Supply Chain Management Under International Terrorism

1
Supply Chain Management Under International
Terrorism

• Yossi Sheffi
• Professor of Engineering Systems
• Head, MIT Center for Transportation Studies

2
Outline

• The Nature of the Challenge
• Preparing for another attack
• Managing supply chains under increased
  uncertainty
• New public-private partnerships
• Organizing to meet the challenge

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September 11, 2001The US Perception Has Changed
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On the Following days

• Ford idled several production lines
  intermittently due to delays at the Canadian
  border

• Toyota came within hours of halting production
  since a supplier was waiting for steering wheels
  shipped by air from Germany

5
The Long Haul

• The War on terrorism is unlike any other that the
  US experienced.
• Instead of a hired army everybody is exposed
  and everybody is involved.
• How do you win? And when would you know that
  you won?

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Aspects of the Effort

• Preparing for another attacks (including attacks
  on supplier, partners and customers)
• Managing supply chains under increased
  uncertainty
• Rethinking the role of the government
• Organizing to meet the challenge

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Preparing for Another Attack

• Supplier relationships
• Inventory management
• Knowledge backup

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Preparing for Another AttackSupplier
Relationships

• Core suppliers vs. public auctions
• Use of off-shore suppliers
• Dual supply relationships

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Dual Supply Example

• Medical devices made by Malaysian contractor
• Cost 100/device
• Revenue 400/device
• Fixed costs 200/device
• P1 400 - 100 - 200 100/device
• Disruption probability 1
• P2 0.99(400-100)-200 97/device
• Local vendor can supply at 150/device and needs
  20 of the volume to have full capability
• If there is no disruption P3 400
  (0.81000.2150) - 200 90
• If there is a disruption P4 400 - 150 - 200
  50
• Expected profit P5 0.99 P3 0.01 P4 89.6
• The expected added costs of dual manufacturing
  is P2 - P5 7.4 This is the insurance premium

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Preparing for Another AttackInventory Management

• The vulnerability of JIT manufacturing
• Advantages of JIT manufacturing
• Strategic Inventory
• SoSo Management
• Where?
• For which items?

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Preparing for Another AttackKnowledge Backup

• Developing backup processes
• Backing up the companys knowledge
• Standardization and cross-training
• CRM and customer relationships

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Supply Chains under Uncertainty

• Better visibility
• Better collaboration
• Better forecasting

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UncertaintyBetter Visibility

• Transportation visibility involves multiple
  handoffs
• Need for full supply chain visibility
• Reasons for the carriers not to share data
• Independent data acquisition sources

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UncertaintyImproved Collaboration

• Last decade VMI, CMI, EDR, QR, JIT, JIT II, CPD,
  CPFR
• Now implementation
• New joint emergency planning (alternate shipping
  methods alternate suppliers)
• Also security knowledge sharing

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UncertaintyRisk Pooling

• Postponement
• Build-to-order
• Product variability reductions
• Centralized inventory management
• Keeping generic parts in centrally-managed
  strategic inventory

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Public-Private Partnership

• Information sharing
• Assuming certain tasks
• Hazardous materials
• Direct emergency assistance

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Public-Private PartnershipInformation Sharing

• Use of government know-how on nature of threats
  and possible responses share problems with the
  government
• Change professional/ethical code of conduct

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Public-Private PartnershipAssuming
Responsibilities

• Current US procedures still immature
• Profiling of cargo
• Scalability of current methods
• Certification programs
• FAA known shippers program
• ISO 9000 like program
• Certified carriers tracking, sealing, follow-up
• Certified shippers loading procedures

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Public-Private PartnershipHazardous materials

• Many regulations now in place
• Community right-to-know act
• Labeling and placarding rules
• Local emergency planning committees
• For early response air-traffic-control system
  for moving hazardous materials

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Public-Private PartnershipDirect Assistance

• Corporate resources
• Merchant marine
• Civil Reserve Air Fleet
• Data bases of heavy equipment and trained
  personnel

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Trade-Offs

• Repeatability vs. predictability
• Lowest bidder vs. the known supplier
• Centralization vs. dispersion ( ,
  )
• Managing risk vs. delivering value
• Collaboration vs. secrecy
• Redundancy vs. efficiency
• Government cooperating vs. direct shareholder
  value

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Organization

• Chief Security Officer
• A business person
• Meeting business objectives in the new
  environment
• A central coordination function
• Incorporating security in the daily life of
  corporations

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Summary

• A long term adjustment
• collateral benefits
• Better collaboration
• Better supply chain operations
• Better controls (less theft, IP loss, better
  standards)
• Participation in communities

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Any Questions?
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Yossi Sheffi SHEFFI_at_MIT.EDU