Get Ready For The Next SARS

Dec. 21, 2004

It's time to rethink your supply chain.

Although severe acute respiratory syndrome (SARS), a virus that came out of Asia eight months ago, has not been the threat to manufacturing supply chains once feared, now is not the time for U.S. manufacturing executives to let their guards down. The fact is SARS did take a toll on U.S. manufacturers, with, for example, both Motorola Inc. and Texas Instruments Inc. lowering their second-quarter 2003 sales and earnings-per-share projections. What's more, serious and unexpected threats to supply chains are bound to occur in the future. Emphasizes New York-based consultant John Fontana, a principal at Tigris Consulting Corp., "Companies absolutely must understand the key choke points in their supply chain before disruptions occur." Fontana urges U.S. companies, particularly when they take production offshore to East Asia, to "really aggressively war game" their supply chains, analyzing threats and readying such defenses as back-up production sources in Mexico. Indeed, SARS should serve as "a wake-up call" and get executives thinking about whether in their efforts to cut costs they've emphasized efficiency at the expense of responsiveness in their supply chains, says Jay Swaminathan, an associate professor and area chair for operations, technology and innovation management at the University of North Carolina's Kenan-Flagler Business School in Chapel Hill. For a U.S.-based electronics firm that might mean revisiting its selection of a sole-source supplier in China on cost alone. "Maybe the lesson to be learned is, as Mark Twain said, that when you put all your eggs in one basket [you had better] watch the basket," quips Robert Spekman, a professor at the University of Virginia's Darden Graduate School of Business in Charlottesville. Swaminathan advocates a more active strategy. "A firm has limited control over the events that disrupt a supply chain, but it can control how well a supply chain copes with those disruptions," he stresses. Greater supply-chain responsiveness can come from "quicker access [to] and action on available information, storing buffer inventory to hedge against uncertainties, or diversifying the supply base to include not only low-cost overseas suppliers, but also suppliers who may be able to respond faster to changing needs," Swaminathan states. "I am not saying that for every firm it's going to be optimal to . . . do multiple sourcing, but for some firms it may make sense." Says Plano, Texas-based Don Townsend, vice president in the technology practice of A.T. Kearney Executive Search, "I imagine that there are lots of calculators [being used right now] to figure out the economics of increased buffer stocks of raw materials and components and finished goods." Although cost of production and quality of local work forces will remain major factors in outsourcing decisions, he predicts that stability, reliability and predictability are going to become "much more important" than they were a year ago. One of the criteria that CEOs and COOs will be adding to their investment decision mixes is "how well various parts of the world [are] equipped to deal with crises," Townsend says. In any event, good decisions depend on good information. And in China and southeast Asia, places where government information systems and media tend to be less developed than in the U.S., manufacturers need to develop their own intelligence sources so they're able to make their own judgments about what's going on and how serious are the threats to their supply chains, advises Tokyo-based Kevin Gromley, global leader for Deloitte Consulting's manufacturing practice. In the early days of the SARS scare "there was a lack of good information . . . on what was happening," he notes. "There is a big price to be paid for every second of delay in supply chains these days," emphasizes Sunder Kekre, professor of operations management and manufacturing at Carnegie Mellon University's Graduate School of Industrial Administration in Pittsburgh. "The earlier you get the [supply-chain] network to respond, the easier it is to manage [the situation]."

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.