Ignore at Your Own Risk - Supply Chain Disruption Assessments
By Mike Kirshner, TFI Environment Consultant and President of Design Chain Associates, LLC
Jun 25, 2012
In April I participated in the Society of Automotive Engineers (SAE) 2012 World Congress in Detroit, where the people who design and build our cars, buses, and other vehicles connect and trade insights every year.
Top of mind for the participants was a recent supply chain disaster - the explosion at a German chemicals plant a couple weeks earlier
that had instantly halved the supply of a critical substance, polyamide-12 (also called nylon-12, see footnote). Was the automotive industry prepared for this risk? Evidently not. Despite emergency meetings in the industry and sourcing from other manufacturers, it still appears that a shortfall in materials is likely. Replacement materials will need to be qualified and, particularly for safety-critical uses, that takes a long time.
The electronics industry, as well, has had its share of unforeseen disasters. Among them:
- The March 2011 earthquake in Japan, which impacted many product categories and more industries than just electronics.
- Last fall's flooding in Thailand, which crippled the disk drive industry, particularly Western Digital.
- Frequent earthquakes and the increasing frequency of typhoons causing wafer losses in Taiwanese fabs and other product availability challenges.
- The 1993 explosion of a Sumitomo Bakelite factory that suddenly reduced the availability of phenolic resin for semiconductor "plastic" packages by 50% and impacted DRAM availability.
Risk assessment by manufacturers normally addresses parts and suppliers, and rarely considers the impact of such potential disasters - but it can and should. Beyond the questions normally asked - such as "Is this part really multi-sourced or is one source producing it and the other simply remarking it?" and "What is the impact to our production plans and the required contingency plan if we can't get this part?" - manufacturers need to ask themselves "What must I know about my supply chain? And what should I know about my supply chain?"
Risk comes in many forms, and can encompass everything from natural disasters to political and social instability, counterfeiting and rapidly expanding environmental regulations. All of these factors should be considered in developing a program to address current and emerging risks to your production and revenue stream.
When the USA Securities & Exchange Commission finalizes its rules on conflict minerals, implementing section 1502 of the Dodd-Frank Act, you will need traceability for the raw materials for tin, tantalum, tungsten, and gold all the way back to the mines they came from. The risks contained by the ever-expanding and circuitous supply chains and networks that are used to produce today's products are multiplying dramatically. The Dodd-Frank Act presents an opportunity to collect additional information that can be used to assess multiple types of risk.
Do you have a risk assessment plan? Do your suppliers have risk assessment and mitigation plans and strategies? Are they appropriate and adequate? What substances and materials in your supply chain come from limited sources? Where are the holes in your plan?
Footnote: As one report puts it, "Nylon 12 is used to make auto parts, such as fuel tanks, and brake and fuel line coatings. It is also used to make solar panels and cable coverings used in offshore oil and gas production. Nylon 12 supplies had already been tight because of demand from the energy sector. The March 31 explosion, which killed two workers, made the market even tighter."
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