing, may have to be revised. This is because the assumptions that enabled these - such as cheap transport and cheap foreign labour - have altered.

The firm said there was no "silver bullet" to prevent supply chain volatility, but a six-step process would allow buyers to make it more adaptable. This involves:

•Determining the top 10 factors that influence the supply chain, and making sure senior management understand them.

•Understanding the difference between one-off supply chain "events" and "trends" and not reacting in the same way to both.

•Establishing levels that will trigger alarms when key parts of the supply chain change.

•Analysing the supply chain in real time, with the help of technology.

•Making sure an emergency team is available that can deal with changes rapidly.

•Acting now, as oil prices were the "canary in the coalmine" after 20 years of stability in commodity prices.

SMjan2009

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