Putting a Face on the Supply Chain: Resiliency or Achilles’ Heel?
By Patrick Long
When you think of the coronavirus (Covid-19), the tendency is to think more of headlines like this: “Consumer-facing companies will be first hit if coronavirus spreads across the U.S.” These headlines advise us to avoid public places like movie theaters and restaurants. As in the case of Japan, the Prime Minister asked that schools be closed early prior to the normal Spring Break. Sporting events have been postponed or cancelled, as was recently announced in Switzerland. There’s even discussion underway about whether the Summer Olympics in Japan will go on as planned.
What you don’t typically think of, however, are the effects of how an outbreak of a pandemic virus such as Covid-19 can have on the energy supply chain. This part often gets hidden within the 24/7 news cycle; however, this is, in fact, becoming more of a reality each and every day. Let’s focus on a small piece of the supply chain: shipping of cargos across the ocean.
China’s lockdown of cities and mass quarantines have wreaked havoc on shipyards and companies struggling to finish retrofitting scrubbers on cargo vessels. Shipowners don’t have any ability to seek claims for idle time that’s stretched into hundreds of days for some vessels. In fact, shipyard companies declared force majeure, making it virtually impossible for companies like MSC and Maersk to succeed in any compensation claims.
"The energy supply chain isn’t built on uncertainty. It’s built on plans, backup plans, risk assessments, audits and further fallback options."
If you’re planning for future shipments of feedstocks or finished goods, you need to pause and think about backup plans and other options. Will your vessel be there? Or, will some of the shipowners take your promised vessel and use it elsewhere, thereby forcing you to have to scramble to find another carrier? Chances are that you wouldn’t be left high and dry. However, given the enormity of the virus and its reach into all facets of our lives, you cannot be too certain. No more can you have assurances that the contract will protect you and your interests. Declaring force majeure changed that.
Still, with a new global crisis playing out, there’s uncertainty. But, the energy supply chain isn’t built on uncertainty. It’s built on plans, backup plans, risk assessments, audits and further fallback options. Companies can prepare—and many do—in order to focus on the machinery and transportation of the supply chain. Schedulers plan vessels, rail cars, trucks and pipeline movements. Operators check levels in tanks and capacity constraints. Managers focus on asset utilization and inventory turns.
Don’t Forget The Human Component
These stories evoke an adapted line from Robert Burns, “The best-laid plans of mice and men often go awry. No matter how carefully a project is planned, something may still go wrong with it.” The point here is that an event like Covid-19 doesn’t just affect the objects and components in a supply chain. It doesn’t focus its wrath on the raw materials or finished goods. Instead, it focuses on the human component. The virus exposes the weakest link in many of these supply chains – the human. After all, it’s common sense that humans must operate the terminals, move the vessels, trucks, trains and operate the pipelines.
Truth of the matter is that you probably don’t naturally think that if someone is sick a critical component of the supply chain will fail. No, rather, you don’t think about it because there’s always a replacement or a substitute person to cover the shift. However, what if more than one person gets sick? What if the government mandates, for public health reasons, a total and complete shutdown of a component within the supply chain? Then what? How do you plan for that situation? Is this a black swan event, as Nassim Taleb describes? Or is it the next normal?
Rather, the point to focus on here is that supply chains aren’t entirely comprised of AI or machines—the human element is what keeps the pulse of a supply chain beating. Machines and AI aren’t inanimate objects working together in a factory without the need of people. Supply chains work because of the human component. Hard-working men and women do their part daily to keep the wheels moving in supply chains and help companies achieve efficiency.
"Supply chains aren’t entirely comprised of AI or machines—the human element is what keeps the pulse of a supply chain beating."
Therefore, in addition to the layers of risk analysis, audits, secondary plans and other assessments, it’s important to understand where machines and AI aren’t completely linked and where there’s a dependency on humans. Despite the huge push to digitize supply chains, people still make up a critical component.
Get to know the supply chain and think through these new scenarios. Play the “what if” game and talk through what would happen if vast amounts of individuals weren’t allowed to show up for work. Understand that the human component will be needed to create innovative ways in order to prevent the same human component from becoming the Achilles’ Heel for a company.
About the Author:
Patrick Long is a Director in Opportune’s Process & Technology practice. Patrick has over 20 years of experience in providing clients with energy trading and risk management, packaged software implementation, trading and risk processes and business process automation. Patrick leads the BI initiative within the firm. He focuses on applying BI tools (e.g., Spotfire) to client data in order to allow proper insight for management around both upstream and downstream business issues. His current focus for clients is making sense of inventory and the supply chain to address management questions. Prior to joining Opportune, Patrick worked in the energy consulting trading and risk systems practice at Accenture where he managed project teams through the entire process of software selection to successful implementation of trading and risk management systems for energy trading entities.