How often have you heard these words during a meeting in your office? “Say what? Forecast for an unplanned event? Isn’t that like buying flood insurance in Phoenix?
Regardless of whether or not we choose to plan for them, catastrophes happen. However planning ahead can mean the difference between success and failure when these situations arise. Let’s look at the recent earthquake in Japan. Should we forecast for earthquakes? In Japan earthquakes are a daily occurrence so the answer should be yes. Is it necessary to forecast for a 9.0 earthquake? Maybe not, but it happened. Follow the earthquake with a tsunami? This is definitely a possibility seeing how Japan has so many coastal regions. Now we need to forecast a third contingent event, i.e. the damage to the Fukushima nuclear reactors and then identify and plan for the global impacts, especially in the electronics and automotive industries? OK, now this is getting ridiculous.
All of the above events happened and they will happen again. The event will probably not be an earthquake and most likely will not happen in Japan. But somewhere, sometime, you can be sure that we will experience another significant disruption to our supply chains. Take for example, what just happened at the Shell oil refinery on the island of Pulau Bukom near Singapore. This is the company’s largest refinery, which just experienced a major fire and as a result has to be shut down as of 03-Oct. What will the impact be? Only time will tell.
So what message is here? Simply put: We must know and understand our value chains. Where the dependencies and what are are the weak points. What would we do if we lost manufacturing at site “X”, lost supply from supplier “Y”, or were suddenly unable to use shipping route “Z.”? What if a pandemic broke out in the country where we have our greatest revenue base? Each company and each value chain has unique characteristics.
We cannot afford to think only in terms of getting products made and delivered either. We must think about the effects that risk events will have on the demand for our products. As many have seen, when the economy tanks (also considered to be a risk event), the demand for durable goods declines and purchasing discretionary items becomes delayed because consumers hunker down for the economic winter, and hope it doesn’t last too long.
I look forward to sharing my experience as the keynote speaker and meeting all of you at the upcoming Supply Chain Planning and Forecasting: Best Practices Conference in San Francisco. As far as Risk Management is concerned, don’t expect a simple answer because unfortunately there isn’t one. You will, however, learn how to build a framework that can make you more prepared for the unknown – and plan for it.
John J. Brown, PE
Director, Risk Management, Supply Chain Development
The Coca-Cola Company
Hear John’s Keynote Presentation at: