Best Practices in Protecting Your Supply Chain from Natural Disasters

How to implement specific strategies to mitigate disaster risks.

 

As a manufacturer, you know the importance of protecting your supply chain for your company’s future. So you might be interested in an academic study — lessons from the earthquake that resulted in a tsunamis and nuclear catastrophe in Japan.

The study’s three authors were able to provide the lessons after studying the recovery efforts of four Japanese companies – either they manufactured products or they depended on devastated companies for parts.

It was an analysis of how supply chains will survive if companies spread their distribution of information and vary the location of their assets. After all, companies won’t survive unless they strategize so their supply chains meet the expected standards of their customers.

Entitled “Supply Chain Lessons from the Catastrophic Natural Disaster in Japan,” it was authored by YoungWon Park, Waseda University; Paul Hong, University of Toledo; and James Jungbae Roh, Rowan University. The publisher is Business Horizons; vol. 56, no. 1. It was also summarized in April 2013 by Booz & Company at strategy-business.com. (Note: The consulting firm provides a newsletter I highly recommend.)

You recall what happened after the 8.9 magnitude earthquake hit Japan on March 11, 2011. It was the catalyst for the tsunami that cost lives and damage estimated at $235 billion. As a point of reference, the damage from Hurricane Katrina totaled $81 billion.

The multiplier effect was huge – for U.S. auto plants’ inability to get parts — and for tech companies to get silicon for semiconductor chips.

Naturally, plant-location diversification is a common practice. But the authors identified a best practice in supply chains –portability, the capacity to speedily circulate records in design and operations.

Researchers’ case studies of the four companies:

Iryou

Medical device manufacturer Iryou was impacted by challenges of it suppliers. Its main plant is in Japan, but it operates in the Philippines and U.S. So Iryou was able to increase production overseas.

Hampered by a government mandated three-hour power shutdown each day, Iryou hustled to construct a gas pipeline.

Also, it created a 24/7 crisis center, which led to an enduring disaster-readiness operation, and tentatively compressed its organizational structure to facilitate communication.

Kenki

Formerly a world leader in construction-equipment manufacturing, Kenki fell on hard times after it failed to evolve in the marketplace. But it had launched a new It system.

It gave the company the capability to better monitor key parts of its supply chain – production, sales and distribution. Kenki also managed the crisis better than expected because it had expanded to emerging markets.

During the disaster’s aftermath, Kenki refocused and power was no longer a problem thanks to its generators for self-sufficiency.

Sangyo

Sangyo manufactures industrial machinery. It had a leg up in the disaster because it had already moved some manufacturing to China. It also took steps to be timely in communicating data between its home operations with foreign plants.

Sangyo was hampered for half a month because it couldn’t get component parts. Now, in real time, it supervises the inventory of its suppliers.

The company has since performed a natural-disaster risk analysis. As a result, Sangyo maintains one-month inventory of parts in the event of any future disasters. It also uses more generic parts.

Zyuden

Zyuden, devastated more severely than the other three companies, manufacturers generators and vehicles. Its capabilities were wracked by problems in communication, electricity and transportation.

Zyuden’s challenges were alleviated because it had the foresight to install a data tracking system – sensing devices in production. Although the company had to install new sensors, it was able to get up-to-speed more quickly.

This meant a “restoration roadmap” for Zyuden’s production lines, helping the company to integrate “all sectors of its business, including those in the damaged region,” wrote the researchers.

Planning for your business:

Take proactive steps to quickly identify weaknesses, reroute the shipments, and prepare to deal with severe weather or devastating events.

Here’s how:

1. Map and assess vulnerabilities

— Map your direct suppliers as well as knowing where your tier-two and tier-three obtain their raw materials.

— Conduct risk assessments. Pinpoint where the important production and storage facilities are on earthquake faults, or in flood zones and hurricane-prone areas. Interos is helpful in this regard.

2. Vary and sketch areas

— Alter locations to safeguard against being vulnerable by being in just one locale.

-Bill DuBois

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.