By Yossi Sheffi
Many leading companies have well-developed risk management and crisis management systems for their own operations. Yet for all their prowess of risk management of their own facilities and Tier 1 suppliers, the companies can miss significant risks deeper in the supply chain. In this article, Yossi Sheffi discusses that only by spreading the tools of resilience into the deep tiers can industries hope to prevent, detect, and mitigate the serious risks that lurk beneath.
“The world is so connected that the feedback loops are more intense”, said Ellen Kullman, CEO of DuPont.1 She explained, “Our supply chains are global. Our financial markets are global. So uncertainty in one part of the world infiltrates all parts of the world. These days, there are things that just come shooting across the bow – economic volatility and the impact of natural events, like the Japanese earthquake and tsunami – at much greater frequency than we’ve ever seen.” Many of these surprises are rooted in the deep tiers of the supply chain where companies have little knowledge of who those suppliers are and no influence or control over them. Worse, in some cases it means that unbeknown to many companies, entire industries are dependent on a single deep-tier supplier or a region. The result is that alternative parts and suppliers may be unavailable. Consider the following three event examples, which show the deep risks that threaten global supply chains and the actions which companies can take in response to them to achieve deep resilience.
On March 31, 2012, a tank filled with highly flammable butadiene exploded at Evonik Industries’ cyclododecatriene (CDT) plant in Marl, Germany. Intense flames and thick black smoke billowed as 130 firefighters fought for 15 hours to contain and extinguish the blaze that killed two workers and severely damaged a portion of the plant.2 CDT and its use in synthesizing cyclododecane, dodecanoic acid, and laurolactam may mean nothing to most readers. But CDT is a key ingredient in making PA-12 or nylon-12 plastics, which are prized by car makers and other industries for their chemical resistance, abrasion resistance, fatigue resistance, and fuel-efficiency-boosting light weight. In 2011, the average light vehicle used more than 46 pounds of nylon for plastic housings, fuel lines, and brake lines.3 4