How Far Would You Go To Secure Continuity of Supply?

Supply chain security

It is a legitimate question on supply chain security – How important is continuity of supply to you? How far would you go?

Would you commission an act of aggression, if that was the only way of assuring supply chain security to keep the supply lines open?

Would you go further than an act of aggression? How about a regime change in the sole supplier of a critical commodity? None of these things have been out of realms of possibility in the past.

It is a Million Dollar Question

Business people live a far more genteel world today. Yet supply chain security and continuity remains critical.

Gray Steel Towers

If you were an oil refinery, giant chemicals plant, blast furnance steel mill, you would instantly know what I am talking about. You would read the rest of this post with a lot of careful thought, when almost everything I say below is coursing through your blood from your day-to-day experience.

For the rest of the folks, this will make very little sense till you carefully read it. Once it filters in, it will help you figure out why you overpay for so many things such as transportation and logistics which keep your supply lines open.

Most importantly, it will help you figure out what to do about it to stop overpaying. You will discover the golden rule ‘the go-to club rule of playing golf’ which will help you in business.

Continuous Flow Processes Demand Constant Supply

Suppose you were running a large scale continuous flow process plant – such as the ones mentioned above. Paper mills, chemical plants, fertilizer plants, explosive plants, oil refineries, sugar mills, glass factories, and dozens of other processes that I have had the privilege of serving in my 35 years career, had one thing in common.

White Generator Set Near Industrial Machines

Once you start the process, you would want to keep it going till the next planned shutdown – which could be months, or even years away.

The first thing they tell you when you start at any of these plants is how their plant is so unique and cannot be shut down suddenly because the costs and potential hazards of doing so are phenomenally high.

It is a little bit like taking a super tanker at sea going full steam ahead and slamming the engines on full astern. You have to actually do it (and I have seen it done on my ship to test it out) to see the forces that come into play at that critical juncture.

If the propeller does not spin out of control, you are likely to rupture the propeller shaft, engine seating, rudder plate, boiler or some other part of the vessel.

Sailing Ship on Sea during Daytime

Flow State is Critical

For the heads of procurements in such companies, the golden rule is this – no matter what you do, make sure that the plant is never starved of the feedstock. No wonder, they start getting nervous if they do not have a signed and sealed contract two and half year in advance!

River Between Green-leafed Tree

Now imagine if a new CFO brings in a very successful head of procurement from his previous company – a job shop or a projects based company. Here, last minute procurement is a rule, rather than the exception.

Why?

Because, there are so many variables such as weather, contingencies, critical path performance which throw out the plans the last minute. To a large extent that is the environment we faced out at sea too. No matter what you long term plans say – every morning you have to get up and make a fresh plan!

All Operations Are Not Created Equal

The requirements for continuity of supply is still there – but not as critical. Project delays can be made up for. The thinking of the supply chain team is diametically opposite in these circumstances.

In fact if you look at theFLOW MATRIX figure given below (which is adapted from an operations management MBA textbook) – you will notice an entire continuum of operational characteristics and their corresponding supply continuity requirements:

That is the reason why a head of procurement from a project flow operation may not succeed in a continous flow operation. While everyone will stress to him how important it was to keep to operation running, it will never dawn on him that being prepared has an entirely different meaning in this world – having a supply contract sealed and signed 10 quarters in advance!

If you want to read a story of how continuity of supply chain can make or break an industry, read the story I relate in this article. It shows a visceral example in a batch flow/line flow operations – which is where bulk of supply chains live.

Different Folks

In fact how far anyone would go to assure continuity of supply depends entirely on where on this martix did they cut their teeth in business world. Those on the lower right side of the matrix would have a strong preference of going way out on the limb. While those in the left top corner will prefer agile, light mind-set.

One thing which runs common across the entire continuum is transportation and logistics.

I raised the question earlier: why you overpay for so many things such as transportation and logistics which keep your supply lines open?

The reason is that for everyone on the continuum, logistics is part of the critical path to assure continuity of supply.

Even for a job shop, when an aircraft is stranded on the ground (AOG) or ship in a port, getting a part to the craft is critical.

Shipping Boat Near Dock

For a continuous flow process, shipping is critical too – the feed-stock is no use till it is brought to the factory.

Does that mean you are always condemned to pay a premium price for shipping?

Logistics is Critical in Every Case

If depends on how sohpisticated you understanding of shipping market is, and how well you engage with the shipping lines. Most buyers seem to know, at the most, 3-4 modes of generic market engagement, which they apply to the shipping markets as well. In simple terms they flip between spot purchase on one end to strategic sourcing for 3 years or more. Neither of those approaches work in practice.

In my report A Handbook Of Freight Management Secrets – Savings, Service And Supply Chain Continuity, I outline more than 9 different ways of shipping market engagements that might be suitable depending on the circumstances. It is based on the ‘smile curve’ for the shipping industry, which is given below:

It will help you figure out what to do about it to stop overpaying.

And, you need to discover the golden rule ‘the go to club rule of playing golf’ which will help you in business.

When you play golf – they advise you to have a go-to club. A golf club (bat) to hit the ball every time you are unsure of what to hit. Something which is a back up for any and every situation.

In logistics too – you need a back-up which will get you out of trouble in sticky situations. Otherwise, no matter how good you are as a buyer of commodities, your feed-stock will languish far from the factories where you need it.

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Vivek Sood

I write about "The Supply Chain CEOs", "The 5-STAR Business Networks", and, how to "Unchain Your Corporation". In my work, I help create extraordinary corporate results using several 'unique' supply chain methodologies. Contact me for interesting, high impact projects, or, to get access to my IP for creating transformations using these methodologies.

  • Jarvis says:

    Good article on supply chain Vivek. Supply chain quality and security are important for any company to stand in the market. The first and foremost thing is to promote the efficient and secure movement of goods, and the second is to foster a global supply chain system that is prepared for withstanding against evolving threats, hazards and disruptions. Supply chain security is extremely important for all businesses. Companies who do not take supply chain security seriously leave themselves vulnerable to potentially devastating attacks. The Efforts to reduce the risk to supply chain from external and internal threats such as terrorism, piracy, and theft, both in the real world and in the cyber-space.

  • Bertrile says:

    Supply chain continuity is the other important point you highlighted here Vivek. As companies become more complex, the risk of disruption due to failure anywhere along the supply chain grows. Managing continuity risks in the supply chain process inevitably involves working with third parties to plan, execute and monitor continuity strategies. What are the disturbing factors behind supply chain? The answer is poor identification and assessment of potential risks. When risks are prevailing in the supply chain, the supply chain continuity upsets. The risk is the only constant when it comes to the supply chain, so managing it is should be a priority for many organizations. But most awaked companies can access potential risks, the severity of risks and certain actions to take to avoid the impacts of risk through predictive or prescriptive analytics solutions. But most executives are not rewarded for managing risks.

  • Charles says:

    Such an interesting topic you have picked Vivek. The supply chain is very important and it becomes even more important when perceived in relationships with security and continuity. What makes the backbone of supply chain security and continuity? It is definitely the transportation and logistics. The transportation and logistics companies are very well aware of this fact that supply chain continuity completely depends on their arrangements. The transportation companies apply the higher freights from companies seeking transport for delivering their supplies. You have rightly pointed out the curse of overpaying in this article. The companies overpay to logistics companies just to ensure an undisturbed supply of their goods to their customers. And the logistics companies take benefit of it. Some check and balance are direly needed to end this horrifying curse.

  • Dawn Justine says:

    Flow…what comes into mind after reading this word? Ummm… as far as my views are concerned, flow means something that is smooth, continuous and uninterrupted. Others may not agree with my definition of flow as different people have a different meaning of this word. In this article, you have spoken about continuous flow processes and continuity of the supply chain. Anything would maintain its flow when there is a continuous supply of desired and demanded products. There must be a balance between demand and supply. Constant supplies lead to an unstoppable flow of supply chain processes. Companies must focus on the continuity of their supplies as it is indispensable to sustain the flow.

  • Lisa says:

    All projects differ in size and nature. Not all projects are critical. Some projects are nominal while are short duration projects. Long duration projects are somehow or the other could be taken as criticism. But this is not always true. Some short duration projects are critical too. All the operations whether related to risk identification, supply chain or supply chain security are different for every project. What are these project segregation criteria? It is simple to segregate the project. Assess the project nature based on the criticality of its demands and design the relevant operations accordingly. You are justified sating that all operations are not created equal. Every operation related to every domain and perspective is different for every project.

  • Collenn Murphy says:

    Undoubtedly, logistics are critical. Efficient management is the key to success, especially in supply chain management. There are various factors involved in effective logistics management. For example, automation and perfect coordination are always scoped for improvising the process. When your business witnesses growth, you must find ways to streamline logistics planning processes for improving output. Here, in relevance to this article, I would like to add a few points that could help the executives to manage their logistics more effectively.
    Proper Planning
    Adopting Automation
    Value Relations
    Warehouse Management System
    Efficient Transportation System
    Performance Measurement and Improvements
    These are a few practices that I have learned during my industrial exposure. Hope it would be beneficial for all those who are seeking to manage their logistics.

  • Sam Brells says:

    Interesting article Vivek. You are put the gold club example at very and justified a place in this article. No one can deny the importance of backups. Natural disasters and other events have exposed weaknesses in lean global, regional, and domestic supply chains, disrupting connections between companies, their suppliers, and their customers. In the enhanced phase of supply chain development, companies are creating ways to circumvent disruptions and minimize their impact on the business. This is possible through logistics backups. Primarily, disasters were felt by companies in an affected region. But now, problems that used to be isolated to a region can have a far-reaching impact on many supply chains, especially those that are lean and global. Their suppliers and customers can be located anywhere in the world. Inventory that is strategically positioned for lean operations may be poorly situated to serve key customers if a disruption occurs. That is why companies are now rushing towards having logistics backups.

  • Cindy says:

    A praiseworthy article indeed. Vivek you always come with innovative and different topics. I always appreciate the efforts that you put in writing such articles for us. In a very light tone, you have brought to us a right and serious matter. Supply chain security and management, so many people are talking about it these days. I would like to ask you a question here Vivek, Is it really possible for companies to maintain the flow of operations and organize a logistics backup? Do all the companies have enough capabilities to secure their resources in the time of emergency and to effectively deliver them to their customers?

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