Thoughts from Gartner on Japan Lessons

Finally, Gartner analyst Michael Burkett offer his thoughts this week on lessons from this latest supply chain turmoil, which we repost with slight edits below:

"Our thoughts are with the people of Japan this week, as they continue the long recovery process from the recent crisis that's engulfed them. Such an event causes us to pause for a moment and reflect on our good fortune, which is often overlooked amid the daily grind. The challenges ahead for Japan are many, as families and communities recover and the local economy rebuilds.
Concern with the economic impact of product supply disruptions to both local and global businesses has been threaded throughout the turmoil.

Few industries have been spared from the supply shortages of components, ranging from semiconductor chips to metal forgings and rubber. Toyota and Honda have shut down temporarily within Japan; Apple may see delayed shipments of the recently released iPad 2; and Boeing's new 787 Dreamliner could see further delays to the already-beleaguered aircraft program. The event has been a topic of discussion among my research colleagues, as we've assessed the supply chain implications.

Several topics surfaced during this discussion. The following are a few of their comments and recommendations for every supply chain professional to prepare for such unforeseen events.

Establish an Overall Supply Chain Risk Management Framework

Ensuring readiness for any unplanned disruption is a critical first step. Noha Tohamy [Gartner analyst] has written extensively on this topic over the years and recommends that companies establish an overarching supply chain risk management framework.

Noha points out that any risk management framework must accomplish three goals: risk assessment, treatment and ongoing management. Gartner's Toolkit: Create and Implement a Supply Chain Risk Management Framework outlines five phases that constitute an iterative, actionable supply chain management process: strategize and design, assess and identify, analyze, respond, and monitor and manage.

Strategic Supplier Management Lays a Foundation for Effective Response

Supplier failure on components can wreak havoc on a supply chain. Just learn from Palm, which, in 2001, suffered a $250 million loss and 95% decline in stock value when a supply issue led to delays in releasing the m500 handheld device. Mickey North Rizza, who leads our cross-industry sourcing and supplier management research, points to a 2010 Gartner survey where 45% of respondents state they've experienced a supply chain disruption within the past 12 months. Her research found a vast majority of these disruptions could have been prevented with the right visibility and proactive supplier management practices.

Mickey recommends manufacturers put in place a variety of best practices, processes and technology to mitigate supplier risk. This starts by segmenting suppliers; layering risk categories to the supplier segmentation, such as geographical, financial and quality concerns; and then forming a picture of the business impact by supplier if a crisis occurs. The techniques used to manage this risk are predictive analytics, various monitoring methods, close collaboration and dual sourcing, where appropriate. An upcoming research note from Mickey will drill deeper into how manufacturers manage suppliers during a crisis.

Document Manufacturing Processes and Assets to Speed Plant Restart

Manufacturing plants disrupted by a shutdown must restart quickly, while ensuring quality and throughput aren't negatively impacted. Our cross-industry manufacturing coverage is spearheaded by Simon Jacobson, who first recommends that companies strive for a segmented view of their capacity and available resources, and design flexibility into the manufacturing network. This should be supported by standardized work processes and business continuity plans to shift resources to flexible capacity at other sites in a cost-effective fashion. In cases where equipment is damaged, a complete overhaul and repair will be required. A full record of asset designs, complete with part lists and alternative part supply sources, will also be critical in this case.

Simon also points to the important role manufacturing plants play within the broader supply network. Visibility to work in process and the current plant capability and capacity as they come back on line is needed to support customer service requests and supply chain planning processes. A manufacturing intelligence layer that connects the plant to its customers, suppliers and contract manufacturers (especially when they're leveraged to fill a specific capability or reach a core market) can really support this capability. Consider implementing a manufacturing architecture that allows Internet usage, regardless of the local technology applications that may be disabled.

Planning for a crisis is the first step toward responding to a major supply chain disruption and ensuring processes are in place for managing the event as it unfolds. However, once in the middle of a crisis, the compelling question is how to execute today. Stan Aronow leads our supply chain research for the semiconductor industry, which was among the hardest hit by the recent events. He will soon copublish a note that explores the actions companies can immediately take to mitigate the impact of major supply chain disruptions."

What is your reaction to these expert insights? What lessons do you see if any from the Japan crisis and the impact on the supply chain? Let us know your thoughts at the Feedback button below.