@ Supply Chain Management

As you very well know, Swine flu is in the news and its effect on the supply chains of the world is a foregone conclusion regardless of whether it peters out and dies or it becomes a full blown pandemic. As I’ve said numerous times on this blog, extended multi-country supply chains increase the number of uncertainties that get to act on the length of the supply chain. However, at least from the point of view of the  United States, this is happening next door – which only goes on to show that even shorter supply chains suffer from the same kind of risks.

But I have a very different sort of observation to make. Apparently, if these news reports are to be believed: Panasonic Sends Workers’ Families Home on Flu Risk, Nikkei Says.

Feb. 10 (Bloomberg) — Panasonic Corp. has instructed Japanese workers assigned to parts of Asia, Africa, Eastern Europe and South America to send family members back to Japan because of the risk of outbreaks of new influenza strains, Nikkei English News said, without citing anyone.

The Osaka-based electronics maker has asked workers’ families to return home by the end of September, the report said, adding it was not known how many people were affected by the decision.

Please note the date of the report: February 10th, 2009. Today is April 28th, 2009. Curiously, this was also picked up by CIDRAP (Center for Infectious Disease Research and Policy) here: Panasonic’s pandemic-related move fuels questions, concern.

Michael T. Osterholm, PhD, MPH, director of the University of Minnesota Center for Infectious Disease Research and Policy, publisher of CIDRAP News and the CIDRAP Business Source, said he fielded a number of calls today from people in several business sectors who were worried about the significance of Panasonic’s move. "They wanted to know if this is for real," he said.

Penny Turnbull, PhD, senior director for crisis management and business continuity planning for Marriott International, Inc., said she was surprised and perplexed by Panasonic’s decision, given that there has been no significant change in the number, location, or transmission of avian flu infections in humans. She said the implications for other companies aren’t clear.

"Companies might wonder on what intelligence Panasonic based this decision, but I find it hard to believe that any will be following suit in the near future, though they might start monitoring the news more closely for some time to come," said Turnbull, who is also an editorial board member of the CIDRAP Business Source.

Osterholm said heightened concern over the Panasonic news is a reminder that a company’s decisions can have far-reaching unintended consequences and that in the early days a pandemic is likely to generate hysteria, not factual or science-based information.

He also said that Panasonic’s decision isn’t a breaking news story, because the company reportedly issued the new policy in December. "If this was a real pandemic concern, companies would have minutes to hours, not weeks to months, to prepare for this," he said.

Panasonic’s decision to repatriate the families of employees in some of its locations raises more questions about the company’s motives or if its risk assessment is seriously flawed, Osterholm added. "This tells me how ill prepared some of these companies are," he said.

As you might very well note from the above, Panasonic’s move didn’t happen in a vacuum – there were other firms that observed it and decided that the factors on the ground didn’t warrant such a move. Perhaps, Panasonic was only lucky or perhaps their risk assessment model led them in an altogether different direction – that is what I’d like to know about. But one thing is for certain, if you had been waiting for CNN, you’re dealing with a wholly different set of scenarios.

Keep safe!!

I attended the Supply Chain Resilience for Competitive Advantage seminar by Professor Yossi Sheffi today. Some notes from that webinar:

1. Examples of disruptions that companies have faced and a firm’s reaction to them:
   • Disruption of the electronic supply Chain illustrated through the March 2000 Philips fire and the effect that it had on Nokia and Ericsson supply chains. More information about this story can be found here in one of my previous posts: Creating the Optimal Supply Chain – Review (Flexibility in the face of Disaster : Managing the risk of supply chain disruption).
   • Another case, UPF Thompson filed for bankruptcy and its effect on Land Rover because UPF was a sole supplier of chassis for Land Rover Discovery. Recounted here: Land Rover calls for legal change.
   • February 1997, The fire which disrupted the sole supply of proportional valves to Toyota (12 hours for all Toyota plants to come to a halt because of JIT model). All the other suppliers of Toyota raced against time to manufacture proportional valves for Toyota – two weeks to bring all Toyota plants back to round the clock operation. A good review of the disruption, recovery and participants can be found in this article: Exploring Knowledge Emergence: From chaos to organizational knowledge (Pg 9-10).
   • September 1999, Taiwan Earthquake disruption of semiconductor equipment manufacturers.
   • August 2001 dialysis filter deaths problem at Baxter
   • February 2001, Foot and Mouth disease in the UK. 6 million animals were killed but more importantly the UK govt. closed down tourism to UK countryside, the financial impact of which was much higher than the initial problem.
2. Why are some companies more resilient than others?
   • Culture
     • Continuous communication (informed employees, environment, status)
     • Distributed power – which is driving decision making to a lower level within the organization.
     • Passion for work and the mission
     • Deference to expertise
     • Conditioning for disruption
   • Culture Change
     • Safety
     • Quality
     • Many others (smoking, drinking-and-driving)
3. What kind of resiliency should one aim for in procurement?
   • If you have a single supplier – work towards a deeper supplier relationship, it has to be an investment.
   • If you want a shallow relationship – you need multiplier suppliers.
4. The development of and investment in Supply Chain resilience is very hard to justify because like insurance, it isn’t needed until is needed.

The part that Professor Sheffi didn’t get into was Competitive Advantage – perhaps because of the numerous disruptions in the webinar itself – Ahem!!. However, it is a barely hidden point, it can be inferred readily. But I don’t think that it is competitive advantage here but relative advantage and there is a crucial difference. Why is it relative advantage and not competitive advantage?

If you look at one of the examples above – Ericsson vs Nokia with respect to the Philips fire, better relationships with suppliers can be had easily if not within an organization context but at least in a process context (procurement process, if you’d like). There is no real barrier to copying such advantages and so it doesn’t rise to the level of a true competitive advantage. However, organizational culture is a different beast which can be a source of competitive advantage simply because the disruption example was in the context of procurement here. What if the disruption was in the context of assembly or transportation or even financing? Properly, organizational culture and its effect on supply chain resilience as well as competitive positioning is a good indicator of which firms will survive the inevitable hit just as national culture is a good indication of resilience in the face of adversity.

Disruption of the supply chain, as was presented in the webinar, can be cast into a quadrant based on High-Low Impact and High-Low probability, Similarly Relative Advantage can be cast into a quadrant against High-Low disruption of the supply chain. You may even go to the extent of scenario planning and training and that is better than not engaging in it but you have no way of knowing which part of the organization is going to be the leading edge as it encounters new adversity/disruption i.e. the first point of contact with the initial rumbling of a disruption which if not contained/dampened/prepared for will snowball into a wide-scale disruption. In this case, you need to fall back on the only real insurance policy there is – a team of talent properly tasked, engaged, authorized and networked.

One symptom of such organizations should be easy to identify and I must thank Professor Sheffi for highlighting it, in individuals – a character trait, in organizations – a cultural trait and in nations – a traditional trait. “Those who succeed are praised for their success but those who fail are not reprimanded for it. Failure becomes a point of reexamination and reflection.”

Now, take a step back – take a wide eyed view of events that transpire in your life, firm and nations. Resilience? Or are you being taken with the current?

More quickly that it began, the Banking crisis is over screams the headline from this Time article. You might as well believe it now that the experts journalists have declared it over:

But, the great banking crisis of 2008 is over. It began last September 15 when Lehman Brothers filed for bankruptcy and bottomed when Citigroup (C) traded below $1 last month. Most analysts believe that mortgage-backed securities which included packages of subprime home loans failed when mortgage default rates went up and housing prices raced down. That is only partially true. Banks made a tremendous series of ill-advised loans to private equity firms, hedge funds, commercial real estate holders, and the average man with a credit card balance which he cannot pay.

Yes, those are pretty much all the actors in this saga. However, what the article fails to deliver is why despite identifying these actors, it doesn’t explain how the crisis has indeed passed i.e. it is high on events and actors but low on rationale – it reminds me of cherry picking the evidence. For example,

Wells Fargo (WFC) indicated that it made about $3 billion in the first quarter of the year and declared its buyout of the deeply troubled Wachovia to be a success. Wells Fargo (WFC) said that the low cost of money from the government combined with a surging demand for mortgages was all the medicine that it required.

So where is this surging demand for mortgages coming from? Mortgage applications surge 30% and that’s just for the week of March 20. But,

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 32.2% to 1,159.4 for the week ended March 20. Refinancing accounted for 78.5% of all applications.

Now, putting just these two data points together, one would hazard a guess that a stabilization of home prices is not what this points to. What about housing inventory and also the prices of homes given the current conditions? You can get the data from the National Association of Realtors Statistics: Existing Home Sales and Sales prices of Existing Homes.

The inventory (in terms of months of supply of existing homes) is unchanged from 1 year ago and as we enter the season for home sales, we shall have to see how it goes.

However, what should be noted from the two tables above is that for virtually unchanged supply of homes, the average home prices have decreased 15.5% nationally. So what belies this sort of optimism? But Ian MacIntyre is talking about the crisis and not whether the residential real estate is about to improve. But what if this is but a temporary floor which soon gives way – wouldn’t the banks be back in the doghouse then? On a side note, perhaps, the best indicator of the fact (some time in the future) that the housing market has stabilized will be an onslaught of “How to get rich through foreclosures” schemes. I’m not trying to be funny here but honey to be had does bring bees.

So what does this have to do with the supply chain for crying out loud? Take a look at the consumer confidence which is at the lowest level since it was instituted as a measure.

The road to recovery looks like a long and winding one.

Supply Chain Resilience for Competitive Advantage is a free webinar being hosted by Professor Yossi Sheffi courtesy of Manufacturing Alumni.

The ability to bounce back from unexpected supply chain disruptions is the essence of “resilience”.  Resilience can be achieved by building in redundancy (e.g., in inventories, capacity, and suppliers), but such redundancies are expensive.  A more viable way of ensuring resilience is by building in flexibility into the supply chain.  The presentation will highlight the most effective ways of developing resilient supply chains and will explore how they can be used for day-to-day competitive advantage.

The talk will cover many of the topic and the examples described in Professor Sheffi’s award winning and bestselling book “The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage.” (MIT Press, 2005).

Topics discussed during this webinar will include:

• Supply chain management processes
• Building resilience
• Overcoming vulnerability
• Maintaining competitive advantage

This informative webinar will take place on Wednesday 21st April at 14:00 GMT. Yossi will present and discuss the themes of his recent publication

What is most interesting for me would be how Prof. Sheffi is going to link up resilience and competitive advantage – should be interesting. And it’s FREE.