Supply Chain Disruption Response Exercises

by Gray Rinehart

How often do you game plan for parts of your supply chain to break?

One of the risk management areas I dealt with early in my Air Force career was disaster response. In that capacity, we routinely planned and conducted disaster response exercises to ensure that we knew how well our training program was preparing responders, how our communication protocols would work in a crisis situation, and so forth. Those exercises, and the lessons we learned from them, paid off later when we had to deal with two real-world rocket propellant spills and fires.

It seems to me that the same kind of approach could — or perhaps even should — be used when it comes to supply chain management, and particularly to risk management as it applies to supply chain operations and optimization.

(We make our forecasts and run our scenarios, but are we relying too much on hope? Image: “Forecasts vs. Scenarios,” by Dustin Larimer, on Flickr under Creative Commons.)

Risk management can involve a number of different activities. One of the most powerful, in terms of being prepared to deal with crises, is positing disruptive scenarios and evaluating them in terms of their risk potential. By projecting different scenarios into the future — not always worst-case scenarios, either; sometimes a “poor-case” scenario will cascade into different disruptive events — management can envision and even test corrective actions in relative leisure, evaluate them, and have them ready when needed.

To evaluate a disruption takes more than just imagining the disruptive event and judging how likely or unlikely it might be. Concentrating only on risk in terms of uncertainty, as ISO 31000 defines it, neglects the potential effects of a disruption, i.e., the damage (physical or monetary) it might cause. Understanding risk as the probability of an adverse event coupled with the severity of that adverse event leads to a more robust understanding and has the added advantage of providing more possible approaches to handling the event. There may be little we can do to reduce the uncertainty surrounding an event, i.e., the probability that an event might occur, but we may find more things we can do to reduce its severity or to mitigate its effects.

With that in mind, we should be able to examine the supply chain with an eye toward the probability that any particular element of it could fail, coupled with the severity of such a failure: from potential failures of the transportation component to failures in the delivered quality or quantity; from the difficulty of recovering from a short-term interruption to the difficulty and time it would take to completely replace a vendor. And since changing business relationships and unexpected world events bring new pressures on supply chains — such as the disruptions caused by job disputes at ports:

Even short of a shutdown, the West Coast situation is creating high levels of uncertainty in a fragile economic climate that has forced many businesses to undertake contingency plans that come at a significant cost to jobs and economic competitiveness. Millions of containers of imported goods were brought into the country early this year in fear of a shutdown, containers are already being diverted to other ports, and retailers in particular are facing the prospect of expensive air freight to ensure that time-sensitive holiday merchandise arrives in time.

— running through disruptive scenarios two or more times a year could lead to insights into how to make the supply chain more robust.

So, how often do you imagine ways in which your supply chain can be impacted — or even that it can fail? What are you doing to imagine the worst, and to be prepared in case it happens?

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Related items you may find interesting:
– Does Chronic Disruption Affect Your Supply Chain?
– 5 top-of-mind matters for supply chain risk management
– Eight Ways Cloud Is Making Supply Chains Very Smart
– Five Procurement Predictions for 2015
– Mobility, collaboration and transportation: key supply chain trends for 2015