Just a few quick thoughts prompted by the almost-panicked response to the fuel shortage caused by Hurricane Sandy (see these stories from Reuters).
Just-In-Time inventory management can be a great thing for both businesses and customers: it can save money by streamlining the manufacturing or delivery process so that you don’t have to pay oodles of overhead to store unused or unwanted components or products. In a perfect world, with all other things being equal, everything is delivered just as the next step in the chain needs it, or just as the customer orders it. That’s the up side.
The downside is that the world is not perfect, and all other things never stay equal. If supply is disrupted, you may only have hours worth of supply to deal with in an emergency, and after that badness ensues. Quoting Jim Lawton, head of supply management solutions at consultant Dun & Bradstreet and a former procurement chief for Hewlett-Packard in The Downside of Just-in-Time Inventory:
Only about 10 percent of companies have detailed plans to deal with supply disruptions, says Lawton, who calls logistics the fastest-growing piece of Dun & Bradstreet’s business.
As Charles Atkinson has noted, there are several risks that have to be planned for:
- Which firms are dependent upon particular suppliers, and what is their character? A supplier that knows you have no buffer has you over a barrel. UPDATE: In Sandy, franchisees of Big Oil were SOL, left to deal with the disaster on their own. In that story, an operator is quoted as saying “Mobil helps no one, that’s why they are the richest company in the world.”
- What are the internal conditions at your supplier? For example, is their workforce going to strike? UPDATE: And to take another example from Sandy, local and regional gas retailers like Hess Corp. not only had internal disaster response plans (and generators!) in place, they helped out competitors and did a great job of informing the public.pdf.
Let me add that you also have to take note of external conditions like weather (ha!), but also take into account political shenanigans, and social unrest if you want to be resilient. If on the other hand you want to fold like a house of cards, by all means, carry on. UPDATE: And don’t forget that real incompetence faces the threat of being taken over by the government if you can’t seem to pull it out – see Nassau County Executive Ed Mangano’s request for the U.S. to take over LIPA (the Long Island Power Authority).
The connection to security ought to be clear: any time people decide that they are but two meals from barbarism (or a tank away from the end of civilization), the institutions of governance are in danger of being overrun. And anyone who’s ever read “Extraordinary Popular Delusions and the Madness of Crowds” knows that can happen quicker than you think, on the basis of very little in the way of facts.
November 3rd, 2012 6:38pm