Supply chain: What can supply chain executives learn from the Iceland volcano?

When the Eyjafjallajokull volcano erupted last spring, most eyes were on the airlines. Within days, a significant portion of Europe’s air space was shut down by the ash and remained grounded for weeks.

Less noticed was the impact on supply chains, says Jade Rodysill, a senior manager in Accenture’ supply chain practice. "One little volcano highlighted how tightly integrated our supply chains are around the world," he says. And while supply chain managers today spend a great deal of time making plans to mitigate risk, Rodysill believes the real emphasis should be on bouncing back from disruptions. "Folks were shocked by just how long this event lasted," Rodysill says. "That’s why we tell our clients that assessing and managing risk is great. But, when disruptions happen, you need the capability to snap back and make the best of it with minimal disruption."

One example is the Dutch express mail group TNT, a company that was relatively unaffected by the volcano. When air lanes were shut down, TNT switched from its usual air hub in Belgium to another in Madrid. Some air shipments were rerouted to a European Road Network. The company kept its customers informed through the media, its website and its account teams. "TNT regularly goes through routine exercises around what it would do if there are network disruptions," says Rodysill.

So, what can supply chain executives learn from the volcano and the response by companies like TNT? Rodysill and his colleagues at Accenture believe that the best companies will develop dynamic supply chains that build in the flexibility to adapt to sudden changes around several areas:

Sourcing: Accenture advises companies to look beyond sole-sourcing and low-cost country suppliers. That strategy includes a streamlined process for bringing on new suppliers quickly in an emergency and a diversified supplier strategy for critical materials.

Manufacturing: Along with a more diversified sourcing strategy, Accenture is advising clients to look beyond offshore production that may leave them vulnerable to international transportation disruptions. Instead, companies should create a flexible manufacturing strategy with options for building critical products in multiple locations and with fast changeover capabilities.

Product design: Accenture contends that the best strategy for a flexible supply chain begins at the design stage, with products designed to reduce complexity and leverage common platforms and parts that will reduce exposure to supply outages.

Logistics: Just like TNT, the best transportation networks are optimized for both cost and risk, and consider multiple routes to markets and contingency shipping plans.
"Most of our clients spend a lot of time thinking about the reward side of their businesses," says Rodysill. "But the measure of a company is to be an ongoing business. You have to understand your vulnerabilities and invest some time to think through the risks and resiliency."

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