You may remember the rhyme that begins 'For want of a nail the shoe was lost. For want of a shoe the horse was lost...' Eventually this lost nail leads to the kingdom being lost. I think modern supply chain experts can learn a lot from this old rhyme.
It shows how connected things are, and how a small, minor disruption can grow and grow – until the kingdom is lost. Or, to use more modern terms: your contract, your customer, your cash.
Disruptions, man-made or stemming from natural catastrophes, have become more common in our globalized economy and their effect has also increased. This was a topic I discussed with others at the recent annual meeting of the World Economic Forum in Davos, Switzerland. Everyone is interested in finding solutions to the plethora of risks that supply chains now face.
Unfortunately, I fear that too few companies have learned from disruptions like the Icelandic ash cloud or the tsunami in Japan. Too many still simply fix the supply chain and continue as usual. That is not enough. I believe that to ensure that such disruptions do not affect your supply chain you must take a long-term view of the problem and come up with a long-term answer.
Even if you are able to mend the broken link in your supply chain and recover quickly in the short term, you'll still need to deal with aftereffects such as the impact on your share price and shareholder value, on customer relationships and on your operational performance. In short: the short-term view is short-sighted. You need a long term plan; you need supply chain resilience.
Build change into your system
To be truly resilient, I believe you must first be able to identify potential dangers, and master the ability to sense them before they occur. Companies need to shift their focus from reactive to proactive risk management. They need to be prepared in advance for the disruption.
How do you prepare? How do you make your supply chain resilient?
Firstly, you need to increase your ability to react quickly. You need flexibility within your company that allows decisions to be made rapidly. You need to train people to be ready for the unpredictable, and then let them act autonomously. I believe that this can only be achieved if you instill a culture of continuous improvement in your organization that empowers employees to find problems and solve them. With a culture like that, a disruption will be resolved as best it can on the frontline, and not after days of alignment within your organization. When disruption strikes, you don't need a 'Corporate Committee for Urgent Horseshoe Nail Procurement', you need a blacksmith on the ground.
Secondly, while some might argue that if globalization seems to cause some supply chain disruptions, then a narrower focus on just one market or one region could be the solution. I believe this is incorrect, too. At Deutsche Post DHL our global footprint coupled with our broad portfolio of solutions actually protects us against disruptions. If we can't ship it from one place, we can most certainly ship it from another. Globalization isn't the problem; it's a world of options.
Thirdly, I believe many companies often pay too little attention to analyzing risk. But you can't have a resilient supply chain without visibility and control. You need to know how vulnerable you are to risk, and you need the mechanisms in place so that you already have the solution at hand before any problems arise. Now more than ever, I see great potential for mitigating the effects of a disruption using the many new communication channels and technologies now at our disposal.
Lastly, I believe that you need to understand that disruptions do not happen in a vacuum. To be resilient, companies must build and maintain collaborative and trusting relationships with customers, employees, investors, suppliers, governments and other public organizations. Then it will be easier to ensure that everyone understands the situation and can react in concert, rather than descend into a free-for-all of problem-solving that, in some cases, might actually increase the effects of the disruption.
A holistic approach
Considering the importance of functioning supply chains, I'm pleased that our DHL Supply Chain division has developed a series of white papers to support our customers' resilience. For example, one on resilience in the automotive sector looks at the needs of carmakers, while another white paper addresses the very interesting effect sudden changes in consumer buying behavior can have on retail supply chains. And our most current report takes a look at how you can make your supply chain more resilient.
We have also developed a tool for supply chain risk management called 'DHL Resilience360', which is specifically designed to protect sales, maintain service levels, reduce emergency costs, and enable fast recovery post disruption. To increase the resilience of suppliers' networks, our risk assessment starts by mapping and visualizing a customer's entire supply chain. After exposing any vulnerability within the supply chain and rating the resilience of various locations, we can formulate backup plans and identify appropriate risk mitigation together with our customers. It provides a holistic, 360° view: Long term answers to short term disruptions.
Supply chain resilience: a public service, a public duty
I don't think supply chain resilience is just something that is 'nice to have'. Functioning supply chains are the lifelines of the modern world. It is everyone's responsibility, and especially the responsibility of a logistics company like Deutsche Post DHL, to ensure that they run without glitches. I never tire of saying it: we do more than just move things from A to B. We connect people, improving their lives. We can only continue to do so by ensuring supply chains run smoothly – all the time.
- Frank Appel is the CEO of Deutschepost-DHL