"Supply chains compete, not companies"

"Supply chains compete, not companies"

Creating the Resilient Supply Chain

Supply chains in almost every industry have become more vulnerable to disruption.  Sometimes these disruptions are caused by unexpected events such as earthquakes, floods or volcanic ash clouds.  Often however they are systemic in nature, in other words disruptions occur because of a failure in the supply/demand system e.g. a supplier problem, bottlenecks in production, process variability and so on.

Because even the best managed supply chains will hit unexpected turbulence or be affected by events that are impossible to forecast, it is critical that resilience be built into them.  Resilience implies the ability of a system to return to its original or desired state after being disturbed.  Resilient processes are flexible and agile and able to change quickly.

Interestingly, one of the reasons why supply chains are more vulnerable today is because of the tendency for organisations to focus on cost rather than flexibility when it comes to supply chain design.  Examples of this cost focus include the move to off-shore manufacturing, the ‘leaning‘ down of operations and the out-sourcing of activities that used to be performed in-house.  One of the unintended consequences of these trends has been the potential for loss of control of the end-to-end supply chain.  Thus it can be argued that today’s extended supply/demand networks require a higher level of control and co-ordination than was ever the case in the past.  Control implies not only the ability to act when things go wrong but also the ability to see what is happening in as close to real-time as possible – which in itself requires enhanced supply chain visibility.  Sharing information with upstream and downstream partners is a pre-requisite for building a resilient supply chain and this implies a much higher level of collaborative working between network partners.

Perhaps one of the most powerful ways in which enhanced supply chain resilience can be achieved is through structural flexibility.  Structural flexibility reflects the ability of a supply chain to adapt or reconfigure its architecture in response to major changes on the demand side or the supply side of a network.  The key to structural flexibility is the adoption of a supply chain design philosophy which recognises that the best decisions in a turbulent and uncertain world are often those decisions which keep the most options open. Those sorts of decisions will probably not produce the lowest cost solutions but they should ensure that the supply chain is capable of changing as conditions change.

One of the implications of this philosophy is that the ownership of supply chain assets e.g. factories, distribution centres, inventory etc. might actually limit flexibility and instead there could be a benefit in seeking to negotiate agreements to access assets owned by others.  Sometimes this could involve sharing those assets, sometimes leasing or renting them.  Thus greater flexibility might be achieved if the firm has the ability (i.e. an option) to draw on inventories that may not be pre-purchased, to move them through distribution centres which it does not own and to manufacture or assemble products in factories owned and managed by contract manufacturers.

In a sense it is the ability to turn the ‘tap’ on or off quickly which provides the key to supply chain resilience.  Organisations that are able to adapt more quickly to changed circumstances are the ones most likely to thrive in turbulent times. 
In the words of Charles Darwin:

It is not the strongest of the species that survive nor the most intelligent, but the one most responsive to change

Further information:

Two seminal reports on supply chain risk and resilience can be downloaded at: