Supply Chain Risk Management and Catastrophes

The reports of destructive events—natural disasters, accidents, and intentional attacks—just keep on going. We could all guess that the Japanese tsunami of March 11, 2011 would have major impact on manufacturers’ supply chains … but a tornado in Wichita, Kansas and a fire in a plant in Germany!

The Wichita tornado, which was reported in an article “Tornadoes Hamper Boeing Supplier” by Jon Ostrower in the April 17, 2011 Wall Street Journal, damaged ten buildings at a complex belonging to Spirit AeroSystems, which supplies fuselages and other parts for popular Boeing planes. Although the damage was minor, and has only halted production for about a week, Boeing will feel the impact on its tight schedules. Spirit’s CEO, Jeff Turner, said that it is the first time since 1927 that the plant has been disrupted by a tornado … 84 years is a pretty good run, but what if the tornado had flattened the buildings? This is a clear case of concentration risk raising its ugly head.

As I discussed in my presentation to the 2012 IEEE LISAT (Long Island Systems, Applications, and Technology) Conference on May 4, there need to be trade-offs among efficiencies of large manufacturing facilities, just-in-time inventory processes and the losses incurred in the event of a major catastrophe. Spirit AeroSystems dodged the bullet this time, but they may not be so lucky next time.

In the following day’s Wall Street Journal (April 18), the article “’Nylon -12’ Haunts Carmakers” by Jeff Bennett and Jan Hromadeo, describes how an explosion in March 2012 at an Evonik Industries AG plant in Marl, Germany, destroyed the manufacturing capability of a company supplying 25 percent of the worldwide demand for the resin “nylon-12” and providing a “chemical building block” to another company that provides another 25 percent. The resin is used by automotive manufacturers in fuel and brake lines, since the resin is resistant to gasoline and brake fluids. The article describes how some 200 auto executives met the prior day (April 17) to determine how to respond to the inevitable shortage of this essential material.

One Comment

  1. Maureen Robinson Jun 12, 2012 at 7:55 am | Permalink

    We totally agree that a transaction-level simulation of supply chains is neccessary for managing supply chain risk and catastrophes. We discussed about similar examples and how to reduce application security risk by building more secure software in this blog article Also, you can read more on this topic here:

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