CIPSA flags improvement in risk management of global supply chains

The Japanese earthquake and tsunami have caused considerable business disruption around the world, thanks to the country’s strong place in the global supply chain, however CIPS Australasia managing director Jonathan Dutton has flagged the need for continuous improvement in supply chain risk management.

Although considerable manufacturing has moved to China, enough of the electronics industry particularly remains in Japan for disruption there to interrupt supplies of car parts and whole cars, as well as electronic components for almost everything, to factories everywhere.

Despite this, Dutton believes that there are signs of improvement for global supply chains.

In past years when a chief executive officer met the company’s chief purchasing officer, the discussion was often about cutting costs.  “Now when the CEO meets the CPO he often only wants to talk about risk,” Dutton said.

Part of that risk is security of supply but there are other risks, which sports shoe company Nike found out about some years back when conditions in its supplier factories in Asian countries became public knowledge, he says.

Now a major consideration in managing supply chains is aligning the goals of that chain with the goals of the organisation, he says.

Companies that do not pay attention to risk can certainly be devastated by events such as the Japanese earthquake, tsunami and nuclear troubles. 

A bulletin produced by the consultant in late April also notes that “manufacturing activity across Japan’s factories remained severely affected by the events following the earthquake”. 

Data on supply chain delays collected by the London based Markit Group show that European supply chains were already subject to near-record delays even before the earthquake that struck Japan on March 11.  The earthquake tightened supply even further, to record levels.

Markit economist Alex Hamilton told The Australian Financial Review from his office in London that the consultancy’s supply chain index for April was at a record high with disruption to companies like Honda and Toyota. This included the mechanical engineering and electrical and optical sectors recording the highest incidence of delivery delays.