The increasing vulnerability of freight transport chains requires a new approach for identifying potential risks, mitigating their impact and addressing their consequences. For such an approach to be effective, it should extend beyond the boundaries of the single supply chain actor. “Trusted networks” can proactively identify and manage the potential risks in the supply chain.
As supply chain and transport networks are becoming increasingly globalised, complex and interdependent, risks have grown outside the direct control of individual organisations and with regional or global implications. This became especially evident in the past few years, as a result of the global economic crisis and of a number of natural disasters and infrastructure failures having a disruptive impact on freight transport networks (e.g. Japan’s earthquake and tsunami, Iceland’s volcanic eruption, etc.).
In a recent survey of the WEF (World Economic Forum, 2012), the five most concerning aspects of supply chains and transport networks have been identified in terms of their current under-management and their capacity to magnify the impact of external disruptions. Four out of the five areas with the highest vulnerability relate to visibility and control (the fifth and top-rated being reliance on oil), namely:
- availability of shared data/information
- fragmentation along the value chain
- extensive sub-contracting
- supplier visibility
Responding to these challenges requires a business model mentality primarily focused on cooperation and trust. Building risk-focused trusted networks, sharing information, expertise and action priorities is among the main recommendations of the experts involved in the WEF study. Such networks have a variety of missions, from developing best practices (e.g. the Supply Chain Risk Leadership Council) to identifying and mitigating risks (e.g. the automotive risk-collaboration community).
Especially the latter deserves a short presentation.
The automotive risk-collaboration community has been formed by three of the world’s leading car manufacturers (Aston Martin, Jaguar Land Rover and Toyota Motor Europe), as a strategy of collective protection from risks in their supply chain. The reason for such a community is quite simple. As stated by Toyota, OEM’s supply chains are so inter-dependent that if any OEM stopped the production on a big scale, it would impact the others within a very short time.
This form of “trusted network” is realised in three steps for proactively identifying and managing the potential risks in the supply chain:
- Mapping the supply chain, to identify its components and sub-chains, the key actors and their interactions. This step allows car manufacturers to share information among them, about any sub-supply chains with critical aspects of car production. In this way, supplier manufacturing sites with a potential exposure to risks are identified and risks for global production are proactively mitigated. The automotive community is currently inviting Tier 1 suppliers, deemed as being critical to production, to join the effort. These suppliers will cascade the request for information further down the supply chain to involve also next tiers.
- Performing a financial analysis, to check the supplier financial status. This can be critical to detect warning signs and to plan future mitigating actions in case of foreseen defaults. This proved a major issue following the 2008 financial crisis, as annual fillings for supplier bankruptcy within the automotive sector doubled from 2007 to 2008 (source: PRTM – Bankruptcy and Globalisation in the Global Automotive Supply Industry).
- Setting up an online portal for suppliers to provide the required information on risks for all three car manufacturers. In this way, suppliers have to enter these data only once and all the manufacturers access the data in a digital and secure form.
The benefits of such a trusted network are:
- for the car manufacturers, a collective risk visibility and protection in their supply chains
- for the suppliers, no need to deal with multiple risk-related requests from the automotive industry, and the opportunity to map and understand their own supply chains through the many tiers.
- for the logistics services providers, the opportunity to have information on potential risks/disruptions in advance and plan mitigation measures accordingly.