MIT Tool Helps Assess Weak Link in Supply Chains

Massachusetts Institute of Technology researchers are building a tool that will help companies visualize and assess the vulnerability to their supply chains in the event of a catastrophe.

Companies are grappling with increasingly far flung networks of suppliers and manufacturers. At the same time, many companies have reduced the number of backup suppliers, in order to cut costs, said Thomas Dinges, an analyst at the research firm IHS Inc. This means that losing a single supplier can cause millions in lost revenue. Even worse, a natural disaster or political unrest can wipe out manufacturing in a critical regional supply hub. For example, the 2011 Japan earthquake and tsunami exposed the connection between certain regions in Japan and the dizzying array of manufacturers, including some quite small suppliers, responsible for critical auto and electronics components. The dual disasters caused shortages for automakers and electronics companies felt worldwide.

Reacting to the disruptions can take companies weeks as they untangle how the disruption from a supplier, that might be one among a network of hundreds, affects a product line, said Bruce Arntzen, a senior research director at MIT's supply chain management program. “When a disaster happens, we want companies to instantly see a map of the potential impacts and how they might be mitigated,” Mr. Arntzen said.

The new MIT system will allow companies to view a global map of supplier locations. And the tool will assign a dollar amount to the damage if a calamity took them offline, Mr. Arntzen said. Companies will feed product and supplier data, such as which parts come from which plant, into the new platform from existing logistics databases. Companies will also input the value of revenue from each product line. That data will feed into a Web-based platform built by Cambridge, Massachusetts -based data visualization company, Sourcemap Inc.

For each supplier, Sourcemap will then display the amount of revenue the company would stand to lose if that partner was taken offline. To calculate the revenue at risk with each supplier, the system will account for the number of days it would take to find a new partner and how long existing inventory will last.

Mr. Arntzen says parts of his team’s system, sponsored by Procter & Gamble Co. together with Church & Dwight Co., will be available commercially in six months.

Beyond alerting executives to the fragility of a supply chain before a disaster happens, the system will also help companies more quickly react as a disruption occurs. The platform will pull in real-time feeds from news events and alert company executives on the potential impact to a supply chain as a disaster or political event unfolds. The software will then help business leaders determine alternate supply networks. “We want companies to know the recovery time from the beginning. If they can replace a supplier in two days it might not be a big deal,” Mr. Arntzen said. “If it takes a year it’s very bad.”

The team’s biggest obstacle is finding a way to automatically feed in critical pieces of information not included in most corporate databases, Mr. Arntzen said. For example, while logistics databases usually include the corporate headquarters of suppliers, they often don’t have the physical address of plants, Mr. Arntzen said. And if companies have to continually enter the data manually, the system will lose much of its utility. “If you have to take two weeks to call a bunch of people, it defeats the whole purpose,” Mr. Arntzen said. “Most data we can get automatically from corporate database but we’re trying to pull some in that the systems weren’t designed to capture.”