Rodney Johnson - Without Warning

Recently I wrote about how supply chains were potentially a Silent Problem on the horizon for more and more businesses (Supply Chain Unrest).  Today, I read with interest a story from Bloomberg titled China’s Investment Surges 26.5% as Exports Plunge.  Near the end of the article it states, “Plunging exports and imports forced 20,000 small- and medium- sized companies in China’s Guangdong province to close since October, shedding 2 million jobs, the Nanfang Daily newspaper reported last month. Those feeling the squeeze include suppliers to companies such as Mattel Inc., the world’s biggest toymaker, and U.S. department- store chain J.C. Penney Co. U.S. consumer confidence has tumbled as a recession deepens in the world’s biggest economy.”

Supply chains can be robust and fragile at the same time.  In a growing worldwide economy, new factories are built, jobs are created and infrastructure to sustain it is built.  In a declining economy, factories are shuttered, employees are eliminated and infrastructure becomes hobbled. 

Creating a world-class supply chain can be challenging to build and costly to maintain.  The more complicated the end product, the difficulty to maintain it grows exponentially.  And visibility into the supply chain becomes inherently more difficult.  Today many supply chains are a Without Warning Event ready to happen.  Unfortunately, this may the next component that could push many businesses out of business.

On a positive note, every challenge can be another person’s opportunity.  Here I expect companies will be forced to reevaluate their supply chain risks.  And in the end, some will decide to move production back to their home base.  It may not be the lowest cost solution, however, increased costs will be overshadowed by reduced risk.  Welcome to the World of Business.

Industrial supply chains have grown in complexity and international in scope over the past decade. The reason behind this increased complexity is simple, to reduce costs. In my book without warning, one of the warning signs that a silent problem might be present is, “When there is a willingness to embrace complexity, while simultaneously sacrificing transparency. Symptom: The business becomes too convoluted and complex to understand. Nothing makes sense anymore.”

Today, the world is on the verge of a massive contraction, one we haven’t felt or experienced in many decades. However in some respects, this one will likely be more profound, because it will break supply chains without warning. For instance, reports now surfacing out of China reveal that 1000s of factories are being shuttered, literally overnight and without warning. As these events unfold, once functional supply chains will break, adding to the financial stress already present in the world marketplace. Rebuilding these supply chains will be costly and time consuming.

Whether discussing textiles or technology, I anticipate that supply chain breaks will be the next big and costly without warning event to occur. And supply chains focused on low cost metrics may be the most vulnerable to disruption.

Now is the time to reevaluate your supply chains, with a renewed focus on simplicity, transparency and suppliers you can trust.