By Karen E. Thuermer, AJOTAs if economic conditions have not been challenging enough this year for manufacturers, suppliers and transportation providers, then came along the Sendai earthquake and tsunami in Japan and later the excessive flooding in Thailand. We’ve all heard the news about how the 8.9 magnitude earthquake and ensuing tsunami destroyed infrastructure and knocked out factories supplying everything from high-tech components to steel. The disaster, which also included a nuclear meltdown, forced firms, including Toyota and Sony, to suspend production. General Motors became the first U.S. automaker to close a factory because of the crisis in Japan. As a result, the company had to idle a Shreveport, La., point that builds small pickup trucks. Seven months later, flooding in Thailand caused further disruptions that were especially felt by the auto and computer industry. Many of the largest hard-drive manufacturers in the world are located in Thailand. With massive amounts of water filling these facilities, hard-drive producers around the world experienced missed deadlines and an increase in costs. Countless other examples abound where natural disasters, geopolitical events, product recalls, system failures, fires, strikes, even global warming have impacted supply chains. Millions of dollars of lost revenue have resulted from the impact of supply chain failures. The Sendai, Japan disaster losses totals in the billions of dollars. Jim Rice, Jr., deputy director at the Massachusetts Institute of Technology (MIT) Center for Transportation and Logistics (CTL) in Cambridge, MA, has been studying the issue. He purports that no supply chain is an island and, therefore, companies cannot isolate their supply chain to protect it from every disruption. He does not regard these events as isolated occurrences, but warns that what might be deemed low probability disruptions, in fact, occur every day. Remember the longshoreman strike at California’s seaports in 2002? “It doesn’t really matter how you lose capacity,” he told this AJOT reporter in a recent telephone interview. “It’s gone. Expect disruptions and be prepared for them. I think companies set themselves up by not having a backup plan for a capacity loss.” In fact, one critical mistake many companies make is thinking about creating a plan after the fact. “They need to think about their most critical suppliers and, potentially, their Tier 2 and Tier 3 suppliers before disaster strikers,” Rice added. . “If you start looking for backup supply after the disruptions hits, it’s too late.” That’s because supply chains today are not only global. They are highly complex, and consequently vulnerable. Many entail tens to hundreds of parties. “Unfortunately, most companies are only aware of their Tier 1 suppliers covered, and barely know who their Tier 2 suppliers are.” Consider this scenario: Because of the Sendai earthquake and resulting tsunami, a Hitachi automotive plant that had produced a $2 sensor that was part of a $90 airflow sensor used in engines had to be closed. As a result, a General Motors engine plant in New York ran short of parts and, downstream, GM vehicle assembly plants in Europe and the United States had to be shut down. What also happen when a crisis hits is companies scramble to be first to maintain their supply chain so that they have capacity available before their competitors get it. “There are tons of stories where companies did not know they had a problem, and then when confronted, found their capacity was all tied up,” he said. Companies that operate in a just-in-time (JIT) environment particularly feel the immediate stress of a halted supply chain. “They have to shut their operations down,” Rice remarked. “This is the risk they take in having a tightly integrated supply chain. But the issue goes beyond the primary impact. Disasters of all kinds can have a secondary impact whereby downstream customers suffer a loss of supply from primary impacts cau