Are our supply chains susceptible to terrorist attacks?
The recent Paris attack reminded the world that terr...
Written by Wolfgang Lehmacher, Head of Supply Chain and Transport Industries, World Economic Forum
The recent Paris attack reminded the world that terrorism can hit at any time, any place. The response of governments has been to increase security in public spaces – and rightfully so. But what if these same terrorists would attack supply chains instead? Hitting just a few strategic targets in the energy trade, for example, could bring the entire global economy to a halt. To avoid such disaster, companies and governments should be more aware of this perceived “low probability threat”, and develop the tools to protect their economic interests and those of the world.
The attacks in Paris, the bombing of a Russian plane in Sharm El Sheikh, and most recently, a disability center in San Bernardino, shook the world. With hundreds of innocent civilians dead, governments all over the world responded by increasing security measures in public spaces. It is a much needed response, as our safety is of utmost importance.
But while focusing on public spaces, we should not leave another important flank unprotected: our infrastructure and supply chains. Ports, waterways, roads: they all play a vital role in supplying our needs. When left neglected, the consequences on the economy and our society could be disastrous. Two risks are of particular importance: an overshoot of public safety measures affecting supply chains, and a negligence of securing supply chains, leaving them vulnerable to attack.
The first risk is for supply chains of goods to be disrupted because of public safety measures. We have seen this before. “After the September 11, 2001 terrorist attacks, the US government closed the country’s borders and shut down all incoming and outgoing flights. The impact on many supply lines was immediate,” wrote Yossi Sheffi and James B. Rice Jr. in a MIT Sloan article.
“Ford Motor Co. had to idle several assembly lines intermittently as trucks loaded with components were delayed coming in from Canada and Mexico. Ford’s fourth-quarter output in 2001 was down 13 percent compared with its production plan.” Although not directly hit, the disrupted flow of goods caused significant damage to business and delayed supply.
But there is a potentially much graver danger from neglecting supply chain safety: terrorist attacks aimed at precisely those lifelines of our economies. For now, such attacks have been limited: according to Daniel Ekwall’s review of the official terrorist statistics from MIPT Terrorism Knowledge Base transport activities represent only 4 percent of the targets in 2006 and 5 percent in 2007 – as low a number as one can find. But the number of supply chain related attacks has increased steadily over the past decade, reaching 3299 attacks in 2010, a recent PwC report found.
And when terrorists do attack supply chains, the consequences could be disastrous. 70 to 80 percent of the world’s oil flows through only three major check points: the Suez Canal, the Strait of Hormuz, and the Straits of Malacca (see the chart below). The closing of one or more of these passages would significantly disrupt the global energy supply chain. The Strait of Hormuz is a particular cause for concern: situated between the Arabian Peninsula and Iran, almost 20 percent of global oil trade passes through there.
Major freight hubs might be targets for terrorist attacks, as well. 14.8 percent of containerised and air freight traffic moves through the Hong Kong – Shenzhen freight cluster. The Port of Shenzhen is one of the most important ports for China’s international trade and therefore key to the supply of many factories and customers in the world.
Highway computer networks and traffic management systems are also vulnerable to terrorist attack, and could be hacked and disrupted to create chaos. This could make the transport on national road systems and in cities impossible. Planes could collide. Each time they enter an airport aircrafts are at risk because of the sharing of information across a number of electronic systems. Tracks in rail traffic could also be re-set to cause trains to crash.
What matters then, is to recognize supply chains as a target, and take adequate measures to protect them. Some governments have understood that message. In 2009, president Obama declared digital infrastructure a strategic national asset.
Another example is the Government of Canada, which has formulated a counter-terrorism strategy stressing the need for an integrated approach by all levels of government, law enforcement agencies, the private sector and citizens, in collaboration with international partners and key allies, such as the United States of America. It is to be expected that after the Paris attacks, governments will tighten these measures, with possibly significant negative consequences for the global supply chain.
The private sector should follow suit, and the first necessary step is to accept the likelihood of such attacks. That is not often enough the case. A report prepared by the Supply Chain Management Faculty at the University of Tennessee found that while two thirds of supply chain companies employed risk managers, but virtually all of those internal functions ignored supply chain risk. In light of the current global developments that is a risky position to take.
Terrorist threats, sadly, have become a part of our life. We should do all we can to avoid another Paris or San Bernardino attack. But while public safety is paramount, we should not lose sight of our supply chain safety either. Being aware of the risk and potential impact is a first step. Taking action within our own countries and companies to prevent such attacks is the next.
SOURCE: [World Economic Forum]
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”