In the wake of the COVID-19 pandemic there was one concept that kept surfacing among supply chain experts: resilience.
EY urged companies to increase agility and build resilience to exit the crisis stronger than before, and BakerMackenzie argued that supply chain resilience was the key to recovery. PWC urged their clients to rethink current supply chain resilience and reconfigure operations for the future and McKinsey explained that, in the post-COVID-19 world, building flexibility and resilience has gone from one priority among many to business-critical.
But what disrupts supply chains? What does it mean to be resilient? And how can supply chains improve their resiliency?
Though modern industrial supply chains are among some of the most complex operational systems on Earth, the answers to these questions are rather more straightforward.
Disruptive Challenges to Supply Chain Resilience
There is no limit to the individual disruptions that might put pressure on a supply chain, yet all fall into one of two broad types.
First, there are risks. Risks are disruptions that can be discerned from past experience. The disruptive power of a risk can usually be quantified, as can the probability of its occurrence and the likely impact on the supply chain in terms of recovery time and effort.
A machine breakdown is a risk as is employee absenteeism or a factory strike. Seasonal shifts in weather and logistic chain breakdowns are risks, as would be a failure of a key supplier. If it has happened before and if that previous experience can be assessed and quantified then this disruption can be classed as a risk.
Then there are uncertainties. These are the disruptions that can’t be quantified from history because there is likely no historical parallel to draw on. Perhaps the event is unique or, where it has occurred in the past, the context is so different as to make it impossible to predict the impact.
The Fukushima nuclear accident, for example, was not the first nuclear accident but it was impossible Japanese planners to prepare effective recovery plans for such a disruption. While there were recovery plans in place for a large earthquake, a large tsunami, a power failure or a containment failure, it was never predicted that all four of these challenges would be faced simultaneously.
More recently, the COVID-19 pandemic and its economic impacts on business generally, and supply chains specifically, present another example of an uncertainty. It might not be avoided, and its impacts would be real and significant, but this did not mean that supply chains could not be more resilient in the face of such a global disruption.
At a foundational level, supply chain resilience can be expressed as a simple equation:
Resistance is the capacity of a system to delay a disruption and, when the disruption does arrive, to minimize the impact of that disruption on the system as a whole. Sometimes referred to as ‘robustness’, a system’s resistance is concerned primarily with risk and risk management.
Recovery, on the other hand, is the capacity of a system to recover from a disruption. Unlike the risk-focused resistance, recovery is focused on uncertainty and effectively managing the response to that uncertainty in order to return to a pre-disruption status quo.
Systemic supply chain resilience, then, can be improved by focusing on either resistance or recovery, or both.
In the supply chain world, there is no such thing as an absolutely resilient system. There is no supply chain that is entirely resistant to all risk nor one that can recover from every disruption. It is, after all, impossible to predict every future disruption and preparing for every possible disruption would require guarding against an infinite array of challenges.
Building resilience, then, means investing in both resistance to risk and recovery from uncertainty.
Supply Chain Resilience: Operations, Tactics, and Strategy
Supply chain resilience can be improved in the short-term, the mid-term, and the long-term.
Put another way, supply chain managers can invest in both resistance and recovery at the operational level, the tactical level, and the strategic level.
For example, proactive monitoring of a supply chain can help improve recovery at the short-term or operational level, while improving flexibility can lift both resistance and recovery capacity at the same level.
In the mid-term, effective risk assessment programs can aid resistance and recovery, and preparedness can aid recovery efforts by testing contingency plans well in advance of a disruption.
Thinking long-term, the agile design of a resilience program can aid in addressing both risk and uncertainty. Decoupling and buffering, too, can improve resistance to risk and contribute to building a more resilient system overall.
No matter the planning horizon, improving overall supply chain resilience by concurrently focusing on resistance and recovery offers supply chain managers the best chance of responding to everything from the predictable downtime of a delayed delivery to the unpredictable impacts of a global health crisis.
In the next article in this series we’ll dive deeper into the different sorts of disruptions that a supply chain resilience hardening program can prepare for.