Posted by: Christian Verstraete | April 21, 2010

Have we become too lean?

The European Airspace has been closed for 5 days and is gradually re-opening. However, last night, listening to EuroNews, I was struck two pieces of information, also reflected by BBC News on their website. Nissan in Japan is slowing down two factories due to lack of pressure sensors manufactured in Ireland with impact of 2000 cars, and BMW is cutting production in three plants as their suppliers did not received key components. Here the impact is 7000 cars. What will be the impact on the bottom line?

For a second time within the last 10 years, an airspace is closed. The first time this happened was in the US after September 11th, and if my mind is correct, it lasted 3 days. There were no reports of delayed production, but people’s mindset was completely different due to the circumstances.

This time there was a 5 day close and it demonstrated the dependency of  many supply chains to air transport, and this at a moment we talk about reducing greenhouse gasses.

Over the last years, we did work hard at reducing inventory buffers, releasing working capital and speeding up supply chain turn around. But have we done proper risk management? The focus has been on extensive cost cuttings, to the detriment of resilience? I don’t know the answer, but it is definitely a question manufacturing CEO’s should ask themselves.

To reduce impact of supplier problems, many companies go dual sourcing. To reduce impact of electricity cuts, many sites have dual entry points. But it looks like we have not taken similar approaches in logistics.

I am absolutely not advocating road transport, our roads are completely saturated, but am looking at ways of doing dual sourcing in transportation. Let’s take the case of Nissan for example. I’m sure they have a baseline of production, and then they have some variability depending on the demand. Could they use one way of transport (e.g. a combination of sea and train) for the baseline, while the variability is taken into account through air transport. Such approach might involve some more working capital, but would definitely not cost more, but secure higher levels of production.

It’s such creative approaches we should think about when looking at logistics. Will the European airspace be shut again anytime soon. Nobody can tell. The Iceland volcanoes are not a new thing. And other issues may suddenly appear on the horizon. Scenario planning combined with simulation could be a good way to identify and measure the implications of a number of such “horror” scenarios. Are you ready for that?

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