Most production and distribution systems have for years worked on a probabilistic idea of risk, one that estimates probability of failure or shortage of each item and its potential impact based on historical data. Often this focuses attention on strategic suppliers rather than the complex spectrum of required items to produce, package, and distribute a product. This works reasonably well—until the unforeseen nail is lost (or a large-scale catastrophic event happens to a supplier). For example, what would happen to the auto industry if the sole supplier of valve stems was destroyed? Nothing rolls on flat tires. This is a contrived example--in this case there are many alternate suppliers—but it is a good example of manufactured products that use a common, low-cost component that is often overlooked in strategic supply considerations.
Newer approaches consider what Dr. David Simchi–Levi at MIT, Marsh Risk Consulting, and others have termed “Time to Recovery” and the “Risk Exposure Index.” The first of these, Time to Recovery (TTR), considers how long it would take a supplier’s facility, distribution center, or other crucial location to return to full productivity after a catastrophic disruption. When implemented at a granular level, this allows management of risk by making provisions to shift inventory, move production to other facilities or invest in partnering with suppliers to broaden reliability of the supply chain. More important, it can highlight a previously-unknown singular item (the nail) that may cause huge economic impact, and can consider the conflict if many suppliers are competing for a critical component or material in a time of crisis. By considering the financial and market impact of a disruption, “long tail” disasters can be considered as part of a Risk Exposure Index, and a more robust system created to cope with unforeseen events.
This is important in packaging for two reasons. First, packaging is a manufacturing industry unto itself and is subject to these sorts of disruptions. Second, packaging is also a potentially critical juncture in maintaining current supply chain operations for a particular product and, more important, in the shifting logistics that can accompany disruption in product supply for the end user. Accompanying this is the role played by changing data accumulated from the package during manufacturing, distribution, and end use. Consider what the automobile industry dealt with as one of the largest suppliers of Nylon-12 lost capacity in a plant explosion in 2012 and the world’s users of resin scrambled for the remaining supply. Could you withstand a shortage of PP resin, coil steel, or paper stock? How about those one-of-a-kind bearings you use?
The impact of even small components or materials can be assessed, given sufficient data about their use and trajectory through the manufacturing chain. This type of analysis can lead producers out of the woods of trying to operate solely on estimated risk and on to the road of making a durable manufacturing operation that can withstand disruptions. You just have to find where the nails are.
Scott A. Morris ([email protected]) is the director of the packaging program at U. of I. Urbana-Champaign.
