How resilient should your supply chain be?

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It’s that time of year when global companies report their quarterly earnings – and this time the figures are highlighting the impact on supply chains of the earthquake and tsunami in Japan.

Sony has just reported a first quarter loss of 15.5 billion yen (£120m) – after sales fell ten per cent largely as a result of supply constraints caused by the earthquake. Fujitsu Panasonic, Hitachi, Nissan and Mazda  are just some of the other Japanese companies that have also released results reflecting the impact on their supply chains.

What has been remarkable is just how quickly companies have been rebuilding their supply chains in the wake of these terrible events.

Of course it is not just Japanese companies that have been affected. Xerox has just become the latest US corporation to report that supply issues have affected sales in the past quarter.

In contrast,  Korean group Hyundai has just reported a 19 per cent jump in second quarter sales – benefiting from the problems at its Japanese rivals.

There are some obvious conclusions that can be drawn from all this about the need for resilience and agility in supply chains.

But, it’s not that simple. Natural disasters on the scale of the Japanese earthquake are rare. The US Geological Survey calculates that in the past century there has been an average of one earthquake a year with a magnitude of eight or higher anywhere in the world.

So, how much cost and efficiency would you – or should you – sacrifice to improve your resilience to such a rare event? This is not just a tough financial problem – it raises moral issues of protecting life as well.

I am sure that organisations all around the world are wrestling with these problems. We should start to see the results in the next few months.

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