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Team studies terrorism's impact on supply chain

Why are some companies much better than others at dealing with sudden supply chain disruptions? A research project at MIT's Center for Transportation and Logistics is studying the impact of terrorism on supply chains and identifying what companies can do to be resilient when disaster strikes.

Supply chains can be thrown into disarray for many reasons. A severe storm can delay urgently needed raw materials. A major dock strike can halt the movement of goods. Then there are low-probability, high-impact incidents such as an earthquake or terrorist attack.

Companies can learn to cope with crises like these and minimize the disruption to their businesses. "Often the issue is cultural--making sure that damage control is built into the very fabric of the organization," said Yossi Sheffi, professor of civil and environmental engineering and engineering systems and leader of the project.

For example, a few years ago the production of computer chips was halted by a fire at a large supplier. One major customer, cell phone manufacturer Nokia, reacted quickly and found alternative sources of the chips. Competitor Ericsson was much slower to react and eventually exited the cell phone business.

Nokia was able to recover quickly because part of its corporate culture is to communicate bad news quickly throughout the company. "When the tendency is to hide or delay negative information, the company concerned is generally slower to react when hit by the unexpected," Sheffi said.

Resilient companies also are prepared organizationally for supply chain interruptions. Part of the Nokia response was to redesign its product so components from other sources could be used. That required quickly calling cross-functional teams of managers into action to make the necessary changes.

"Companies can use vulnerability maps to help them assess their level of exposure to sudden dislocations," Sheffi said. On such a grid, American Airlines has a relatively high vulnerability because the loss of a single aircraft to a terrorist attack could have a catastrophic effect on its business. In comparison, McDonald's is less exposed since the closure of a single store or even group of stores would not close the company's network of 30,000-plus outlets.

But the vulnerability map is changing. "The risks grow daily as global supply lines stretch, competition stiffens, customers become more demanding and political instability takes its toll around the world," Sheffi said. Companies can become resilient by creating flexible supply chains and ensuring that security is part of their corporate cultures.

The three-year project is funded by the Cambridge-MIT Institute.

A version of this article appeared in MIT Tech Talk on June 2, 2004 (download PDF).

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