Supply Chain Resilience

Stephen DeAngelis

June 13, 2019

Evolution has demonstrated that the most important traits for survival are adaptability and resilience. It’s a lesson that must be continually learned, especially in the business world. Former IBM executive Irving Wladawsky-Berger writes, “The belief that efficiency is fundamental to competitive advantage has turned management into a science, taught in every business school on the planet, whose objective is the elimination of waste, whether of time, materials or capital. But an excessive focus on efficiency can produce startlingly negative effects. To counterbalance such potential negative effects, companies should pay just as much attention to a less appreciated source of competitive advantage: resilience.”[1] He continues, “In a fast changing, unpredictable economy, companies face a growing number of potential disruptions to their best laid strategies, including technology advances, global competition, and turbulent markets. … Biological systems have long been an inspiration in the study of complex systems. High resilience in the face of an uncertain, changing environment is the essence of evolutionary biology and natural selection. Similarly, business resilience, is fundamental for a company to withstand major disruptions and survive an unpredictable, turbulent future.” Even when a business recognizes the importance of resilience, MIT supply chain researcher Jorge García Castillo asserts knowing how to achieve resilience is challenging. He writes, “Although every company wants to be resilient, there is no clear path to allocating the resources required to become a more resilient organization.”[2]

Prioritizing investments in resilience

Castillo notes, “There are techniques to assess the value of investments in resilience such as Net Present Value analysis, but they do not include the variability of future outcomes. This variability factor is important, because it can have a big impact on revenues.” I have always believed organizations need to take a holistic approach to enterprise resilience management. To that end, one of the earliest efforts undertaken by Enterra Solutions® involved the proprietary Enterprise Resilience Management Methodology®. The methodology helps identify a business’ most essential assets so ways to protect them can be prioritized. John Caltabiano, Supply Chain Vice President at Jabil, believes no company can become resilient unless they evaluate four specific areas: people, processes, technology, and design.[3]

  • People. Caltabiano writes, “Companies need enough manpower to complete the work, but they also need skilled workers with the knowledge to help their employers tackle tough challenges. … Once you have the talent you need, structure your organization for success.” Companies also needs to recognize employees have gained important experiential knowledge (sometimes called tribal knowledge). When they depart, companies can lose that valuable knowledge if they haven’t captured it using cognitive technologies.
  • Processes. According to Caltabiano, “Employees do their best work when they are empowered by effective, robust processes. To manage component shortages and obsolescence and to increase supply chain resilience, companies need to bolster their processes.” He suggests focusing on forecasting, inventory, supplier relations, and market awareness. Cognitive technologies can help in each of those areas as well.
  • Technology. Caltabiano writes, “Technology can help organizations complete these processes more easily and accurately. For example, real-time analytics and decision support tools, including enterprise resources planning and electronic data interchange platforms, can help provide baseline data which, in turn, justifies investments in spend, supplier and commodity analyses. Together, these provide enriched data sets that can help managers better understand the dynamics of the procurement process; make decisions related to customer needs, production schedules, logistics and delivery requirements; anticipate upcoming challenges, including shortages and respond quickly to market shifts.”
  • Design. “Another market shift is happening in the design arena,” Caltabiano insists. “Priorities are changing, and engineers need to spend more time redesigning products and future-proofing when possible. This means there’s a need to update the parts selection process and evaluate components for current and future market availability. Engineers also must stay abreast of what parts gain legacy status and ensure they’re not included in new product designs. This is all part of making your supply chain more resilient.”

Castillo insists understanding possible outcomes when things go awry is important when deciding where to invest. He explains, “If you have data that represent the sources of disruption, it is possible to model and simulate the frequency and impact of these events. In the absence of this information, an option is to define multiple scenarios that represent your exposure to disruptions.”

Leveraging resilience strategies

Castillo isn’t alone in his belief that anticipating trouble is a key criteria for any resilience strategy. The staff at Thomas write, “Smart resilience strategies aim to anticipate, understand, and gain competitive advantage from disruptions. … Supply chain risks come in many different forms, from macro-environmental risk to extended value chain risks to operational or functional risks. All of these can result in significantly higher costs, and may even provide competitors with opportunities to gain the upper hand. Disruptions can also negatively impact other players downstream.”[4] They go on to note, “[The] Agency for Science, Technology and Research (A*STAR) … announced a new operations tool designed to measure ‘the ripple effects of supply chain disruptions.’ This sophisticated, multi-factor test ‘has the potential to dramatically improve decision-making in supplier management and lower financial risk across many sectors.'” One of the benefits of new cognitive technologies is that they can address complex problems and provide insights into the perturbative effects of potential disruptions.

In the digital age, one of the most important areas where resilience must be pursued is cybersecurity. As McKinsey analysts note, “Cyberattacks are costly, and they appear to be broadening in scope.”[5] They conclude, “Companies face the tough task of protecting their most important information, without making it so difficult to access that it slows down their operations. Achieving digital resilience requires the involvement of multiple stakeholder groups.” They recommend seven practices that can help increase a company’s resilience to cyberattacks: 1) Include cybersecurity in management and governance processes; 2) Prioritize information assets and related risks; 3) Strengthen cybersecurity protection for key assets; 4) Engage all employees; 5) Build security features into IT systems; 6) Use “active defenses” to stay ahead of attackers; and 7) Plan and test responses to cybersecurity incidents.

Concluding thoughts

Karan Girotra (@Girotrak), a professor at Cornell Tech, observes, “The increasingly global and complex nature of supply chains carries elevated risk of costly disruptions caused by a variety of unpredictable factors — natural disasters, industrial accidents, political shocks, etc.”[6] He believes not enough effort is put into making companies resilient on a daily basis, not just when disaster strikes. He explains, “While managers mostly worry about the prospect of big, sudden shutdowns, it’s the everyday snags — logjams at the local customs office, for example — that could end up costing the most in the end. Viewing disruption as a low-level constant spiking infrequently into outright disaster, rather than solely as a risk to be minimized, may lead to a different prescription for resilience.” Resilient companies are agile and adaptable and leverage cognitive technologies well-suited for the digital age. And, as noted at the beginning of this article, resiliency needs to be balanced with efficiency. “Resilience is the ability to recover from difficulties — to spring back into shape after a shock. Think of the difference between being adapted to an existing environment (which is what efficiency delivers) and being adaptable to changes in the environment,” writes Roger Martin, professor and former dean of the Rotman School of Management at the University of Toronto. “Resilient systems are typically characterized by the very features — diversity and redundancy, or slack — that efficiency seeks to destroy.”[7] One of Enterra’s early motto’s was: Be Resilient®. It remains good advice.

Footnotes
[1] Irving Wladawsky-Berger, “The Business Value of Resilience,” The Wall Street Journal, 15 February 2019.
[2] Jorge García Castillo, “Evaluating Investments in Resilience,” Supply Chain Management Review, 19 December 2018.
[3] John Caltabiano, “Four Pillars of a Supply Chain Resilience Strategy,” Jabil, 2019.
[4] Staff, “Multi-Factor Testing for Supply Chain Resilience,” Thomas, 29 November 2018.
[5] Aman Dhingra, Michael Gryseels, James Kaplan, and Harrison Lung, “Digital resilience: Seven practices in cybersecurity,” McKinsey Digital, 20 June 2018.
[6] Karan Girotra, “Rethinking Resilience in Global Supply Chains,” INSEAD Knowledge, 24 March 2017.
[7] Roger Martin, “The High Price of Efficiency,” Harvard Business Review, January-February 2019.