Supply Chain Resiliency: Beyond the Buzzwords
Resiliency has become an overused buzzword. Every field seems to have their own need to talk about being resilient. In the last week alone, I talked with my mom about new resilient energy grid technologies, reviewed proposals from cities looking to be more resilient to a changing climate with my wife, and spoke with fellow parents about how best to ensure the resiliency of our children as they grow up.
So what does resiliency mean from a supply chain perspective? And if it’s an overused buzzword, do I need to understand it?
The most common definition of resiliency as it pertains to supply chain is how quickly a supply chain can bounce back from a disturbance. Personally, I see it as the intersection of reliability and risk management. Rather than estimate the risks that could happen and the likelihood of their occurrence, as is common in risk management, resiliency is more event agnostic, looking at designing and operating a supply chain that can bend without breaking. Risks can come from a wide variety of external sources that are inherently difficult to quantify – extreme weather, political unrest and supplier performance but also internal processes may lead to incomputable risks, such as a lack of communication between different functional groups.
I would have said all businesses have some type of supply chain disruptions every year, but a survey by the Business Continuity Institute reported that three-fourths of businesses experienced at least one in the past 12 months. Still, pretty likely. What’s more eye-opening is that one in seven businesses reported losses of over one millions dollars in the same time period. Learning how to prevent those losses is worth a deeper look.
Proactive and Reactive Considerations
There are, in effect, two ways to improve the resiliency of your supply chain: proactively and reactively.
- Proactive – Design the supply chain to effectively balance efficiency and redundancy
- Reactive – Possess the ability to respond quickly and comprehensively in case of a disturbance
Like in most everything in life, we’d much rather be proactive than reactive, but when building in resiliency, it is important to understand both approaches.
Proactive resiliency planning includes understanding where to strategically place inventory and the available capacity at different suppliers, facilities and work-centers. In addition, working to improve data quality and speed to decision makers, along with communication within the company and to partners, is critical. While the next blog will talk about this in more detail, understanding the resiliency of your network requires integration of disparate data sources to allow visibility into the daily operations, access to good forecasts and the ability to test alternative network designs.
All of this information and communication builds the foundation to respond with confidence when disturbances happen. However, to react effectively, companies need a system for crisis management that alerts the necessary people when operations may be impacted.
As you can see, these two approaches to resiliency are complementary. In order to be able to react effectively it is necessary to have proactive visibility into the business and its connections to other businesses. And, further meshing the two, either using models to build contingency plans for the most critical sites or using rapid analytics at the onset of the event allows for quick and seamless responses, reducing impact on the wider business. Some of the examples detailed above fall squarely within the field of supply chain design, while others are simply good management practices for any business.
In supply chain design there has been a strong focus on building optimized supply chains, but it is important to ensure that the design does not overly constrain the network in times of crisis. In the second part of this blog series, we will explore this topic in more detail.
So what is this ideal state of supply chain nirvana that consultants and gurus talk about, allowing a company to respond to disruptions with ease and without compromising profitability? Can it be achieved while operating in the real world, or, similar to a person’s quest for mindfulness or enlightenment, only found in a secluded Himalayan cave?
In practice I don’t believe there is any way to have a perfectly resilient network that never misses an order and still returns a profit to investors. However, this pursuit of resiliency enlightenment, whether mentally or within your supply chain, will in and of itself improve your day to day operations and your ability to weather the storm.
To learn more about how LLamasoft tackles supply chain resiliency check out our Bulletin: Using Modeling and Analytics to Design a Resilient Supply Chain.