Supply Chain Frontiers issue #11. Read all articles in this issue.
Emergency relief agencies and industrial manufacturers are very different organizations, but when disaster strikes they face similar supply chain challenges. This September they came together in Stanford, CA, to share best practices and learn some important lessons about disruption management.
The event, "Effective Disruption Management", was co-sponsored by the MIT Center for Transportation & Logistics, the Global Supply Chain Management Forum, the Center for Social Innovation at Stanford Business School, and Fritz Institute. The key issues covered were: supply chain agility, management & planning, performance measurement, visibility, and public-private partnerships.
While the eight speakers came from disparate backgrounds ranging from automotive risk management, European logistics and international rescue, several recurring themes highlighted the great potential for productive learning. In particular, three capabilities emerged as critical for emergency relief agencies and manufacturing organizations: knowledge management, integrated relationships and risk management.
1. Managing Knowledge
When a disaster strikes it is not possible for responders to be on the ground immediately, much less know what to do, who to contact and how to get the most important tasks done. Local knowledge is critical to understanding what local resources are available, the infrastructure and the constraints. The key to effective disaster management, said Lynn Fritz, director general of Fritz Institute, is leveraging local agencies and organizations. This message was shared by Ludo Oelrich, director of TNT's "Moving the World" program, a groundbreaking partnership between the supply chain organization and the United Nations World Food Programme. One of the factors TNT took into account when it partnered with the UN agency was that the company already had local expertise in most of the countries where the program operates.
Still, knowing the local scene is not enough: to be effective, managers need to understand fundamental issues such as system constraints and the logistics knowledge of the personnel involved. This Supply Chain knowledge is necessary for effective decision-making. Without it managers may accept generous offers that are not beneficial. One of the examples shared by participating relief organizations was clothing donations from the public. Given the delivery costs involved it may be more effective to purchase new clothes near the impacted region than to deliver donated apparel. In addition, these unnecessary movements divert scarce supply chain resources from higher priority items.
Randy Martin, Director of Global Emergency Operations of Mercy Corps, introduced another important dimension of knowledge management: Needs knowledge. Organizations should be "needs driven, not supply driven", he said. For example, Mercy Corps was offered truckloads of sandals for Tsunami victims in Sri Lanka, but refused the offer after realizing that sandal production was a central part of the economy. The free product would have seriously impaired the region's ability to recover economically. Sadly, another relief agency subsequently accepted the offer and inundated the market.
2. Integrated Relationships
Both humanitarian relief and business supply chains are complex and involve many entities. Unless relationships are built ahead of time between all trading partners, effective response during an emergency situation will suffer. This holistic view of relationships has proven successful in the business risk management arena. Leslie Lamb from Cisco System emphasized the importance of internal collaboration as well as external partnerships with contractors and suppliers as part of the company?s enterprise risk management strategy. This thought was shared by Adele Matrz, director of corporate risk management at General Motors; two of GM's six keys to effective risk management are "cross-functional effort" and "build and leverage relationships" with internal and external parties.
But relationships between "competing" supply chains were also highlighted as being beneficial to relief efforts. Gail Neudorf, Emergency Coordinator of CARE Canada, illustrated this point by describing what she referred to as "the fog of relief", or the myriad organizations involved during disasters and complex emergencies. These may include the United Nations, the national government, the local military, the national and international Red Cross, local and international NGOs, and paramilitary or rebel organizations. All these entities may be working simultaneously in the disaster area. This not only creates confusion but also duplication of effort and wasted resources. Only by establishing partnerships can relief organizations coordinate the different supply chains.
Cross-pollination of best practices from business to relief supply chains via focused partnerships was also discussed. Jon Olson, manager and global transportation and logistical outsourcing with Intel, and John Rickard, director of logistics and International Rescue Committee (IRC), shared their successful experiences of collaboration. Through a series of focus meetings between the IRC and a team of Intel and Solectron supply chain specialists, they were able to significantly improve their procurement processes. "But the biggest success", said Mr. Rickard, "was the ability of this team to bridge the disparate groups of IRC ? have them not only understand the initiative, but buy soundly into it" by leveraging their corporate experience. Ludo Oelrich identified an unexpected benefit derived from TNT?s partnership with the UN World Food Programme: a significant increase in employee morale.
Both private and public sector participants acknowledged the need to improve the way they manage relationships with suppliers.
3. Risk Management
In the words of Lynn Fritz, "the time to help is before it happens" so the time to build relationships for effective planning and collaboration in a response effort is before the incident. It is too late when the disaster occurs. This is also true for corporations: a formal process of business or operation continuity planning is necessary before any incident. This is the central idea behind enterprise risk management.
"Organizations make money by taking risk and lose money by not effectively managing risk" said Leslie Lamb from Cisco systems, after describing the company's Enterprise Risk Management program. Cisco wants to move from being a resilient enterprise with advanced business continuity plans and scalable and agile business processes, to what it refers to as an adaptable corporation, where real time data monitoring is coupled with a self-deciding, self-optimizing and self-correcting organization.
Adele Martz, director of corporate risk management at General Motors, shared a similar vision. "In 2004, for example, a hurricane in Oklahoma demolished our assembly plant," she said. "There were 1,200 people and not one person was hurt because we had practiced evacuation plans a month prior". These drills are just one component of GM?s Business Continuity Planning, which includes weather-monitoring systems, preemptive evacuation procedures, and backup supplier networks. The planning process also includes investment in future technologies to make GM less vulnerable to a wide variety of potential disasters, including economic ones such as the uncertainties of a volatile oil market.
For both Cisco and GM, the key to a successful risk management strategy is to establish a structured approach coupled with top leadership support as well as an integrated effort at all levels of the organization, including external members of the supply chain. Relief organizations have not yet developed such risk management practices, but expressed great interest in the potential of these approaches.
As recent disasters such as the earthquake in Pakistan and Hurricane Katrina in the United States underline, if emergency responders can develop more effective risk management strategies thousands of lives could be saved.
This article was written by Edgar Blanco, Research Associate, CTL, and Jim Rice, Director, Integrated Supply Chain Management Program, CTL. For more information on the "Effective Disruption Management" event please contact the authors at: eblanco@mit.edu, and jrice@mit.edu.