In the past few weeks, if you asked, “Who is the most hated person in the world at the moment?,” the captain of the ship blocking the Suez Canal would be near the top of the list. As a vital channel linking the manufacturers and suppliers of Asia to the major consumer markets in Europe, the International Chamber of Shipping estimates that $3 billion worth of cargo passes through the Suez Canal every day.
So, when Taiwan operated 224,000-ton mega tanker, the Ever Given, one of the world’s largest container ships collided with the banks of the canal in mid-March, blocking the channel completely for over a week, it caused a major disruption.
The Butterfly Effect on Global Business
As we sometimes hear in the poetic notion, the butterfly wings’ flapping and fluttering in Brazil can result in hurricane force winds hitting Mexico. This “butterfly effect” (part of the chaos theory portfolio) is certainly relevant in this situation. In this case, it was strong winds and a sandstorm, but you get the picture.
And it’s not just the cargo in the estimated 20,000 metal boxes that is affected. It’s the hundreds of cargo vessels that are stranded mid-trip either side of the vessel. And if you drill down a level on what is being carried on one these vessels, and how long the wait or a re-route of the shipment will take, additional challenges emerge.
Let’s say we have a time sensitive shipment of electronics from Asia that are scheduled to arrive in Europe to coincide with a launch of a new product line. A reroute around Africa’s Cape of Good Hope can add 6,000 miles and 10 to 15 days to their voyages. The alternative of flying a new shipment would have significant cost implications.
Obviously, there is no magic answer to the problem. It was an unforeseen, and highly unpredictable event.
In this case the key is what companies can do to minimize the impact to their planned manufacturing and sales campaigns.
Here are a few examples:
Visibility through all tiers of your business network
In a global and complex supply chain, the need for visibility is critical. As all times, and especially in a crisis you need to be able to see:
- Which materials and goods are at risk?
- What are my alternate sources of supply for key resources?
- Where is my inventory?
- Which shipments are affected?
- What are the knock on effects to production scheduled, customer orders and ongoing campaigns?
Agility to sense, predict and respond to change
Once you have identified a risk, you must assess the best course of action and act in short order. Examples include:
- Can I redirect shipments in transit?
- How can I Identify and switch to alternate suppliers?
- Are there alternate logistics modes and routes available?
How can I collaborate with trading partners to secure alternate materials, products and logistics capacity?
Do I have the ability to adjust manufacturing to respond to unavailable materials?
Resiliency to minimize and mitigate risk
It is also critical to design your supply chain to withstand disruptions and respond to business opportunities. This requires having processes and plans in place to:
- Develop and implement supply chain risk management and business continuity strategies
- Diversify supply chains, from a geographic perspective, to reduce the supply-side risks of a single country or region
- Multisource valuable commodities or strategic components to lessen reliance on one supplier
- Identify alternate modes of transport in case of disruption
Adopt an inventory optimization strategy across the business network to buffer against disruptive events
- Balance of-shoring, near-shoring, and on-shoring manufacturing strategies
Without a doubt, unexpected disruptions will continue to occur. The cause of disruption will vary depending on the event, such as pandemics, geopolitical or trade conflicts, natural disasters, limited natural resources availability, and now, blocked canals.
Now more than ever, supply chains need to be resilient and agile to survive in the current global environment, while demonstrating the predictive intelligence and visibility to thrive in the new normal.
To learn more about how supply chain leaders minimize risk and maximize opportunities with resilient supply chains, download a recent Oxford Economics study.