There has been a seismic shift in the supply resulting in a growing need for manufacturers to prioritise risk management and prepare for natural disasters. Reg Kenney, president of engineering & manufacturing at DHL, explains.
Unexpected external threats, such as natural disasters, often cause large-scale disruption to manufacturers’ operations by delaying shipments or severely damaging a company’s facilities.
The economic impact can be devastating as well. The Tohoku earthquake in Japan (2011) was the costliest natural disaster in history, with an estimated economic impact of $235bn and by 2030, DHL has estimated that the annual global economic impact of natural disasters could be up to €328bn.
Iceland’s biggest volcano, Katla, was recently expected to erupt following a series of earthquakes in the country.
Whether the volcano will erupt remains unknown; the country’s met office has suggested that Katla is experiencing a “period of summertime unrest” and that a “sudden escalation in seismicity” should not be ruled out.
It poses serious uncertainty for manufacturers who might be required to stop airfreight in the event of an eruption or whose local facilities might be damaged as a result.
In 2010, the eruption of another Icelandic volcano – Eyjafjallajokull – caused chaos to the global air industry delaying both commercial and industrial flights.
DHL had contingency plans in place that enabled us to fulfil our customers’ orders through alternative freight transportation, but for many businesses this unexpected disruption posed significant challenges to the supply chain.
In the increasingly volatile global environmental climate manufacturers should prioritise supply chain risk management by preparing for, predicting and managing the potential of a natural disaster in the supply chain.
The current design paradigm of a longer, leaner supply chain could prove to be a burden in the future.
Manufacturers have complex, global networks to manage and one incident, such as a flood or earthquake, is likely to disrupt the entire operation.
Assessing the risks a natural disaster might pose and implementing contingency plans at the earliest stage is crucial.
Supply chain visibility is a core element of this. Understanding where products are and how shipments could be affected by the occurrence of a natural disaster makes it easier for manufacturers to prepare. Insisting that suppliers have contingency plans in place should also be a priority.
When companies have the earliest possible notice of potentially disruptive incidents it is easier to prepare.
Understanding the existing pattern of volcanic eruptions will help businesses plan for future occurrences. By analysing past data, manufacturers can develop an understanding of the risks they might face at any given time and ensure they are protected in future.
Sometimes it’s inevitable that disruption will impact the supply chain, but manufacturers that are confident in their contingency plans will be ready to put them into action.
Businesses that have prepared well are likely to reduce the overall impact of a natural disaster on operations. With contingency plans in place they can often gain advantage by filling the gaps left by their less-agile competitors.