Supply Chains After The COVID Pandemic: Resilience More Important Than Cost

An old sailor once recommended the “three accidents” rule, which asks how many accidents must happen before you die. His goal was to have enough protection that three separate accidents would have to happen before he died. Using an afternoon sail on San Francisco Bay as an example, he said suppose a wire stay fails and your mast comes down. Nobody dies. Now imagine that the engine won’t start. Still nobody dies. Now imagine that these two accidents happen while the boat is crossing in front of a freighter. Yep, people would die. The old salt taught us to leave plenty of room between us and large ships but more broadly to imagine what could go wrong.

Three might not be the right number of accidents to worry about in every situation, so long as business leaders consider what problems could cause a company to lose money. Suppose those $10 electronic components are delayed six weeks. Is there a way to prevent that possibility from killing profits for the quarter? For any possible problem, key personnel should brainstorm solutions.

Inventory management can protect a company from supply chain failures. That could mean extra raw materials, work in progress or finished products. Of the raw materials, supply of some components may be very reliable. Commodities such as polyethylene or steel plate will be readily available, though sometimes at a high price. Usually, though, the cost of commodities is a low enough fraction of total manufacturing costs that a short period of high prices won’t sink a business’s finances.

At the other extreme, custom-made components are the most fragile part of a supply chain. Whether plastic, metal or wood, they are often made with custom tooling. Loss of the tooling in a fire or other way could delay production for months. Closure of the company making the component might also delay deliveries. Brainstorming this challenge might push the problem to engineering and design to see if a standard part could be used instead of the custom part. Standard parts are usually less expensive, but even if not their supply reliability could argue in their favor.

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