In a previous post, I discussed uncertainty and illustrated it by highlighting the volatility on the Dow Jones. I was reminded of this when I ran into a document PriceWaterhouseCoopers , the accounting firm, released last December. It was titled "From vulnerable to valuable: how integrity can transform a supply chain." Although the volatility has reduced slightly, companies remain with the same challenges. In an effort to reduce costs, Supply Chains have become increasingly global and stretched as inventories are kept low. The volatility of the oil prices first, the economical downturn second, and now the varying country economy support programs change the equation on a day to day basis. A number of highly publicized disruptions in key company supply chains have demonstrated their vulnerability. Going back to the old way of doing things is not an option as customers are no longer prepared to pay the higher prices associated with them. And practice has demonstrated that, independently of who is actually responsible for the problem, the brand owner is hurt as his name is on the box. According to Aberdeen, 58% of companies surveyed suffered financial losses as a result of supply chain disruptions and 99% experienced some kind of glitch. They include supplier capacity failing to meet demand (56 percent of the companies reporting supply chain disruptions), shortages or price increases for raw materials (49 percent), unexpected changes in customer demand (45 percent) and shipments that were delayed, damaged or misdirected (39 percent).

Leading companies are re-assessing their supply chains. As Linda Kiedrowski puts it in her blog entry "Manufacturers need to focus on supply chain management", companies are only as strong as their weakest link. Reviewing the strength of suppliers is definitely something to do, but should that not be done on a continuous basis? Insourcing is another trend, and it may make sense to keep employees while reducing risks. But do companies still have the skills to manufacture what they used to make years ago?  And I am not even speaking about the facilities, but about the actual skills of the workers. How many have been laid-off due to outsourcing, taking things back in requires those skills that were let go under the previous approach.

To re-assess supply chains, two things are required. First, detailed and as up to date as possible information on what truly happens in the value chain. This provides companies with critical information on the behavior of their suppliers (SLA compliance for example), on bottlenecks, on inventory pile-ups, and on a variety of other indicators that will allow them to better understand the actual behavior of their supply chain. This should be complemented with a supply chain simulation tool, allowing companies to model their supply chain and pro-actively calculate what improvement can be achieved using alternative scenarios. Only a small number of companies use such tools to help them decide which approach to take.

As the current downturn forces them to review their operations and strengthen their supplier basis, companies may want to equip themselves with the tools necessary to understand how the changes they plan will enhance the operation of their supply chain, reduce risk and diminish disruptions.   

Having said this, let's come back to the title of this entry. I used the word "sustainability", and you may wonder why I did not talk about the environment. Actually the term is much larger, but has over the last couple years be reduced to its environmental context. However, there is a lesson here, the environment should be taken into account in the redesign of any supply chain today, as an environmental glitch will receive high visibility, hence drastically affect the value of a brand. The same data gathering and simulation tools can be used to assess the environmental impacts also. Too often companies are still seeing these as separate issues and approaching them independently. Today, the environment is, together with suppliers, service providers, regulations, etc. one of the elements to take into account in the monitoring and improvement of the supply chain.