Disruptions in manufacturing production due to extreme events have exposed the vulnerabilities embedded in the system. This is just one example of resiliency that is required in manufacturing environments. But as we have seen from the current Coronavirus crisis, unforeseen events extending beyond weather and political events can often cause disruptions in the actual manufacturing process that involve serious health and safety concerns. The cumulative effects of layered unavoidable risk have affected the entire supply chain system as well as the safety of those working in the manufacturing plant.
Geopolitics and manufacturing environments
Outsourcing without understanding the risk is playing with fire. As companies subcontract and outsource to suppliers in parts of the world, they should account for these factors in setting up their operations. Unfortunately, even when political and geographic risks are well mitigated, there can always be events that arise out of nowhere that make managing global manufacturing impacts that much more difficult, as we have seen with the current Covid 19 crisis.
Even setting aside such unexpected events, risks such as inclement weather or politcal turmoil can make the procurement of supplies not only difficult, which not only affects the ability of the supply chain to function optimally, but can in some cases pose risks to plant morale if line efficiency is not maintained.
Physical Facility Risk Going Global
Interlocking risk requires a fundamental rethink of supply chain vulnerabilities to ensure that no single factor, such as short-term cost benefit, outweighs the long-term risk of crucial supply chain interruptions. Physical property risk assessment needs to be augmented by assessments of both political, geographic, climate, health, and other risks.
Facilities construction and maintenance that meet the highest standards for risk protection are still required, but smart companies are also conducting integrated reevaluations of their global footprint. They are asking questions such as, “Do we need to have manufacturing in flood- or earthquake-prone areas?” rather than sourcing locally in order to avoid unnecessary supply chain and customer service interruptions.
Overall political factors will strongly affect a country’s ability to build infrastructure and recovery resources, so smart companies are also looking closely at whether they are over-reliant on transportation infrastructure.
Traditionally, weighing labor cost differentials against shipping costs found the cost savings more than covered the financial risk of extending the supply chain. That simple equation fails to factor in geographic and political risk, let alone reflect new transformations in the world economy. With the margin of error slimmer than ever, successful manufacturing businesses will be the ones that not only understand their vulnerability but accurately measure their risk.
The old formula needs to be thrown out the window. Establishing a more appropriate balance between cost and risk is the surest way for a company to create a truly resilient business,