DISRUPTIONS IN SUPPLY CHAIN
Abstract:
Supply chain plays an important role in our day to day industry. It has become a vital part of all the industries. In today’s modern-day world efficiency of any business or industry is decided based on efficiency of its supply chain. This essay concentrates on the disruptions that occur in supply chain systems.
Introduction:
In today’s modern-day world supply chain is the backbone of all the business and industry. In the previous year’s supply chain was simple and easy to manage with little importance given. But now supply chain being an important factor continuous improvement are being made. As outsourcing and cross functioning has increased between business, supply chains are getting more complex. And due to this complexity, the money invested in supply chains is increasing. And to make it more efficient lean techniques are being used. This lean technique helps in increasing the efficiency and value of the supply chain, but in turn they make the supply chain more complex. Lean techniques help in saving huge chunk of finances by eliminating wastes and excessive utilization of resources. But as the supply chain grows more complex there comes the risk associated with it. Complexity is directly proportional to risk. As the participants in a supply chain increases, the risk of disruptions increase. This disruption can affect all the participants of the supply chain. With globalization and interconnectivity of industries the effects of disruptions have magnified from local to global. The Hanjin bankruptcy case has shook the supply chain industry. Hanjin being the fifth largest global player in the shipping and cargo industry affected lakhs of business by stranding the transport of their goods.
Disruptions in the supply chain in the early days included only the natural disasters that would bring down the whole chain. But in today’s modern-day world the disruptions include machine breakdowns, natural calamities, financial failures, political unrest, human errors, data analysis failure and even the IT failures. Due the increased outsourcing and dependency small disruptions in a supply chain participant can lead to a magnified failure at a global level. According to a study by Accenture on an average supply chain failure leads to 7% of decrease in the share price of the company affected. Supply chain being one of the most vital bridge between the connectivity of business and different industries. Toyota being known for its lean manufacturing and ranking at the first place in the automobile industry in terms of production and sales was hit by unexpected supply chain disruption. The explosion of a furnace in Aichi Steel plant in Japan lead to a shortage of steel and steel parts for Toyota, this impacted the company such that they had to shut down the Japanese production lines for 6days which lead to a backlog or shortage of 70,000 units of cars and billions of dollars in finances. This example is a major lesson for all the industries dependent on their supply chain that even the largest and most productive companies cannot stand against the unexpected disruptions in their supply chain. Due to this incident Toyota slipped to the second position in the automobile industry globally. So, this shows the effects of failure of supply chain due to minor disruptions.
Today most of the supply chains get effected by disruptions ranging from oil shortages to cybercrimes. The question is how do they prevent such situations or how can they recover from these situations. It's all about the pre-and the post disruption methods to tackle them. As it is said prevention is always better than cure. Huge industries mostly concentrate on saving cost by implementing lean techniques, but this increases the risk and narrows down the room for error. Today 80% of companies are prioritizing protection of their supply chain. Preventive measure should be taken and they should have a contingency plan to combat with such disruptions. Some of the plans include have alternate vendors and suppliers, having excess inventory or buffer stock before such disruptions, if the manufacturing plant is under the affected area they should have alternative production sites. Preventive measures and mock drills should be conducted so as to avoid such situations. Disruptions cannot be avoided completely but by having some plan it can help in reducing the effect and helping the company recover from its consequences. Another method to avoid disruptions and for smooth operation of the supply chain during the disruptions is by having real time data sharing systems between the suppliers and the company. So, this helps in tracking all the activities in real time world and eliminating any miscommunication.