Another Crisis, Another Change To Boost Risk Management Efforts

Don’t waste a supply chain crisis: it can get the attention and support you need.

It’s only April and already it has been quite a year for real and potential supply chain interruptions in the US, reminding CPOs of the critical importance of risk management--and potentially boosting their chances of getting support for their efforts.

On the East Coast, there was the severe winter with record-breaking snowfalls, temporarily closing down some highways and shipping channels. On the West Coast, there was the four-month slowdown at 29 shipping ports that threatened to cost the economy $2 billion a day.

Now, it’s the Midwest’s turn. Some 7 million chickens and turkeys on poultry farms in 16 US states have come down with the bird flu. On one Iowa farm alone, Sunrise, which has one of the largest egg-laying facilities in the country, 4 million hens may be lost.

There will be ripple effects along the supply chain. For example, Minnesota-based Hormel Foods’ CEO Jeffrey Ettinger told the Minneapolis Star Tribune that the supply chain was experiencing significant challenges. Moreover, the US Department of Agriculture said the bird-flu outbreak is the biggest ever, and could affect a $5-billion export market. Though there is no evidence of danger to humans, China, Russia, South Korea, and Thailand have banned all poultry products from the US, while Mexico, Japan, and Canada are refusing poultry from specific states. That means some companies will take a big hit on their bottom line. Hormel could be one. Its Jennie-O Turkey store accounted for 18% of total revenue in the last fiscal year and 28% of operating profit.

Such crises particularly affect companies that source from suppliers that are all in the same region. It’s “concentration risk,” says Eliot Madow, who teaches supply chain management at Boston’s Northeastern University and is vice president of client services for Hiperos, a supplier of third-party-management software. Among his suggestions for mitigating the risks: map your supply chain and include transportation routes, supplier locations, and geographic and political boundaries to identify sources of risk; identify constraints such as capacity limits and transportation choke points; calculate all costs of a failure at any point in the supply chain; prioritize the risk areas; perform what-if analyses; and test various parts of your plans to ensure readiness.

Can’t get the resources to do that kind of planning? Try again. Don’t waste a crisis, says Madow. It can get the attention and support you need.

This article is a piece of independent writing by a member of Procurement Leaders’ content team.

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