What business has never faced a supply disruption?
What enterprise has never had a machine downtime? Has never had a shortage to manage?
Who has never tried to forecast customer demand?
Who has never tried to improve the reliability of production equipment?
What if all these activities were in vain?
How can we go from a defensive mode of managing our supply chains cruelly?
Many questions for as many supply chain managers looking for the holy grail of the perfect supply chain.
But our supply chains appear ever more vulnerable and fragile; in a context marked by tremendous competitive pressure, volatile demand, a trend towards economies of scale, and outsourcing.
In our extended supply chains, increasing operational complexity pushes companies to consider new vulnerabilities and new risks; amplified by interactions in the supply chain network.
And finally, wouldn’t the ultimate question be whether we can create more resilient supply chains?
Let us take the time to go back to the origins of the word resilience. And discuss the notion of resilience from several disciplines.
The Latin word “resalire”, which is the origin of “resilience,” is made from the verb “salire”, which means “to jump”, and the prefix “re” which indicates movement backward.
In the Middle Ages, the meaning of the word is; to retract, to extricate oneself from a contract by a sort of leap back.
In the 17th century, this word retained from the jump the idea of the reaction after a shock: the rebound.
How to define resilience ?
• Ratio of absorbed kinetic energy required to cause the metal to break to the area section broke.
• Ability to live, to develop, overcoming traumatic shocks, adversity.
Resilience is studied by sociology as a human characteristic for surviving hardships, allowing people to absorb the “future shock”.
In psychology, resilience is a phenomenon of taking note of one’s trauma to no longer live in depression.
For management sciences, the concept of organizational resilience first emerges in crisis management; resilience defines as “the firm’s capacity to absorb, respond to, and capitalize on disruptions resulting from environmental changes.”
Back to basics:
Each break has a typical profile in terms of business performance. We measure this performance by turnover, margin, level of productivity, quality of service.
The following diagram demonstrates a dynamic response of the company after the disruption.
Shortage profile – Source: Sheffi et Rice, 2005
In this diagram, we see that the company goes through different phases that take some time before the performance return.
In a context of intensive competition, the company will benefit from a strong competitive advantage; to succeed in this return and reduce the delay.
This ability to rebound in the face of disruption is business resilience, particularly the resilience of the supply chain.
Seven keys for a resilient Supply Chain
1/ Planning matches demand
This alignment is a basic principle of designing a resilient supply chain.
A logistics chain must be sized and driven by actual customer demand.
It will always be necessary to favor a logic of drawn flows; rather than flows driven by forecast needs (moreover, always false).
2/ Parallel or alternative paths
Bypassing the shortages will always be more feasible if we have alternative paths.
Typical examples; multiple sourcing, multiple logistics channels to deliver customers, outsourcing an operation to different subcontractors.
Parts of the chain are affected by a breakdown; the organization will have possibilities and alternatives to break the deadlock.
3/ Shorter Chains
With partnerships limited in quantity and superior quality, and smaller geographical distances, a short-chain leads to lower transport costs and shortens suppliers’ delivery time.
Besides, the company benefits from flexibility and better fault detection.
4/ A reliable network
In a networked supply chain, the weak links do not result from the growing number of actors, but rather from the complicated way they are organized.
We introduce a simple calculation to show the reliability of the structure of the chain or network.
The following diagram shows us a method of calculating the reliability of the combined elements.
5/ Redundancy capacity
The redundancy capacity is sometimes more critical than the superfluous physical inventory, particularly for the supply chain’s key links.
The principle is to have excess capacity that will be activated depending on the hazards encountered.
Agility means flexibility and efficiency in operations in the face of rapid changes in demand or supply.
The company’s agility links to the entire network.
Also, we will favor short cycles, reliable internal and external processes.
7/ Customer order decoupling point
“It is the point of the production process from which the specificities of the product are fixed, and as being the last point where inventory is maintained”.
From this point of view, customer demand drives the system and enables operations to manage; while reducing inventory’s overall supply chain level.
Today, we can found these generic characteristics of a resilient supply chain in specific flow management approaches.
As our supply chains become ever more complex and interdependent, the important thing is to “simplex” them and make them independent by “shock absorbers”.
Author: Philippe Bornert, CEO AGILEA Group