We live in an unpredictable and changing world; numerous events occur each day that threatens to disrupt operations and jeopardise the ability to perform effectively and efficiently. Supply Chain plays an increasingly more important role within organisations. Natural disasters, industrial disputes and terrorism have all resulted in serious disruptions to Supply Chain activities.
One approach to dealing with disruptions is the development of Supply ChainResilience. It is the process of adapting well in the face of adversity, trauma, tragedy, threats or significant sources of stress. It means "bouncing back" from difficult experiences. Resilience is at the heart of current Supply Chain management
The key elements of Supply Chain Resilience and the relationships among them, the links between risks and implications for supply chain management, and the methodologies for managing these key issues are poorly understood.
Disrupting event and Risk - A number of concurrent trends have contributed to the fragility that some observers believe now characterises the vulnerability of many supply chains: Quite apart from the external challenges to supply chain continuity are those possible sources of risk that are internal to the Supply Chain.
Disruptive events include natural and man-made disasters such as equipment failures, fires, labour disputes, supplier defaults, political instability, and terrorist attacks, outsourcing, globalisation and volatility in the trading environment, natural disasters, civil war, theft, power outages, monsoon rains, flooding, and terrorismhave all resulted in serious disruptions to Supply Chain activities. Meteorological and geological susceptibilities are identifiable, though exactly when and where disruptive events occur is less predictable. Finally, a pathological phenomenon is perhaps the most difficult to predict of all, and potentially the most disruptive, because they are mobile. Threats of this kind, whether foot and mouth disease or the man-made computer viruses, highlight how efficient consolidated seamless distribution and information systems can become victims of their own success.
Nowadays companies often choose to buy-in goods and services they would have once provided in-house. They do so in order to concentrate on core competencies, improve financial performance, and reduce the risk to their business of cost related competitive disadvantage. But this and other practices can open the door to unrecognised consequential risks. The disadvantage of course is that should a disruption to supply occur, instead of affecting one product line, it may affect all.
Supply Chain disruptions have adverse effects on both revenue and costs. Resilientsupply chains incorporate event readiness, are capable of providing an efficient response, and often are capable of recovering to their original state or even better post the disruptive event.
Each can have devastating effects on a firm; not only can Supply Chain disruptions affect operations; they often result in financial damage well beyond the immediate operational impacts. In these situations ‘business as usual’ is often not an option.
To mitigate supply chain risk, companies need to take four steps to develop a Resilienceframework: (1) anticipate risks, (2) assess risks, (3) act against the risks, and (4) designate a business continuity coordinator.
Designing a Supply Chain Resilience framework - A number of principles have emerged which should be considered when re- engineering supply chains to improve Resilience:
- A fundamental pre-requisite for improved Supply Chain Resilience is an understanding of the network that connects the business to its suppliers and their suppliers and to its downstream customers.
- Risk considerations should influence the Supply Chain design and structure (i.e. supply chain re- engineering)
- Risk management should be based on a high level of Supply Chain visibility, process alignment and understanding/cooperation amongst all supply chain partners.
- The creation of a risk management culture in the organisation based on clear performance requirements and lines of communication between all Supply Chain organisations will enhance Supply Chain Resilience.
- Collaborative Planning - this requires a high level of trust and cooperationbetween adjacent organisations. In short, it is an approach that aspires to a seamless flow of information and materials, facilitated by all supply chain partners thinking and acting as one. Information and risk will be shared selflessly for the good of all.
- Choose Supply Chain strategies that keep several options open. This may not be the lowest cost course of action but may be the lowest risk.
- The need of real visibility of processes among suppliers or immediate customers is the ability of all members of the supply chain to see from one end of the pipeline to the other.
- Agility can be defined as the ability to respond rapidly to unpredictable changes. A key to agile response is the presence of agile partners upstream and downstream of the focal firm. Two key ingredients of agility are: •Visibility and •Velocity, referring to ‘end-to-end’ pipeline time.
- Collaborative planning with customers is important The multi-level framework outlined above breaks down the problem of supply chain vulnerability into its constituent parts, nevertheless, it should be born in mind that when an event occurs it may impact at several levels
Two important characteristics of a Supply Chain Resilience are - Resistance capacity or the ability to minimise the impact of a disruption by evading it entirely or by minimising the time between disruption onset and the start of a recovery from that disruption (containment). Recovery capacity or the ability of a system to return to functionalityonce a disruption has occurred, characterized by a brief stabilisation phase after which a return to a steady state of performance can be pursued. This completes a Supply Chain Resilience cycle of: Avoidance ➝ Containment ➝ Stabilisation ➝ Return ➝ Review ➝ Avoidance.
Risk exists so firms have to deal with the possibilities of encountering situations that can adversely affect them. However, past experience offers some insight regarding what events could occur, the probability of occurrence, and the impact. Firms can predict the likelihood of these events over a set time period. Events with a greater likelihood and significant potential impact require greater preparation. In contrast, uncertaintyconsiders unpredictable events. Under conditions of uncertainty, the best approach to building Resilience may be to invest in the capacity to recover from an unpredictable disruption.
Investing in Supply Chain Resilience - When faced primarily by risk, it makes sense to invest in improving resistance; when dealing with uncertainty, it is more appropriate to invest in improving recovery capabilities. Managers can make investments in Supply Chain Resilience through multiple venues in ways that are both appropriate to the risks a firm wants to mitigate and that make sense to the parties involved. The result is that Resilience is now becoming a Supply Chain property that Supply Chain managers can shape and influence.
So what are you doing to build resilience, to maintain resilience and avoid the unexpected (where possible)?
Dave Food