2018

EXPERT ANSWERS

This month’s question

What processes or mechanisms do manufacturers use to prevent supply chain disasters? It is my understanding they focus on reducing their suppliers to improve product quality and consistency. Because the products and components are shipped and made by fewer suppliers, how does just-in-time (JIT) interact with the risk management component of the supply chain?

For example, what if a container of parts sinks at sea? What if a truck hauling parts gets into an accident? How is a balance struck between JIT and risk management when it comes to supply chain management?

Our response

This is a great question. It gives me an opportunity to vent my frustration about what I consider a significant and often overlooked issue.

I don’t think it is a question of balance as much as a question of the completeness and effectiveness of an organization’s risk management plan—regardless of whether JIT is considered. The presence of JIT just places more emphasis on the need for a solid risk management plan.

Your examples are excellent considerations that should be included in a risk management plan, as appropriate. Recall the 2011 catastrophe in Japan when an earthquake and a tsunami struck the country on the same day. It resulted in disrupted supply chains of several large U.S. automakers, and the organizations ran into difficulty and delays acquiring paint. I would not be surprised if their risk management plans did not consider such catastrophic events.

Why are such events not considered? In my experience, contributors to the risk management plan might consider the likelihood of such events too small to be worth the time, effort and consideration. Others might be afraid of being mocked for surfacing what some people consider an outrageous issue. This behavior could stem from the attitude and desire to simply complete the risk management plan and check the box.

The fact is, these events do occur, and the impact can be enormous. Any organization doing business with other organizations located on the Pacific Rim, for example, should consider the likelihood of earthquakes, volcanoes, typhoons and tsunamis because it is well known that they occur with some degree of regularity in that part of the world. In addition, mudslides, forest fires and widespread illnesses or epidemics also occur in various parts of the world. These are just a few examples—numerous others can be cited. Perhaps even flying monkeys.

Another issue lies with the concept of reducing the number of suppliers. Overall, I find this concept appealing. However, I have seen organizations push it to the extreme by reducing their suppliers to a single source. This creates a dangerous situation, particularly when the level of communication is not frequent, open or honest, or at the strategic level.

Additionally, I have witnessed organizations not exercise their alternative or backup suppliers, and place orders only with their primary suppliers. Consequently, the backup suppliers fall into oblivion. As a result, they could seek other customers, change or eliminate their products or services, lower their customer priority and, in extreme cases, refuse to do business with the organization.

Remember, there are generally four ways to manage or respond to risk:

  1. Avoidance.
  2. Transfer.
  3. Monitoring.
  4. Mitigation.1

Each approach could be beneficial to enhancing your risk management plan.

Good luck and don’t sweat the flying monkeys.

NOTE

  1. A detailed discussion of each of these risk management techniques can be found in T.M. Kubiak’s book, The Certified Six Sigma Master Black Belt Handbook.

This response was written by T. M. Kubiak, president, Performance Improvement Solutions, Fort Mohave, AZ.


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