Hi, my name is Alexa and I am a chocoholic. It’s been less than a day since my last indulgence. There’s no two ways about it. When it comes to the cocoa-laden confectionery, I’m hooked. It doesn’t matter if it’s milk, dark or white. Anything with even a hint of chocolatey goodness will suffice – and sadly for my waist line, one little taste is never enough. What’s even more unfortunate than the effect on my figure is that it’s about to get a whole lot more difficult to feed my addiction thanks to a lack of insight into supply chain risk. The Wall Street Journal (WSJ) recently posted an article about the huge shortfall in the cocoa crop in Ghana. Dry weather coupled with the late application of vital pesticides to cocoa trees has caused the crop to shrink significantly, and sparked fears growers may not be able to deliver enough cocoa to fulfill their contracts. That means manufacturers will likely be scrambling to find enough cocoa to satisfy their chocolate producing needs. Skyrocketing prices aside, this latest news is enough to send any chocolate lover to the store to stock up, and really puts the spotlight on a major supply chain risk in the $7 billion cocoa-futures market. As the WSJ points out, there is a drastic over reliance on the Ivory Coast and Ghana when it comes to the global cocoa supply chain. Together they account for more than half of the world’s cocoa supplies! With that much of the world’s supply coming from one region, it’s no wonder the price and availability of chocolate fluctuates as wildly as it does. Natural disasters, poor growing conditions, pandemics, war, political and social unrest, terrorism and accidents can all have huge consequences on supply chains relying on either a single supplier, or suppliers who are all in the same geographic region. So my plea to all you supply chain managers our there is this. Know your supply chain risks and have a plan of action! The current situation in Ghana should serve as just another reminder that there is inherent risk in putting all of your chocolate chips in a single bag. This chocolate crisis is far from the only case of consumers paying the price, literally and in terms of a lack of product availability, when the unexpected strikes. My colleague John Westerveld has previously written about the subject of supply chain risk, outlining how massive flooding in Thailand in 2011 had a large-scale impact on the manufacturing of hard drives. And it’s not unusual for natural disasters to be among the largest supply chain disruptions each year. An article by Supply Management points out three of the top five supply chain disruptions for 2014 were due to a natural disaster. The five worst disruptions of 2014 (estimated revenue impact, and time needed to recover)
- Typhoon Halong, south east Asia ($10+ billion, 41 weeks)
- Severe flooding, Long Island, New York, US ($4+ billion, 38 weeks)
- Typhoon Rammasun, south east Asia ($1.5+ billion, 38 weeks)
- Gas explosions, Kaoshing, Taiwan ($900+ million, 26 weeks)
- Hazardous chemical spill, Arizona, US ($900+ million, 10 weeks)
That’s why John’s blog points out the importance of having a supply chain risk management strategy in place for just such an unexpected and uncontrollable event. That strategy needs to take into account how your supply chain will handle unpredictable occurrences. Do you have another supplier who can fulfill your needs? Do you have a way to quickly alert others within your organization to any potential order delays or shortfalls? Do you have a way to easily run ‘what-if’ scenarios to determine which course of action will have the smallest overall impact?