Supply chains and terrorism

On the morning of September 11, 2001 the United States and the Western world entered a new era – one in which indiscriminate terrorist acts of all kinds must be expected. Many, if not most, of the expected consequences of the new era will be reflected in supply chain management challenges: relations with suppliers and customers, transportation difficulties and revised inventory management strategies. This article looks at the twin corporate challenges of preparing for new terrorist attacks, and of operating under heightened security resulting in less reliable lead times and less certain demand scenarios. In addition it looks at how companies should organize to meet those challenges efficiently and the new role that public-private partnerships are likely to play. To prepare for terrorist attacks, firms should revise their inventory management posture and keep strategic inventory on hand. This does not mean that they should abandon just-in-time principles since JIT brought about better quality, higher accountability and better productivity, in addition to reduction in inventory carrying cots. Instead, firms should manage the strategic inventory in a JIT fashion. Similarly, firms should not abandon offshore procurement. Instead, they should organize to run dual procurement systems where the bulk of the material is bought from inexpensive and innovative offshore suppliers, and at the same time, a portion of the business is given to a local supplier who can pick up the slack in case an attack disrupts transportation lanes. Both of these examples can be analyzed in the context of real options where the dual supplier or the extra inventory buys the firm the ability to continue manufacturing after an attack. To keep operating in an environment where security measures mean less reliable lead times, supply chain managers should focus on methods that they have always used to deal with uncertain supply chain. These include investments in better visibility measures, configuration of manufacturing systems for postponement and make -to-order, and the use of risk pooling strategies. In preparation for another attack and as part of the effort to foil it, companies should redesign their systems with security in mind. Thus this article calls for the establishment of a Chief Security Officer and for the creating of a security culture similar to the sales culture of the 1970-s and the quality culture of the 1980-s and 1990-s. In addition the article calls for a public-private partnership focused on sharing data and knowledge at all levels.