Supply Chain Turbulence

I recently had the privilege of attending the MIT Center for Transportation & Logistics – Crossroads 2009 conference . The theme for the day was ‘Managing Supply Chains in Turbulent Times’ as could be expected from any industry-related conference these days.

Because of my client schedule, I arrived to the session a bit late – but was immediately rewarded with lunch and free soda to lift my spirits. We then assembled into smaller breakout groups, and I joined up with the Transportation Strategies group, led by Dr. Chris Caplice of the MIT CTL Program.

Dr. Caplice helped to facilitate a discussion with about 40 or so Transportation-focused professionals and graduate-level students. The main emphasis of the discussion centered around what companies are doing now to help improve their ‘Recession Readiness’ and overcome Supply Chain Turbulence. From this discussion, and after hours to allow those soundbytes a chance to simmer, I extracted a few key takeaways for myself that I can use with my clients:

1. Those companies who were ‘Recession Ready’ were ahead of the game with regards to their Supply Chain processes and technologies. They did not “have to” implement new technologies to help them communicate more effectively, or control their supply chain costs more tightly. They were already in place, and companies were in a far better position to make operational and strategic decisions that would help lead them through the turbulence.

2. There are a few ‘best-in-class’ companies who are taking a 6-Sigma approach to this recession, and employing a ‘Risk Matrix’ strategy to help them identify Supply Chain Turbulence in the future. I think of this as “Crisis KPI” reporting: taking a handful of mission-critical supply chain metrics that represent the overall health of the business. In my area, this could be something like Equipment Availability, Load Factor, Cost per Ton Mile, or something similar. Companies are using these types of ‘signals’ as leading indicators to help them get a jump on any future turbulence.

3. Turbulence is enhanced by Fear. I use the analogy of a first-time airline passenger on a bumpy flight. The passenger is in a heightened state of fear, and may exhibit irrational behaviors because they do not have the history of being been through this before. Fliers with established processes for dealing with turbulence are far more calm, and able to think through the bumps without disruption. I believe organizational behavior is very similar, and those companies with discrete systems and processes in place will handle disruptions better because organization fear is mitigated.

Thinking back through these takeaways leaves me with one clear message: system design and technology helps companies remove irrational behavior (and costs) at the expense of some flexibility. However, most organizations realize that not all flexibility is good. In the case of the first-time flier, this flexibility of thought led them to irrational behavior. In the organizational context, perhaps this is similar to a knee-jerk reaction akin to “the customer just needs it ASAP, ship it Overnight Air.” Having systems and processes in place would help this Customer Service Rep know that maybe ground service would be acceptable (given a hypothetical transit time) or other mode alternatives existed at a lower total cost.

So – driving variability, or fear if you are in an unknown situation perhaps, will help firms identify, plan, and make changes to handle economic turbulence far easier. Designing Supply Chain Systems to accommodate for these types of behaviors should not be overlooked during your implementation or upgrade.

About Brad Forester