[Editors] MIT studies terrorism's impact on supply chain

[MIT News Office]

MIT News Office
Massachusetts Institute of Technology
Room 11-400
77 Massachusetts Avenue
Cambridge, MA  02139-4307
Phone: 617-253-2700
http://web.mit.edu/newsoffice/www

======================================
MIT studies terrorism's impact on supply chain
======================================

For Immediate Release
WEDNESDAY, MAY 26, 2004
Contact: Ken Cottrill
Phone: 617-253-2082
Email: kencott at mit.edu

CAMBRIDGE, Mass.--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.

--END--