Planning for Supply Chain
Disruptions
Yossi Sheffi
MIT, Cambridge MA
Outline
The threat
Past disasters
Supply chain preparedness
preliminary research findings
Terror Threats:
Physical
Chemical/biological
Nuclear/”dirty”
Cyber attack
The Economic Targets: Infrastructure
Agriculture
Tourism
Transportation
Electric grid
Banking & finance systems
Oil and gas
Communications
Continuity of government
Medical services delivery
Water supply
Food supply
Learn From Past Disasters
Kobe Earthquake -- Jan 16 1995, >6,300 killed, 100K
buildings destroyed, 80K damaged. Total damage:
~$250B
Bhopal -- Dec 2nd, 1984, Union carbide factory, 2500 dead,
50,000 hospitalized.
Chernobyl – April 26, 1986, 15M people affected, Belarus
still affected
Learn From Past Disasters
Influenza 1918 – 675,000 dead in the US alone;
Started in army barracks and prisons in the US; 30 –
50 million worldwide (“the Spanish Flu…”)
The Mont Blanc -- Dec. 6, 1917 the Mont Blanc
explodes in Halifax port (400,000 lbs. Of TNT, 2,300
ton of Citric Acid, 10 tons of gun cotton, 35 tons of
Benzol). 2500 dead; 9,000 injured; shock wave felt in
Cape Bretton (270 miles away).
Foot and Mouth Disease (FMD) and
Mad Cow Disease – UK, 2001,
quarantines and slaughter of suspected
animals; $3B - $5B hit.
Danger – Government Response
On 9/11:
Ford idled several production lines intermittently due to delays at
the Canadian border
Toyota came within hours of halting production since a supplier
was waiting for steering wheels shipped by air from Germany
After Flight 587 crashed, Nov. 12, 2001
Bridges to NY were closed for several hours
In UK FMD –
Farmers’ costs <$1B
Tourism costs (after the government issued a ban) $2B - $4B
Japanese government bankrupted many private hospitals
in the Kobe area
Preparing for Another Disruption
Supplier relationships
Core suppliers vs. public auctions
Use of off-shore suppliers
Dual supply relationships
Inventory management
The vulnerability of JIT manufacturing
Advantages of JIT manufacturing
Strategic Inventory (SoSo management)
Knowledge backup
Developing backup processes
Backing up the company’s knowledge
Standardization and cross-training
CRM and customer relationships
Supply Chains under Uncertainty
Better visibility
Transportation visibility involves multiple handoffs
Need for full supply chain visibility, including detailed handling
Independent data acquisition sources
Better collaboration
Last decade: VMI, CMI, EDR, QR, JIT, JIT II, CPD, CPFR…
Now: implementation
New: joint emergency planning (alternate shipping methods;
alternate suppliers…)
Also: security knowledge sharing
Better forecasting
Postponement
Build-to-order
Product variability reductions
Centralized inventory management
Industry-Government partnerships
Clear role for cooperation – happening
already
Industry participation in Free and Secure Trade
(FAST) and Customs Trade Partnership Against
Terrorism (C-TPAT)
“Known shipper” and “known carrier” programs
Difficult to get terrorism insurance – role of
government as insurer of last resort
Insurance companies are only starting to
model terrorism threats.
New Business Trade-offs:
Efficiency vs. redundancy (who pays
for cells, electricity, medicines, etc.)
Collaboration Vs. Secrecy (example:
hazmat placards)
Centralization vs. dispersion (physical
vs. I/T attack)
Lowest bidder vs. known supplier
(what’s in the container…)
Security vs. privacy (vs. efficiency of
search)
When Disaster Strikes
Crisis Impact Prepared Unprepared
Management management
Hurricane Mitch Floods destroyed Chiquita leveraged Dole took time to
(Nov. 1998) banana plantations existing alternative find alternatives
sources and lost sales and
Taiwan Component supplies Dell priced to steer Apple could not
Earthquake to PC OEMs disrupted customers to change config.-
(Sep. 21 1999) available faced backlogs
components and lost sales
Mad Cow & Shortage of hides for Gucci, Wilson – Etienne-Agner
FMD leather manufacturers supply contracts; suffered cost
(Spring 2001) Naturalizer, Danier - increases
inventories
9/11 Closed borders Daimler-Chrysler Alt. Ford idled several
modes based on plants
contingency plans
Preliminary Research Data
Two responses: active and “do nothing”
Active:
Past bad experience
Corporate culture (defense business, work in
dangerous places around the world, etc.)
Security departments staffed with experience
“Do nothing”:
Believe 9/11 is a one-time event
Cannot find a way to pay
Believe government will help
All companies – most concerned about
government response to terrorist attacks
All companies – report a large increase in cyber
attacks
Preliminary Research Data
(Active Respondent)
Build redundancies
Tighten collaboration with partners
Work with government to understand and
influence security initiatives
Look for technology to help (RFID, GPS, e-cargo
seals, biometrics, sensors, etc.)
Education
Awareness
Contingency planning (including drills with supply
chain partners)
Summary
A long term adjustment
In past incidents: the economic impact was a
lot less than initially feared
“collateral benefits” of preparedness:
Better collaboration
Better supply chain operations
Better controls (less theft, IP loss, better
standards)
Participation in communities
Any Questions?
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Yossi Sheffi
SHEFFI@MIT.EDU