Famous mathematics professor John Allen Paulos is quoted as saying, “Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” Major world events over the past year have made this philosophy more relevant than ever to the business world. At a time when little is certain, companies have been forced to adjust to “the new normal,” a business climate where confidence wavers, forecasting is less reliable and unpredictable events worldwide have major implications for operations in the U.S.
There are measures companies can take to better navigate a constantly changing landscape, particularly with regard to supply chain operations.
The end of 2010 and first several months of 2011 brought incidences of political unrest in countries considered stable for decades, resulting in unstable environments for people and business. These political movements are expected to continue, which could mean disruptions for supply chains worldwide.
Companies no longer can depend on country lines and borders to insulate them from the effects of outside events. This underscores the importance for companies to mitigate risks by working with a supply chain partner that can help develop and implement dynamic business continuity plans that go well beyond onetime initiatives and take into account a “borderless” world.
Today’s business continuity planning should assume risks could arise from unexpected places and address operational capacity so that critical business operations can occur through disruptions. Building more flexibility into the supply chain to allow for last-minute changes in supply chain strategy is a critical part of the planning process. It’s also important to establish decision hierarchies and processes that minimize response and recovery time. As additional incentive, some insurance carriers offer discounts if business continuity plans are established.
Recent events in North Africa and the Middle East resulted not only in rocky business environments, but also have added to another business challenge: rising oil prices. In March, one analyst credited rebellions for pulling more than 1 percent of the total world supply of oil off the market.
As unrest develops in major oil-producing areas and demand for energy increases, oil prices are a key concern. Gasoline prices increased more than 30 percent in the first quarter, and investors are predicting oil prices will reach $140 a barrel by the end of 2012. Compounding demand, the Japanese earthquake and tsunami, and its effect on some of the nation’s nuclear power plants, could mean a significant shift to oil, coal and gas-fired production plants in Japan, further increasing global oil demand.
This combination of events underscores the importance of efficiency across the supply chain to control costs wherever possible while ensuring products get to market when they need to be there. Companies benefit when their products and materials are handled within a large third-party global distribution network that gives them access to more direct routes, flexible modes of transportation and multiple distribution facilities that give them the flexibility to adjust inventory as needed and store product closer to end customers.
It’s also important to work with carriers that are examining the use of alternative fuel and/or hybrid vehicles. Optimizing the supply chain and looking for opportunities to decrease dependency on fossil fuels whenever possible are two strategies companies can engage in to reduce the effects of oil prices on their supply chain operations.
While recent political unrest in the Middle East and the increase in oil prices may have been a surprise to some, nobody could have predicted the 9.0 earthquake and tsunami that devastated Japan in March.
The dependency of Japanese automotive manufacturers on their domestic parts suppliers made their output particularly vulnerable to the major disruptions in their supply chains resulting from the disaster. It’s estimated many automotive operations will not return to “normal” levels until the end of this year or early next.
But the outlook does improve: It’s estimated there will be a significant boost to Japan’s economy in 2012 because of the country’s reconstruction efforts, posing another challenge for business that will need to increase operations to meet demand.
The long-term effects of this disaster on business and our global economy further illustrate the need for the incorporation of business continuity strategies into disaster contingency and recovery plans.
Although it’s difficult to become comfortable with uncertainty, companies are forced to deal with the reality that many of the issues affecting them today are unpredictable and beyond their control, forcing them to try to plan for the unplannable. As a key part of this planning, supply chain analysis and design should be high on company priority lists.
By building more flexibility, scalability and global access into their supply chains, companies can better plan ahead to address disruptions and create and execute contingency plans that help them navigate the “new normal” business environment.
Alan Amling is global director for contract logistics marketing at UPS. Contact him through Keisha Simmons at firstname.lastname@example.org.