Supply Chain Matters Book Review: The Power of Resilience- How the Best Companies Manage the Unexpected
From time to time Supply Chain Matters will feature book reviews which we believe would be of value and a learning asset to our extended global supply chain management community of readers.
In this particular posting, we share our review of: The Power of Resilience, How the Best Companies Manage the Unexpected. The author, Yossi Sheffi, is a well-known thought leader among the global supply chain management community serving as the Elisha Gray II Professor of Engineering Systems at the Massachusetts Institute of Technology (MIT) and Director of the MIT Center for Transportation and Logistics. He has authored a number of previous books including: The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage and Logistics Clusters: Delivering Value and Driving Growth. Professor Sheffi was gracious to this blog by previously contributing a guest commentary related to his Logistics Clusters book.
If you have been a long time reader of this blog, you have undoubtedly read of the many disruptive events that have impacted industry and global supply chains, along with some of the consequences. Events would include Hurricane Katrina that devastated New Orleans and the U.S. Gulf Region in 2005, the 2011 devastating earthquake and tsunami that impacted Japan and the severe floods that impacted Thailand that same year. Other events we have noted, such as additional earthquakes, major factory or warehouse fires, natural disasters and product recalls continue to uncover the vulnerabilities and dependencies among today’s globally based supply chains. In this new book, Sheffi provides with in-depth case studies that illustrate how companies have prepared for, coped with, and demonstrated resilience following such disruption, along with important learning related to the encroaching threats facing today’s supply chains. Further included are the business processes, corporate culture and technology tools utilized to prepare and learn from disruption. Indeed, the interconnectedness of global economies, the lean aspects of multi-industry supply chains today, and the implications of vast arrays of information amplified by all forms of media imply that unexpected events in any corner of the globe can ripple through the supply chain and affect customers and shareholders.
This blogger, analyst and consultant thoroughly enjoyed reading this book which I managed to read cover-to-cover on a recent roundtrip coast-to-coast plane ride. The book immediately captures interest, flows from chapter to chapter and compels one to read more. I highly recommend this text to current or aspiring senior executives and supply chain leaders as a must-read regarding the mitigation and response to supply chain risk. I especially applaud Professor Sheffi for incorporating supply chain social responsibility strategies under the umbrella of risk, which it should be.
The first five chapters of this book provides various insightful case studies of companies that experienced and responded to risk events including Cisco, General Motors, Intel, Medtronic, Procter & Gamble, Western Digital and others. These case studies bring out the importance differences among business continuity planning (BCP) and business continuity response (BCR). There are examples of risk metrics such as Value-at-Risk (VaR), Time-to-Impact and Time-to-Recovery, very similar to those defined in the latest releases of the APICS Supply Chain Council’s Supply Chain Operations Process Framework model (SCOR).
Chapters 6 through 11 address the strategy, preparation, communication and supply implications of supply chain risk and resiliency. Sheffi observes: “Building a resilient enterprise involves two broad categories of options: building redundancy and building flexibility of supply chain assets and processes.” Chapter 8, Detecting Disruption, explores methods for incident monitoring, mapping the supply chain for vulnerabilities, monitoring suppliers, and a rather important section related to leveraging social media in risk detection and response. Chapter 9 is a rather important read since it explores means for securing the information supply chain and the tendencies of cyber criminals to exploit supply chain partners as targets of information security vulnerability, as was the case of the Target credit-card hack where penetration vulnerability came from the stolen login credentials of a regional store refrigeration maintenance services vendor.
Chapter 12 addresses today’s “new normal” of disruption and risk along with methods to benefit from longer-term implications. In the final two chapters, Professor Sheffi explores the growing dependency on all levels of suppliers, including those in the lower-tier of industry supply chains. Sheffi notes: “Supply chain risk management is in a race between the fragility of complex supply chains and the resilience created by better risk management.” In Chapter 13, an argument is made that systemic supply chain risk, one that can bring an entire industry to a halt, has not occurred because of the combined efforts of today’s more responsive supply chains. Sheffi opines:
“Thus, it’s hard to conclude that modern global supply chains show evidence of true systemic risks. Companies have developed efficient response mechanisms, and the same globalization trends that could create disruption risks for specific companies that use suppliers from faraway lands may also contribute to the prevention of systemic risk by spreading manufacturing capacity around the globe. Most important, global capacity for manufacturing and distribution is large, and while it is crucial for any company to prepare and respond effectively to disasters, there are always others ready to take its place if it fumbles.”
We quoted that entire passage because upon reading and contemplating the book’s case studies, we were not as sure regarding this conclusion. While many firms have been able to eventually overcome supply and services risk, the open question is scale and timing of supply continuity. Customers, consumers and activist investors are far more impatient and unforgiving today, and the clock speed of business and industry change may not tolerate forms of extended supply chain disruption. However the one conclusion that is clear is that speed, resilience and flexibility are indeed the most important capabilities of any supply chain.
It seems that the forthcoming holiday fulfillment surge will again present challenges for some industry supply chains. The Independent Pilots Association, the labor union representing 2500 pilots for UPS has called for a strike vote among its UPS members, as contract talks enter their fifth year of negotiations. Talks among UPS and its pilots have been assisted by federal mediators since early 2014.
A union statement declares: “But after four years of contract talks with UPS, we’ve reached a point where UPS needs to hear loud and clear from our membership that they are willing to do whatever it takes to secure an industry leading contract.”
The vote is currently scheduled for October 23 and timing is key, since the vote will come at the near height of the holiday focused shipping surge. In its reporting, The Wall Street Journal indicates that while a full walkout seems unlikely, UPS has plenty to worry about. A UPS spokesperson indicated to the WSJ that the move was a routine show of solidarity in negotiations, and that the global carrier has successfully negotiated four contracts with its pilots, and plans to reach a new agreement as quickly as possible.
The move by the UPS pilots union comes on the heels of the recent tentative settlement of labor contract talks involving FedEx pilots. Negotiations involving the FedEx pilots similarly began extended back to 2011 with renewed negotiations occurring in 2013. A earlier rejection of a contract order invoked a firm response from FedEx senior management.
The air cargo business never really recovered since the global financial crisis of 2008-2009. The entire air freight sector has been impacted, prompting both UPS and FedEx to scale back air assets and revise route scheduling.
Unlike pilots within traditional passenger airlines, air freight pilots fly long routes or segments, mostly in the middle of the night, and face a number of added safety concerns with the composition and mix of freight carried by aircraft.
In 2009, a FedEx cargo plane enroute from Guangzhou China was involved in a fiery crash while attempting to land in Tokyo, killing both pilots. Hazardous cargo was suspected. On August 14, 2013, a UPS cargo plane bound for Birmingham Alabama from Louisville Kentucky crashed in the early morning hours just short of the airport runway, tragically killing both pilots on-board. Pilot fatigue was cited as a possible factor.
In 2013, former U.S. Airways pilot hero Chesley ‘Sully’ Sullenberger co-authored a Wall Street Journal editorial calling for safeguards for avoiding pilot fatigue. The editorial pointed out that while U.S. FAA standards addressing fatigue standards for pilots employed by passenger airlines would soon be in effect, these requirements did not apply to pilots of cargo planes. The premise of these authors was that by excluding cargo pilots, who often fly continuous long inter-continental routes, compromised the mission for making safety the first priority for aviation.
For retailers and other B2C and B2B fulfillment operational teams, the threat of a UPS pilot strike has to be of some consideration, especially in light of other global capacity cutbacks in air, ocean container or surface trucking. During last year’s disruptive slowdown involving U.S. West Coast ports, many shippers had limited options, and turned to air carriers to move goods to needed holiday fulfillment channels. Contingency planning is wise, since waiting to the last minute for events to unfold will likely result in limited options.
We trust that UPS and its pilots will come to some form of resolution prior to October.
Roughly four months after Blue Bell Creameries voluntarily recalled most of its ice cream and frozen yogurt products and suspended operations after listeria outbreak concerns, the Texas based producer has now resumed selling and distributing its products in select locations.
In April, Blue Bell widened a series of voluntary recalls to now involving all of its branded ice cream, frozen yogurt, sherbet and frozen snacks branded products distributed among 23 states and various international locations. The recall was prompted after samples of Blue Bell Ice Cream chocolate chip cookie dough ice cream tested positive for the potentially deadly disease, listeria. The illness was tracked by health officials to a Blue Bell production line in Texas, and later to another production line in Oklahoma. Three deaths were linked to the outbreak.
Production plants in Alabama, Oklahoma and Texas have since undergone extensive cleaning and decontamination under regulatory oversight. Alabama Public health officials gave Blue Bell the OK to resume production and sale of ice cream manufactured at its Alabama plant in early August.
At the time of the voluntary recall, Blue Bell took relatively swift action by actively removing products from retailers and other food service facilities it served. A statement from Blue Bell’s CEO Paul Kruse apologized to consumers along with a firm commitment to fix the problem.
Today’s visit to the Blue Bell web site features a prominent commitment to consumers for producing safe, high quality, great tasting ice cream as well a statement related to upgrading of procedures and employee training. Blue Bell notes that it continues to retain an independent microbiology expert for ongoing evaluation and has implemented a “test and hold” process where production runs are tested and held until results are received before distribution to markets.
The company remains very active on Twitter and Facebook, thanking consumers for their patience and providing updates as to which flavors of ice creams are currently available and in which states.
However, the cost of this recall, as has been the case with many other product recalls, remains troublesome. Four months of limited revenues can do that.
In July, Blue Bell management reached out to a prominent Texas billionaire investor for an added infusion of cash. That investment was reported as “significant” and came with a partnership arrangement with the company.
Hopefully, with new processes, training and revamped production facilities, consumers can look forward to enjoying a popular brand of ice cream.
There has been much reporting within social and business media regarding the potential industry supply chain disruptive effects of the recent massive warehouse explosions that affected the facilities adjacent to the Port of Tianjin.
It is rather important and crucial that industry supply chain and sales and operations team obtain meaningful and insightful information regarding what is happening on the ground as well as the potential short or long-term supply chain impacts, if any.
We at Supply Chain Matters are disappointed to observe that certain technology and service providers are attempting to utilize this tragic incident as a backdrop to product marketing outreach campaigns. Neither should technology providers suddenly become news outlets.
Not good ideas by our lens.
Supply chain technology providers should instead continue to educate on the benefits of the technology they provide and allow industry supply chain teams to receive clear, unfiltered and unbiased insights and information from informed and educated sources.
One of the better Tianjin perspectives Supply Chain Matters has reviewed to-date ia a published white paper: The Aftermath of the Tianjin Explosions: A Global Supply Chain Impact Analysis, authored by supply chain risk management provider Resilinc.
While this 24 page white paper does include some product marketing, along with requiring registration, the bulk of the report provides meaningful and insightful information related to potential immediate, near-term, medium and longer term supply chain impacts.
The paper concludes that the less apparent ripple effects of the warehouse explosions will be felt weeks, months and even years to come.
The paper provides meaningful background information regarding this vital logistics and manufacturing hub, which services industry needs of automotive, commercial aerospace, high-tech, petrochemical and general industrial manufacturing supply chains, among others. It further outlines important mapping of industrial manufacturing and supplier concentrations within close proximity of the explosions, based on a mapping of over 30 sites in a 2-10 mile radius of the blast. Four large industrial zone districts are adjacent to the port, with the port serving as what is described as the largest free trade zone in northern China, and the second largest Vehicle Processing Center for importing and exporting of automobiles.
On the topic of near-term ripple effects, the Resilinc analysis predicts that extensive delays can be expected for most companies and sites moving products through Chinese ports as government agencies deal with the after-effects of a regulatory environment needing extra attention.
There are predictions that Tianjin port operations will only begin to resume normal operations by approximately mid-September, and that any containers now at the port will be inaccessible for the next two months, even if they are intact. Resilinc indicates that for any suppliers located within 2-15 miles of the explosions, companies may presume 12-16 weeks of delays.
Long-term impacts outlined related to the ripple effects of increased regulatory actions impacting certain industry sectors including the location and storage of goods near large population centers.
Regarding potential long-term impacts, the paper cites Chinese media as indicating the economic cost of Tianjin crisis could be as high as $8 billion.
If your organization is dependent on operations, logistics partners, suppliers or service providers in the Tianjin area, we recommend you review this report which can be accessed at the following Resilinc web link. (Some personal registration information required)
Every year at just about this time, ocean container shipments inbound from China and other Asian ports begin to surge as retailers ramp-up inventory levels in anticipation of the Thanksgiving and Christmas holiday buying period. Ever year at this time, Supply Chain Matters features commentaries noting how the ramp-up is progressing.
Last year, we raised early concerns about potential labor disruptions occurring along U.S. West Coast ports. We all know how that turned out. Multiple industry supply chains encountered long delays and inventory disruption, some at considerable cost.
This year shows signs of different industry dynamics that could once again lead to some disruption, or at the least, the need for very careful and methodical supply chain planning and synchronization.
The Wall Street Journal reports that a combination of tepid growth and a continued sluggish Eurozone economy has now motivated ocean container carriers to significantly cut back on scheduling. According to the report, the G6 Alliance, consisting of carriers APL, Hyundai Merchant Marine, Mitsui OSK, NYK, Hapag Lloyd and OOCL announced this week the cutback of 12 round-trip sailings from Asia to Europe starting in September. This equates to a one-sixth reduction in capacity for that route. This follows an earlier announcement from the 2M Alliance consisting of Maersk Line and MSC indicating it with withdraw 10 percent of capacity from the Asia to Europe route until further notice.
The timing of these cutbacks, while advantageous to container carriers, is not advantageous to industry supply chains. The open question is whether the removal of this much container capacity heading toward Europe will have any later impacts as we move closer to the holiday season.
It is further another indication of the significant gross overcapacity situation of ocean container fleets. According to the WSJ, freight rates between Shanghai and Rotterdam barely cover carrier operating costs, hence the announced cutbacks. The carriers are significantly reducing capacity to insure higher freight rates, in spite of dramatically reduced fuel costs.
In a related development, industry leader A.P. Moeller Maersk, in reporting its latest financial results, gave strong indications that it will defend and even expand its industry market share position. That raises the likelihood of additional industry cost or capacity cutting moves. The question is timing.
Maersk Lines additionally revised its estimates of global container volume down to a range of 2-4 percent from the previous 3-5 percent growth estimate which is a further acknowledgement of reduced global shipment volumes.
For industry supply chains, especially those that are B2C and retail focused, the timing of these ocean industry cutbacks is troublesome, coming at the time of peak seasonal movement. On the one hand, such cutbacks in scheduling may provide added flexibilities for alliances moving surge container volumes from Asia to North America. One of the newer mega-container ships can carry lots of last-minute cargo. On the other hand, the reduction in capacity places added pressures on various procurement and supply chain planning teams to carefully plan remaining inbound movements and required safety-stock levels. The challenges of container chassis availability and the ability of certain ports to be able to efficiently unload and reload the newest mega-container ships remains an open concern.
If any major U.S. or European port were to encounter a disruption or significant backup over the next three months, carriers will likely be reluctant to have ships sitting idle and generating additional operating costs. The open question is how many supply chain teams elected to balance inbound movements among U.S. West and East coast ports, and now, European ports.
Once again, it is going to be a challenging holiday surge period where careful planning will prove to be a key difference. Sales and Operations planning teams need to have a keen eye on supply chain planning and execution along with early-warning mechanisms. The lessons of from 2014 have hopefully translated into enhanced planning and risk mitigation since the turmoil of global transportation continues to play out.
Last week, while on our two-week summer break, we took the time to alert Supply Chain Matters readers to the reports of severe explosions that occurred last Wednesday at the major Chinese logistics center at Tianjin. The reports and video images alone implied to this author that this was a concerning event.
Since that time, the scope and implications of this tragedy continue to evolve.
Reports now indicate that this tragedy has taken 112 lives with upwards of 700 people injured as a result of the two massive explosions. According to media reports, 95 people, mostly firefighters, are still missing. Supply Chain Matters expresses our condolences and concerns for all of the victims of this tragedy.
The video and visual footage of the wide-scale destruction is sobering to view. The China Earthquake Networks Centre indicated the initial explosion had a power equivalent to three tonnes of TNT, while the second was the equivalent of 21 tonnes. The blast zone extended in excess of 2 kilometers.
Yesterday, authorities confirmed reports that hundreds of tons of the highly toxic chemical sodium cyanide were present in the warehouse involved in the initial explosion. A BBC report indicates that the warehouse stored other chemicals including calcium carbide, sodium cyanide, potassium nitrate, ammonium nitrate and sodium nitrate. The warehouse itself was operated by Ruihai International Logistics Co. and questions have been raised as to how much of the chemical was authorized for storage. Chinese media indicates that at least one member of staff from Tianjin Dongjiang Port Ruihai International Logistics, which owns the warehouse, has been arrested.
When burned, sodium cyanide releases hydrogen cyanide gas which is now the overriding concern for residents throughout the Tianjin area as the clean-up efforts continue. According to published reports from the BBC and The Wall Street Journal, criminal prosecutors are vowing to conduct an extensive probe amid a growing concern that regulators often turn a blind eye to enforcement of regulations.
Chinese Premier Li Keqiang has visited the scene and has met with the victims of this major disaster and has indicated that regulators will act in transparency regarding readings of current air, water and soil quality within the area. Nearly 3000 troops with chemical protection equipment are reportedly combing areas outside of the 2 kilometer blast zone for possible hazardous chemicals that were ejected by the explosions.
This disaster occurred in the logistics zone serving Beijing, and one of the busiest ports in China and perhaps the world. The port is a major trading center for commodities and metals and a gateway to the industrial northern regions of China. Reports indicate that shipping containers were tossed into the air like matchsticks and were crumpled by the blasts and a logistics park containing several thousand cars was incinerated by the fireball. Renault indicates that some 1,500 of its cars were lost, while Hyundai indicated that around 4,000 cars on the site may have been lost as well.
While the port remains partially open, operations are noted as restrictive due to continued investigations and checks within the area. Toyota announced that it was closing production lines at its factories near Tianjin until the end of Wednesday, while agricultural machinery maker John Deere suspended work indefinitely. Both saw some of their workers injured by the blasts.
For industry supply chain teams, the implications of the Tianjin disaster will likely continue in the coming weeks or months. As the building tide of widespread sentiment reflecting that regulators have turned a blind eye to industrial safety, there will likely be increased scrutiny of manufacturing and logistics operations, particularly those involving forms of hazardous or industrial materials. Already, China has ordered a nationwide check on dangerous chemicals and explosives.
Similar to the 2013 tragedy involving the Rana Plaza explosion in Bangladesh, the 2015 Tianjin explosion could well be a watershed event concerning industrial safety standards. Anticipate that individual firms and industry groups will be motivated to become more active and involved in assuring international standards of warehouse and factory safety, particularly in areas adjacent to high population areas.
The Tianjin disaster could well turn out to be one that either defines improved safety standards or one that places certain industry supply chains with heightened challenges to assure and attest to individual worker and industrial safety standards. Social responsibility practices will likely again be tested against product margin needs. The final outcome is one yet to be determined, but one that reflects the realities that China needs to maintain its export volumes and global competitiveness.