Buyers must invest in contingency planning before it’s too late

20 April 2012

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20 April 2012 | Adam Leach

A failure to follow through on dual sourcing plans hurt Sony Mobile when last year’s earthquake and tsunami in Japan caused severe disruption to their production.

Speaking at the Extended Supply Chain 2012 conference in London this week, Patrik Jansson, vice-president of engineering and materials management at Sony Mobile, told the audience the “cost of not being prepared is massive”.

He explained measures such as quickly assessing the impact on the supply chain, establishing communication with suppliers and implementing emergency backup solutions enabled operations to respond to the disruption. But he admitted neglecting to follow through fully with dual sourcing plans cost the company, which was previously known as Sony Ericsson.

“Second source, dual source and backup solutions was something that we had procedures on how to do but hadn’t been following up on 100 per cent,” he told delegates. “In some cases we had opted not to get a second source for a certain part on a high-volume model.”

He explained in one instance, a factory that was the sole supplier of a minor component used in the manufacturing process was completely destroyed by the Tsunami - causing production of a phone to be halted.

Explaining the impact of not having an alternative source of supplies, he said: “Neglect to follow our own procedures, a neglect to do the work that we needed to do in secondary and dual sourcing cost us tens of millions of Euros, if not hundreds.”

His message to buyers was while it might appear expensive to invest resources in risk planning and strategies, it is far more costly not to. He also said that having a strong plan in place was essential with regard to getting insurance: “You will not be able to get insurance unless you have secure avoidability [sic].”

* Yesterday, CIPS CEO David Noble highlighted the need for businesses to examine their contingency plans and those of their suppliers’ suppliers. He made the comments following a fire at a factory owned by chemical manufacturer Evonik on 31 March caused panic among the auto industry over expected shortages of the resin Cyclododecatriene, used in brake and fuel lines.

“This explosion is the latest in a number of incidents such as the tsunami in Japan and flooding in Thailand to underline the importance of supply chain to businesses,” he said. “Risks to supply chains are definitely on the increase so it is crucial that businesses in all sectors have robust contingency plans in place so their supply chains are more protected and production doesn't grind to a halt when failures occur. Unfortunately, far too many don't and leave themselves dangerously exposed to supply-chain risk.

“Organisations must consider a suppliers' own contingency planning when selecting them and test them regularly with scenario planning. For example, how would they ensure continuity of supply should they have an accident or be affected by a natural disaster? Do they have alternative plants to switch to or other sources of supply? It's about considering suppliers as an extension of the organisation.”

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