What is in this article?:
- How to Build an Anticipatory Supply Chain
- Learning to Count on the Unexpected
- Technology Will Continue to Reshape the Supply Chain
The most effective companies will be those applying cutting-edge technology to enhance their real-time understanding of activity in complex supply networks.
Toyota got a wake-up call in March 2011, when an earthquake registering 9.0 hit northern Japan, unleashing a massive tsunami. The human toll was devastating and the rebuilding task a monumental challenge. Later, for Toyota, it became evident how dramatic and far reaching this natural disaster was for its global business.
The company had recently attained the position of best-selling automaker worldwide, in part because of its tightly managed supply chain. Over the course of many years, it had taken the slack out of its operations, using just-in-time delivery of parts to keep inventories to a minimum. But having pruned its supplier base severely, in some cases to single suppliers of certain parts, it now found itself more vulnerable than it imagined.
The disabling of a few parts makers in Japan meant that assembly lines ground to a halt as far away as China and North America. Globally, March production dropped by 29.9%. It took six months for suppliers to get back to delivering products in required volumes.
Stung by the experience, Toyota set out to revamp its supply chain in such a way that the time required to recover from large-scale disruption would be reduced to at most two weeks. It wasn’t possible to get to that goal simply by learning to mobilize better in the aftermath of disaster. Toyota’s supply system had to learn to anticipate problems—if not always the catastrophic event itself, then the knock-on effects it would have.
Management embarked on an initiative to expose vulnerabilities and rank them in terms of likelihood and potential impact. The company worked with more than 500 suppliers to create greater visibility throughout a multi-tier supply network and to either spread production across multiple locations or maintain larger inventory buffers. Most strikingly, the automaker decided to reengineer many of its 4,000–5,000 vehicle components so that across different models, common parts could be used. The point was to raise the order volumes of those parts to the point that suppliers could justify building additional manufacturing facilities, providing a hedge in case one went offline. Put the changes together, and Toyota now has a more forward-looking, adaptive and effective supply chain.
Toyota’s example offers an extreme form of a problem many others are experiencing, and a particularly rich version of a solution that other leading companies are pursuing.
In all kinds of product businesses, supply chains that were first formed accidentally, then optimized for efficiency, are now being reworked with an important goal: to make them anticipatory.