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PlanningforSupplyChainDisruptionsYossiSheffiMIT,CambridgeMAPlanningforSupplyChainDisr1OutlineThethreatPastdisastersSupplychainpreparednesspreliminaryresearchfindingsOutlineThethreat2TerrorThreats:PhysicalChemical/biologicalNuclear/”dirty”CyberattackTerrorThreats:PhysicalChemica3TheEconomicTargets:InfrastructureAgricultureTourismTransportationElectricgridBanking&financesystemsOilandgasCommunicationsContinuityofgovernmentMedicalservicesdeliveryWatersupplyFoodsupplyTheEconomicTargets:Infrastr4LearnFromPastDisastersKobeEarthquake--Jan161995,>6,300killed,100Kbuildingsdestroyed,80Kdamaged.Totaldamage:~$250BBhopal--Dec2nd,1984,Unioncarbidefactory,2500dead,50,000hospitalized.Chernobyl–April26,1986,15Mpeopleaffected,BelarusstillaffectedLearnFromPastDisastersKobe5LearnFromPastDisastersInfluenza1918–675,000deadintheUSalone;StartedinarmybarracksandprisonsintheUS;30–50millionworldwide(“theSpanishFlu…”)TheMontBlanc--Dec.6,1917theMontBlancexplodesinHalifaxport(400,000lbs.OfTNT,2,300tonofCitricAcid,10tonsofguncotton,35tonsofBenzol).2500dead;9,000injured;shockwavefeltinCapeBretton(270milesaway).FootandMouthDisease(FMD)andMadCowDisease–UK,2001,quarantinesandslaughterofsuspectedanimals;$3B-$5Bhit.LearnFromPastDisastersInflu6Danger–GovernmentResponseOn9/11:FordidledseveralproductionlinesintermittentlyduetodelaysattheCanadianborderToyotacamewithinhoursofhaltingproductionsinceasupplierwaswaitingforsteeringwheelsshippedbyairfromGermanyAfterFlight587crashed,Nov.12,2001BridgestoNYwereclosedforseveralhoursInUKFMD–Farmers’costs<$1BTourismcosts(afterthegovernmentissuedaban)$2B-$4BJapanesegovernmentbankruptedmanyprivatehospitalsintheKobeareaDanger–GovernmentResponseOn7PreparingforAnotherDisruptionSupplierrelationshipsCoresuppliersvs.publicauctionsUseofoff-shoresuppliersDualsupplyrelationshipsInventorymanagementThevulnerabilityofJITmanufacturingAdvantagesofJITmanufacturingStrategicInventory(SoSomanagement)KnowledgebackupDevelopingbackupprocessesBackingupthecompany’sknowledgeStandardizationandcross-trainingCRMandcustomerrelationshipsPreparingforAnotherDisrupti8SupplyChainsunderUncertaintyBettervisibilityTransportationvisibilityinvolvesmultiplehandoffsNeedforfullsupplychainvisibility,includingdetailedhandlingIndependentdataacquisitionsourcesBettercollaborationLastdecade:VMI,CMI,EDR,QR,JIT,JITII,CPD,CPFR…Now:implementationNew:jointemergencyplanning(alternateshippingmethods;alternatesuppliers…)Also:securityknowledgesharingBetterforecastingPostponementBuild-to-orderProductvariabilityreductionsCentralizedinventorymanagementSupplyChainsunderUncertaint9Industry-GovernmentpartnershipsClearroleforcooperation–happeningalreadyIndustryparticipationinFreeandSecureTrade(FAST)andCustomsTradePartnershipAgainstTerrorism(C-TPAT)“Knownshipper”and“knowncarrier”programsDifficulttogetterrorisminsurance–roleofgovernmentasinsureroflastresortInsurancecompaniesareonlystartingtomodelterrorismthreats.Industry-Governmentpartnershi10Efficiencyvs.redundancy(whopaysforcells,electricity,medicines,etc.)CollaborationVs.Secrecy(example:hazmatplacards)Centralizationvs.dispersion(physicalvs.I/Tattack)Lowestbiddervs.knownsupplier(what’sinthecontainer…)Securityvs.privacy(vs.efficiencyofsearch)NewBusinessTrade-offs:Efficiencyvs.redundancy(who11WhenDisasterStrikesCrisisImpactPreparedManagementUnpreparedmanagementHurricaneMitch(Nov.1998)FloodsdestroyedbananaplantationsChiquitaleveragedexistingalternativesourcesDoletooktimetofindalternativesandlostsalesandTaiwanEarthquake(Sep.211999)ComponentsuppliestoPCOEMsdisruptedDellpricedtosteercustomerstoavailablecomponentsApplecouldnotchangeconfig.-facedbacklogsandlostsalesMadCow&FMD(Spring2001)ShortageofhidesforleathermanufacturersGucci,Wilson–supplycontracts;Naturalizer,Danier-inventoriesEtienne-Agnersufferedcostincreases9/11ClosedbordersDaimler-ChryslerAlt.modesbasedoncontingencyplansFordidledseveralplantsWhenDisasterStrikesCrisisImp12PreliminaryResearchDataTworesponses:activeand“donothing”Active:PastbadexperienceCorporateculture(defensebusiness,workindangerousplacesaroundtheworld,etc.)Securitydepartmentsstaffedwithexperience“Donothing”:Believe9/11isaone-timeeventCannotfindawaytopayBelievegovernmentwillhelpAllcompanies–mostconcernedaboutgovernmentresponsetoterroristattacksAllcompanies–reportalargeincreaseincyberattacksPreliminaryResearchDataTwor13PreliminaryResearchData

(ActiveRespondent)BuildredundanciesTightencollaborationwithpartnersWorkwithgovernmenttounderstandandinfluencesecurityinitiativesLookfortechnologytohelp(RFID,GPS,e-cargoseals,biometrics,sensors,etc.)EducationAwarenessContingencyplanning(includingdrillswithsupplychainpartners)PreliminaryResearchData

(Act14SummaryAlongtermadjustmentInpastincidents:theeconomicimpactwasalotlessthaninitiallyfeared“collateralbenefits”ofpreparedness:BettercollaborationBettersupplychainoperationsBettercontrols(lesstheft,IPloss,betterstandards)ParticipationincommunitiesSummaryAlongtermadjustment15AnyQuestions????YossiSheffiSHEFFI@MIT.EDU??AnyQuestions????YossiSheffi?16PlanningforSupplyChainDisruptionsYossiSheffiMIT,CambridgeMAPlanningforSupplyChainDisr17OutlineThethreatPastdisastersSupplychainpreparednesspreliminaryresearchfindingsOutlineThethreat18TerrorThreats:PhysicalChemical/biologicalNuclear/”dirty”CyberattackTerrorThreats:PhysicalChemica19TheEconomicTargets:InfrastructureAgricultureTourismTransportationElectricgridBanking&financesystemsOilandgasCommunicationsContinuityofgovernmentMedicalservicesdeliveryWatersupplyFoodsupplyTheEconomicTargets:Infrastr20LearnFromPastDisastersKobeEarthquake--Jan161995,>6,300killed,100Kbuildingsdestroyed,80Kdamaged.Totaldamage:~$250BBhopal--Dec2nd,1984,Unioncarbidefactory,2500dead,50,000hospitalized.Chernobyl–April26,1986,15Mpeopleaffected,BelarusstillaffectedLearnFromPastDisastersKobe21LearnFromPastDisastersInfluenza1918–675,000deadintheUSalone;StartedinarmybarracksandprisonsintheUS;30–50millionworldwide(“theSpanishFlu…”)TheMontBlanc--Dec.6,1917theMontBlancexplodesinHalifaxport(400,000lbs.OfTNT,2,300tonofCitricAcid,10tonsofguncotton,35tonsofBenzol).2500dead;9,000injured;shockwavefeltinCapeBretton(270milesaway).FootandMouthDisease(FMD)andMadCowDisease–UK,2001,quarantinesandslaughterofsuspectedanimals;$3B-$5Bhit.LearnFromPastDisastersInflu22Danger–GovernmentResponseOn9/11:FordidledseveralproductionlinesintermittentlyduetodelaysattheCanadianborderToyotacamewithinhoursofhaltingproductionsinceasupplierwaswaitingforsteeringwheelsshippedbyairfromGermanyAfterFlight587crashed,Nov.12,2001BridgestoNYwereclosedforseveralhoursInUKFMD–Farmers’costs<$1BTourismcosts(afterthegovernmentissuedaban)$2B-$4BJapanesegovernmentbankruptedmanyprivatehospitalsintheKobeareaDanger–GovernmentResponseOn23PreparingforAnotherDisruptionSupplierrelationshipsCoresuppliersvs.publicauctionsUseofoff-shoresuppliersDualsupplyrelationshipsInventorymanagementThevulnerabilityofJITmanufacturingAdvantagesofJITmanufacturingStrategicInventory(SoSomanagement)KnowledgebackupDevelopingbackupprocessesBackingupthecompany’sknowledgeStandardizationandcross-trainingCRMandcustomerrelationshipsPreparingforAnotherDisrupti24SupplyChainsunderUncertaintyBettervisibilityTransportationvisibilityinvolvesmultiplehandoffsNeedforfullsupplychainvisibility,includingdetailedhandlingIndependentdataacquisitionsourcesBettercollaborationLastdecade:VMI,CMI,EDR,QR,JIT,JITII,CPD,CPFR…Now:implementationNew:jointemergencyplanning(alternateshippingmethods;alternatesuppliers…)Also:securityknowledgesharingBetterforecastingPostponementBuild-to-orderProductvariabilityreductionsCentralizedinventorymanagementSupplyChainsunderUncertaint25Industry-GovernmentpartnershipsClearroleforcooperation–happeningalreadyIndustryparticipationinFreeandSecureTrade(FAST)andCustomsTradePartnershipAgainstTerrorism(C-TPAT)“Knownshipper”and“knowncarrier”programsDifficulttogetterrorisminsurance–roleofgovernmentasinsureroflastresortInsurancecompaniesareonlystartingtomodelterrorismthreats.Industry-Governmentpartnershi26Efficiencyvs.redundancy(whopaysforcells,electricity,medicines,etc.)CollaborationVs.Secrecy(example:hazmatplacards)Centralizationvs.dispersion(physicalvs.I/Tattack)Lowestbiddervs.knownsupplier(what’sinthecontainer…)Securityvs.privacy(vs.efficiencyofsearch)NewBusinessTrade-offs:Efficiencyvs.redundancy(who27WhenDisasterStrikesCrisisImpactPreparedManagementUnpreparedmanagementHurricaneMitch(Nov.1998)FloodsdestroyedbananaplantationsChiquitaleveragedexistingalternativesourcesDoletooktimetofindalternativesandlostsalesandTaiwanEarthquake(Sep.211999)ComponentsuppliestoPCOEMsdisruptedDellpricedtosteercustomerstoavailablecomponentsApplecouldnotchangeconfig.-facedbacklogsandlostsalesMadCow&FMD(Spring2001)ShortageofhidesforleathermanufacturersGucci,Wilson–supplycontracts;Naturalizer,Danier-inventoriesEtienne-Agnersufferedcostincreases9/11ClosedbordersDaimler-ChryslerAlt.modesbasedoncontingencyplansFordidledseveralplantsWhenDisasterStrikesCrisisImp28PreliminaryResearchDataTworesponses:activeand“donothing”Active:PastbadexperienceCorporatecultur

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