Logistics Management

Dave Schneider

Breaking the Supply Chain “By Design”…
May 22, 2008

I am in the process of tearing a motorcycle apart. If you follow this blog you know that back in April I had a "too close encounter" with an “individual driving while on phone”. As one would expect, even with the low impact speed, there was a lot of damage. As I dig into the repairs on my 1999 BMW R1100RT touring motorcycle I am being surprised by what I see.

First, none of the plastic body panels are really damaged. The bike did not slide on the pavement; we hit the car and then fell over. The right mirror & turn signal housing was destroyed. But the body panels were only scuffed, about 2 hours of elbow grease and rubbing compound took off all of the marks. The cylinder covers are scratched and gouged, but replacement is 4 bolts, a new cover and a new gasket, about $400 in parts.

Underneath the body panels is another story. There is a tubular sub-frame that supports the front and side body panels and it is twisted to one side. The front forks are straight, but the ball joint and trailing arm are bent. And the tab in the cast aluminum front frame that the sub-frame connects to was sheared off. It is a bunch of damage. But looking at the parts that are damaged, considering the work that I am doing, and some feedback from some folks that have also repaired damaged like this on their bikes (same make and model) the damage was “by design”.

It looks like that the engineers in Germany when they were figuring out how to make the bike designed into the parts and materials so to direct the forces not only to protect the rider in the event of a collision, but also dissipate the forces in a way that would minimize the cost of the damage. Don’t get me wrong, this rebuild is going to cost about $1,900 in parts, including all of the fasteners that broke, and about 20 hours of labor, but in total the cost is far less than what the insurance adjusted “estimated” the cost to repair to be. 

OK, so what does this have to do with logistics?  

All of us that have been riding motorcycles for a long time have a saying; “It’s not if, but when”. If you ride a motorcycle for very long you will have a collision. There is no amount of caution, training, practice OR luck that can prevent an accident. Caution, training and practice help reduce the risk, but the risk never goes away. The engineers in Germany know this, and they designed the motorcycle to be ready for the eventual collision.

Is your supply chain designed for the risks that exist? Have you engineered for parts of the chain to fail and how they are going to recover? The game is not risk elimination, but risk mitigation. As in the design of my motorcycle, does your supply chain have features that will fail and absorb the sudden changes in the world that will protect the rest of the enterprise?

The continued rise in the price of oil is one peril that is going to keep supply chain managers awake at night and increase the size of the anti-acid jar that sits on the desk of the transportation executive. The American Airlines announcement yesterday that they are going to charge $15 for the FIRST checked bag, close down a bunch of routes, ground fuel hog MD-80 jets, and let a good slice of the workforce go is an example of letting parts bend and break to save the whole of the enterprise. Could AMR have done a better plan for retiring the fuel hog jets? Sure, but at what cost? The management team made a "design" decision and "broke and bent" parts to preserve the whole of the enterprise.

When building the project plan for any of the major Distribution Center start-ups I managed I always considered risk. I assumed that “Murphy maintained a trailer on the job site and would make his rounds every day.” I would look at every critical path task thinking about what would fail, and what could be done to minimize the risk of delay or cost overrun for each of the risks. I never had a contingency for everything that could go wrong, but for anything that would hurt the whole of the project, that would be “fatal” to the project schedule or budget. Did I bat 1000 on my predictions? Nope, but in the high 800’s. And when something did go wrong, I had a “Plan B” most of the time. For the 20% of the time that there was a surprise I had the fortune to not have an inferno to deal with and addressed the problems.

Who could have imagined that oil would rush past $130 a barrel on a fast trip to $150, or even $200? Hmmm, I know a few Logistics managers who considered the question back in May 2006. At that time the question was if fuel got to $100 a bbl. Some said that the cost would mean destruction. Others said that it would be trouble. I know that most forgot about the issue hours after the meeting. I also know a few woke up in a cold sweat and put some plans into place.

And I know some who are sweating now.

Now we are at $130 a barrel for crude oil. What are your plans for your supply chain when the cost goes to $150? How about $175? How about $200? It may not get there, but a “Plan B”, perhaps a “Plan C” would be a good idea.

What have you done?

Posted by Dave Schneider on May 22, 2008 | Comments (1)