Paul Houston, Allied World’s very own expert in supply chain and risk management, was recently featured in The Business Times where he discussed disrupted supply chains and how Singapore should prepare for the next crisis. The article explores Singapore’s response to Covid19, especially in the early days when China’s factories were shut down.
When discussing ways for Singapore to increase self-reliance and resilience the discussion turned to keeping an eye on supply since there are numerous incidents that could disrupt supply chains. “Anticipating such incidents and acting quickly is critical, but many companies do not keep as close an eye on their supply
chains as they ought,” Paul Houston said.
He cites a well-known case study in which Nokia’s awareness of its supply chain enabled it to start seeking alternative solutions and sources soon after it learned of a fire at a key chip supplier’s plant. Meanwhile, its rival Ericsson, who used the same supplier, did not react until the supplier revealed the full severity of the incident’s impact on supply, by which time most of the alternative sources had been snapped up by Nokia.
“Most companies have no idea what’s in their supply chain,” said Mr Houston. “They don’t know what company is picking the goods up, because it will be subcontracted out… or what are the locations (that the goods pass through). Is one of them in Vietnam, or Iceland? What are the risk factors associated with each? What I personally think companies should be doing a lot more of, is getting that visibility of their supply chain and securing it.”
The uncertainty caused by the Covid-19 pandemic pushed more companies to hold more stock and create additional buffers in their supply chains, in a shift away from a just-in-time (JIT) to a just-in-case philosophy.
For instance, Beacons Pharmaceuticals, Singapore’s largest manufacturer of generic pharmaceuticals, increased its buffer of supplies for production to one year, from four to six months previously. It also expanded its repertoire of sources from just China and India to include suppliers in South Korea, Taiwan and Europe. While this provides better resilience against disruptions, the trade-off in profitability means that companies may revert to JIT manufacturing as soon as it becomes feasible. Mr Houston hopes that this will not be the case, noting: “A super tight and stretched logistics chain that is hyper-efficient with no buffers at all – as soon as something along the critical path breaks, there’s a huge delay and knock-on effects.”
Companies should continue using their JIT demand models, but instead of maintaining minimum levels of inventory as they used to, they should add in a buffer to keep the overall supply chain resilient, Mr Houston advises.
You can read more in the full article on The Business Times – Singapore’s leading financial daily newspaper.