Our thoughts and prayers are with Japan, and the ongoing humanitarian and nuclear crisis. Living within 10 miles of a nuclear plant on the seacoast of the northeast US, I am more than aware of the plant’s presence in times like these.
What I am also following is the impact this crisis will have on the supply chain – its economic and business repercussions. This is a living laboratory for the long-term effects of a wildly unstable local economic system, but one that is a significant part of a global one. And for all our companies, the trend of “Externalization” has more tightly interlinked our company’s supply chains – whether it’s labor (call centers or remote development teams) or physical products.
The argument can be made that the cloud, outsourcing, and the overall trend of extreme externalization (characterized by Michael Malone in the book “The Protean Corporation”) spreads risk geographically – and (like the internet) is self healing.
The flip side of that argument is that a company can inadvertently find itself at the mercy of an unplanned for constraint, or multiple cascading failures (such as is happening at a smaller, but more deadly, scale at Fukushima Daiichi); the best corporate strategy may be limited and tightly managed externalization, with an eye toward doing the majority of the work internally, and relying only on “extreme commodities” – resources that have multiple sources and can easily be swapped in/out.
In this developing worst case scenario, Japan approaches Haiti-like status for vast swaths of the country, and life support is at question – never mind whether exports will soon recover. There will be lessons learned for how to manage a global company and acceptable levels of externalization.
My initial take? Measuring the level of externalization for most companies should entail sensitivity toward core versus commodity choices, but it should also incorporate worst-case scenario planning, and valid assessments of the risk and cost of supplier lock-in and alternatives. Unfortunately, the speed of change in most companies doesn’t allow for that, and the rareness of events like these encourages this lack of management decision-making rigor.
It’s not like we don’t advise doing that in our research. For our supply chain research (formerly known as AMR) risk management is a priority that requires a strategy such as creating geographical SC risk heat maps, supply chain visibility, and preparation for unexpected supply disruptions.
We are watching events on many levels. And hopefully we’ll learn.