Volatility is the New Norm: Disruptions Continue to Rage
Volatility, uncertainty, complexity, and ambiguity (VUCA) continues to rage and threaten manufacturers and supply chain chain organizations. The VUCA threshold skyrocketed during the pandemic, and it has not returned to normal. In fact, it will not return to normal. Given the geopolitical risks, increase in labor unrest and strikes with dramatic impact on significant industries such as goods movement (ports, package carriers, rail) and automotive, and one of the fastest increases in interest rates in history related to significant inflationary pressures, volatility and disruption will remain. Those companies that thrive with VUCA will lead industries and markets for decades to come.
CrowdStrike Created Havoc Across the Globe
If you didn’t know CrowdStrike before last week, you probably have heard of it now. CrowdStrike, a cybersecurity company, performed a content update, and it caused the blue screen of death across the globe. Supply chains are interconnected in today’s modern environment. As our goods movement colleague always says, logistics is a system of systems. A software update in one system will impact all related systems.
After CrowdStrike’s update, it caused widespread IT outages across the world. Flights were grounded, banks were unable to perform daily transactions, 911 emergency services weren’t functioning, and businesses around the world were impacted. Although the majority was resolved with 8 hours, many issues carried over with disruptions continuing several days later. For example, Delta Airlines cancelled hundreds of flights for a third day in a row as they struggled to recover from the software outage. Banks are realizing that relying on third party vendors comes with high risk. For example, a client’s payroll was impacted by the outage, thereby creating tension with employees.
According to Microsoft, the CrowdStrike outage affected 8.5 million Windows devices. Certainly, those 8.5 million devices are connected to many more businesses, thereby extrapolating the impact. Beyond airlines and banks, anything is fair game when it comes to interconnectivity. For example, an organ transplant matching system was briefly impacted, the Kansas driver’s license offices remain impacted several days later, and hospital systems couldn’t provide care.
Aerospace Struggles Continue
Boeing has been in the news for parts falling off planes and other scary issues. At the end of May, the FAA said it won’t clear Boeing to increase 737 Max production for several months. Since their suppliers were ramping up to meet increasing customer demand expectations, it has created end-to-end supply chain ripples and impacts. Suppliers are scrambling to determine how to manage inventory, slow down their supply chain, and manage costs while these issues are resolved. On the other hand, demand remains high once the quality issues can be resolved. Boeing wants to ramp up beyond its 38 aircraft per month limit to 57 per month in the next year but has struggled. Read more about the aerospace supply chain in our recent article.
Airbus has also struggled. According to Flight Plan, Airbus downgraded its production plan, mainly due to supply chain issues. A supply chain is only as strong as its weakest link. Thus, down-the-line impacts of critical supplier issues can be significant. For example, engine maker CFM International, a joint venture between GE Aerospace and Safran, acknowledged the difficulties and stated they are working to expedite engine deliveries to meet Airbus’s demand. Additionally, there is a quality issue with Pratt & Whitney’s engines used in Airbus planes. A rare powder metal defect could lead to the cracking of some engine components, causing a recall and accelerated inspections. An average of 350 jets could be grounded per year through 2026, with as many as 650 jets sitting idle in the first half of 2024. The bottom line is that Airbus wants to ramp up from 45 to 75 A320’s per month but has struggled.
The Farnborough Airshow, a gathering of top executives from airlines, aircraft makers and weapons manufacturers outside London is plagued with stories of supply chain disruptions and aircraft delays. Stephanie Pope, Boeing’s head of commercial aircraft, said at a media briefing that 737 MAX production was improving and the company was undergoing “transformational change” across safety and corporate culture. However, progress will not be quick. Airbus executives also expressed optimism on progress. The bottom line is that aerospace clients are anxiously waiting for positive news while proactively managing what is within their control.
Porsche Reduces Forecasts Due to Shortages
Porsche had to reduce its forecast due to aluminum shortages. Flooding at an European contractor caused the shortages. It is affecting all the models and potentially leading to shutdowns for one or more vehicle series. In fact, the supplier declared force majeure which meant it was unable to meet its commitments due to an event outside its control. The alloy also impacted other carmakers although they were able to go to backup suppliers.
The Path Forward
Disruptions are not going to dissipate. Thus, the successful companies will be thinking three steps ahead. Consider a few of these options:
- Alternative suppliers: You must source alternate suppliers that will be there when you need them. If you simply designate a backup, it will not be enough when all suppliers experience the same issue (like Porsche). Instead, you must be partnering with your suppliers and purchasing from your suppliers over the long-run. 1% of your purchases will not suffice. What will it take for your supplier to be there when you need them?
- Risk mitigation: You cannot stick your head under the sand and assume your suppliers and supply chain partners are doing what they should. In today’s interconnected world, you are only as strong as your weakest link. Although CrowdStrike wasn’t due to a cybersecurity incident, it still spread around the world. Are you performing risk assessments in your end-to-end supply chain? What else are you doing to ensure your risks are mitigated?
- Quality issues: Boeing and Airbus are plagued with quality issues in the end-to-end supply chain. We must go back to the basics and build quality into products.
- What if scenarios: It is no longer enough to check the boxes. You must think about the most likely and most impactful what if scenarios. What are your plans to address so that you can jump into action immediately as situations arise. For example, do you have advanced planning systems with artificial intelligence that can predict what to do as disruptions arise?
- Preparation & prevention: Refer to our article, Supply Chain Risks Explode to gain several ideas and strategies to prepare for and prevent issues.
Utilize modern ERP & related technologies: You will be better prepared to respond to disruptions by utilizing a modern ERP system and advanced supply chain technologies.
If you are interested in reading more on this topic:
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