Logistics Management - June 2010

Pearson on
What can supply chain executives
learn from the Iceland volcano
On April 14, 2010, Iceland’s Eyjafjallajokull
volcano erupted, sending a stream of ash into the
sky. Within 24 hours, British airspace was shut
down. Within 48 hours, a major part of European
airspace was closed.
Stories of stranded vacationers grabbed most
of the headlines. However, the magnitude of business
disruption was similarly dramatic. With more
than 60,000 flights grounded in the first week,
companies found themselves unable to ship goods
by air. The impact was (and continues to be) felt
far from Europe—from rose farms in Kenya to
auto assembly plants in the United States.
The worst hit businesses are those with
extended supply chains, short-life-cycle products,
or high-cost, lightweight goods such as electronics
and pharmaceuticals. By volume, only 2 percent of
freight is shipped via air. But that 2 percent of volume
equals 35 percent when measured by value.
In the short term, many companies scrambled
to find ways to move goods as cargo flights were
grounded. Road, rail, and ocean freight carriers
saw a surge in activity.
For some, however, it was too late. Produce
and fresh flowers are already being destroyed by
the ton. Countries are only beginning to gauge the
extent of the economic impact, which will certainly
reach into the billions of dollars for many.
Lessons for the longer term
In the future, scientists may be able to foresee
natural disasters with greater regularity. But
perhaps businesses should consider the volcano
a clarion call for more dynamic supply chains.
Dynamic supply chains are shaped by examining
an organization’s potential exposure to all risks,
identifying vulnerabilities, and then building in
the flexibility to adapt to sudden changes in the
environment without disrupting the enterprise or
impacting market value.
New capabilities in several areas can help to
create a more dynamic supply chain:
Sourcing: Sole-sourcing and using low-cost
Mark Pearson is the managing director of the Accenture’s
Supply Chain Management practice. He has worked in supply
chain for more than 20 years and has extensive international
experience, particularly in Europe, Asia and Russia. Based in
Munich, Mark can be reached at mark.h.pearson@accenture.
country suppliers are great strategies for reducing
costs, but better balance is needed to ensure flexibility.
A more-streamlined process for bringing
new suppliers on board could allow companies to
quickly find and use new sources of commodity
goods in an emergency. And for critical materials,
a diversified supplier strategy may offer the flexibility
needed to better mitigate risk.
Manufacturing: Offshore production has
brought tremendous cost reductions for companies,
but it may also subject them to more disruptions.
A flexible manufacturing strategy involves
options for building critical products in multiple
locations, with fast changeover capabilities in
place to allow production to react to sudden shifts
in supply and demand.
Product design: The best strategies for a
more flexible supply chain start at the design
stage. Products designed with manufacturing
flexibility in mind reduce complexity and leverage
common platforms and parts. This can reduce
exposure to supply outages.
Logistics: A global transportation network—
one that is optimized for cost and risk—considers
multiple routes to market as well as contingency
shipping plans. A good example is the Dutch
mail and express group TNT. When its national
air space was closed, TNT smoothly switched
intercontinental shipments from its air hub in
Liege, Belgium, to an air gateway in Madrid.
Shipments that would ordinarily be air freighted
across Europe were diverted onto TNT’s existing
European road network. Centralized management
of the network and a common systems platform
enabled TNT to re-route freight relatively easily.
Using a proactive approach, the company kept
customers informed via the media, its website,
and its customer account teams.
When the next traumatic weather event
occurs, the ability to respond with a dynamic,
flexible supply chain could distinguish high-performance
businesses from the rest. Those companies
with resilience built into their supply chains
will likely have the ability to reduce exposure to
transportation cataclysms. They may also be able
to reduce exposure to a wide range of other supply
disruptions that—like bad weather—are more
or less inevitable. M
22 Logistics Management WWW.LOGISTICSMGMT.COM | June 2010