The growing global uncertainty caused by unforeseen disasters and incidents is bringing about tremendous transformations in our daily lives and corporate activities. It has had a major impact on the manufacturing industry, and the COVID-19 pandemic has dealt blows to both supply and demand. Peoples’ movement has been restricted, shining a harsh spotlight that shows how little digitalization has progressed. Global supply chains have been disrupted, and risks of material supply interruptions have become apparent. The development of resilient supply chains that enable the manufacturing industry to cope with new crises has become an urgent issue. In this article, we introduce the resilient supply chains needed for the new normal, and explain how to build these supply chains, together with real-world examples.

The form of supply chains demanded from the current

The unpredictable natural disasters occurring around the world, and the ongoing COVID-19 pandemic, for which no end is in sight, have produced rapid and dramatic transformations in our daily lives and in company business models.

One of these transformations involves the supply chains of the manufacturing industry. In the past, the procurement divisions of companies needed to evaluate and reduce procurement costs. In recent years, frequent disasters have caused “supply shocks,” severing supply chains and cutting off the supply of materials. This has led to a shift in what procurement departments focus on, from “cost” to “stable supply,” and more importance than ever is being placed on assessing the states of entire supply chains. In Japan, the experience of the Great East Japan Earthquake in 2011 led many companies to reinforce their natural disaster responsiveness.

The spread of the COVID-19 has also caused a “demand shock,” as consumers refrain from non-essential and non-urgent consumption.

This has been accompanied by a supply shock, making the bottlenecks of current supply chain more apparent.

From 2000 onwards, as the tide of globalization accelerated, more and more companies transferred their production activities overseas in order to achieve greater economy and efficiency. As a result, production facilities became concentrated in a handful of countries.

Globally speaking, the greater reliance on China, in particular, is said to have had a major impact on the stable supply of products in the face of the pandemic. The global supply chains built by Japanese companies must now be reconsidered from the perspective of balancing “economy and efficiency through production centralization” and “the ability to handle supply interruption risks.”

As the increasing uncertainty of the world, the resilience of supply chains is needed more urgently.

The Toshiba Group has been instituting procurement reforms, including disaster countermeasures, for over a decade, and has put in place a system that can be operated in-house. It is using its experiences with the various disasters that have occurred in recent years to build resilient supply chains that stay strong in the face of emergencies.

It is a particular important point to create mechanisms for acquiring field data through communication with suppliers. For example, when using supplier strategies, category strategies, and the like to create detailed strategies and engage in procurement activities, it is vitally important to use field data, such as specifications, quality, cost, market conditions, purchase prices, and disaster data -- and, in particular, high quality data. It is difficult to acquire and store this high quality data entirely in-house, which is why it is essential to build systems for collaborating with suppliers.

Approach to achieving supply chain resilience

Let’s look at what kind of approach should be used to build these resilient supply chains.

Our approach is the crystallization of the know-how we have accrued by improving the resilience we have developed for the Toshiba Group’s supply chains and the expertise we have accrued through the process of providing a variety of customers with procurement solutions.

The key point is the three-step approach of “Preparation of supply chain information,” “Assessment of disaster impacts,” and “Avoidance of supply interruption risks” (Fig. 1).

The first step is preparing supply chain information. Supplier and supply chain information is shared, and the system that suppliers themselves can be maintaining the freshest information is created. In operating this system, it is important that the supply chain scope and level of detail be defined appropriately. This must be done to balance the maintenance workload with the impact of emergencies.

In the tremendous number of components, is it possible to determine the scope of continuous maintenance of supply chain information for each component, to investigate and respond to the impact of all target parts in an emergency? In addition to the above issuers, considering the impact on management when production stops, the appropriate scope and granularity of the preparing information are determined.

The second step is assessing the impacts of disasters. Here, speedy initial response is vital. An effective method for achieving this is to perform multi-stage investigations that leverage the benefits of filtering. In the initial investigation, damage conditions are assessed for each production site. The second investigation consists of a more in-depth investigation of only the sites identified in the first investigation as being affected, or for which there were no responses. Based on our past experience, in many disaster investigations, 90% or more of the production sites reply that they are not affected. The key, then, is to rapidly eliminate unaffected sites from the investigation scope and to focus ones efforts on affected sites and sites for which the disaster’s impact is unknown (sites that don’t respond). Regular training with suppliers is essential to being able to perform impact studies rapidly.

Another important element is accurately assessing disaster information from around the world. Extracting critical and necessary information from the deluge of disaster information on the internet is no easy matter. To achieve this, guidelines must be created based on impact investigation standards for each type of disaster. For example, in the event of an earthquake, we have defined standards such as earthquakes in Japan with a “Shindo (Japanese seven-stage seismic scale)” of 5-upper or greater, or earthquakes overseas with an intensity of 6 or greater. Likewise, standards are defined for typhoons and other disasters.

The last step is avoiding the risk of supply interruption. Supply chain visualization and risk management is performed here. It is vital that supply chain information includes not only information related to emergencies, but also prepared information that can assist with risk management when no emergencies have occurred.

For example, in addition to supplier site names and addresses, registered production site information also includes their latitudes and longitudes, alternate production sites, risk evaluation items, and other information. Also, designating main and sub managers on the supplier side makes it easier to coordinate initial response and maintenance activities.

The advantages of supply chain visualization include discovering potential improvement areas and using findings in future measures. For example, supply chains which were previously thought to be pyramid (or tree) structures have been found, from secondary suppliers onwards, to actually have diamond structures, in which specific suppliers are responsible for certain materials, and there are no alternatives. In other words, this visualization has made it possible to proactively manage the supply chain to optimally allocate suppliers before an incident occurs (Fig. 2).

Supporting resilient supply chains using a Strategic Procurement Solution

Now, let’s look at a customer example. During the initial COVID-19 outbreak, a precision device manufacturer rapidly assessed the impact infection spread would have on its production, and implemented countermeasures. Its preparation during non-emergency times successfully equipped it to deal with this emergency.

Specifically, it prepared a tree structure showing the relationships between its suppliers -- not just its primary and secondary suppliers, but also further levels of suppliers. Furthermore, it narrowed down the suppliers that would be affected by each type of disaster and built a structure for investigating the impact on all of them at the site and article level. It also prepared information regarding alternative production sites that could supply articles for production sites that were affected by disasters. It checked if there were sites already producing the same items, or which had the facilities to produce the same items, and considered which sites to use as alternate production sites (Fig. 3).

These preparations, which had a track record of use in dealing with previous natural disasters, were also confirmed as effective in dealing with the COVID-19 pandemic.

The system used here was made possible by the business continuity plan (BCP) management functions of our Strategic Procurement Solution. A Strategic Procurement Solution is a platform that supports mutual communication between a user’s own buyers and suppliers, and offers various functions that assist with core procurement operations, such as quotation, ordering, and acceptance inspection.

The communication platform that provides the BCP management functions introduced in the previous customer example covers a multitude of processes involving contact with suppliers, including issuing electronic quotations and surveys of business partners. There are also functions for analyzing and visualizing the varied data accumulated on this platform. The customer was very pleased with this platform because it produced an environment that made it easy for the customer to coordinate with suppliers, and proved effective in dealing with emergencies.

These functions are offered as components, so customers can select only the functions they need. Needless to say, it can be used in both on-premise and cloud forms.

A Strategic Procurement Solution is a solution created by the Toshiba Group through its procurement reforms. It has a track record of use by precision device and automobile part manufacturers, as well as customers in the process industry, and is being continually improved, reflecting key points related to the differing operations and activities of these business categories and industries and findings from experience dealing with various emergencies. We have accumulated a great deal of experience and knowledge through our development and operation of a Strategic Procurement Solution.

The time is right to use of a Strategic Procurement Solution and the know-how we have developed to build a resilient supply chain with systematized operation, including suppliers, capable of rapidly dealing with emergencies, preparing your company and your suppliers for disasters and growing future uncertainty.

  • The corporate names, organization names, job titles and other names and titles appearing in this article are those as of November 2020.

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