Finding the ‘What-If’ Questions

Finding the ‘What-If’ Questions

Supply chain risks can be categorized into five groups: operational, social, natural, economy and political/legal, according to Patthira Siriwan, senior project manager for supply chain development in North America for Damco, the combined logistics brand of A.P. Moller-Maersk.

Damco defines supply chain risk management as “attempts to identify risks and quantify their commercial financial exposures as well as mitigate potential disruptions at each node and lanes in supply chain.”

Many shippers apply enterprise risk management to their logistics and transportation strategies, but the complex modeling, analysis, prioritization and planning needed to create enterprise-wide risk management profiles is daunting. As a result, shippers tend to focus on factors with the biggest impact on their supply chains, such as on-time performance, supplier lead-time variability and carriers by origin or trade lane, Siriwan said.

Once a supply chain risk model is in place, shippers can perform “what-if” analyses; they can evaluate each decision prior to its actual implementation and compare operational alternatives without interrupting ongoing operations.

Damco’s supply chain risk management methodology uses probability distribution to model unexpected events and the range of possible impacts of each potential disruption, helping shippers optimize sourcing volumes from each origin, load port, vendor, carrier and discharge port to minimize costs and risks.

With a presence in almost every world market, Damco is privy to local trends and news about regulations, strike, congestion and more. Damco destination offices are alerted when the potential exists for supply chain disruption. Impact and probability analyses are conducted with destination teams and recommendations are made to shippers.

Looking ahead to the rest of 2011, risks shippers should be most concerned about include fuel price fluctuations, which are driving up transportation and productions costs. Political unrest in the Middle East, Thailand, Indonesia and other countries also will add uncertainty to supply chain planning.

Rising labor costs in China could impact sourcing decisions, increasing risk as new suppliers are brought on board. For example, in the low- to mid-range garment sector, Chinese producers are under pressure to increase salaries for a new generation of migrant workers accustomed to an urban lifestyle and more jobs options. As a result, Southeast Asian countries such as Thailand, Vietnam, Indonesia and Cambodia are attracting a greater share of new sourcing contracts from overseas retailers and brand wholesalers.

In the coming years, China also is likely to reduce exports of raw materials as more value-added production and processing activities are done in-country and more products are consumed domestically, Siriwan said.

Contact David Biederman at inexdb@comcast.net.