Resilience is not Free, but There is Opportunity for Competitive Advantage by Leveraging Data, New Report Says

Beefing up supply chain "resilience" has been a key theme for many years now, accelerating in both media attention and it appears corporate focus since the start of the global virus pandemic in ealy 2020.

SCDigest reported in July, for example, on Dr. David Simchi-Levi of MIT's recommendation that for critical goods such as pharmaceuticals, medical supplies and food, governments should establishing a "stress test" for supply chains that provide those critical products and services, something akin to the stress tests for banks that the US government and European Union instituted after the 2008 financial crisis. (See Stress Testing Supply Chains Key to Building Resilience."

Supply Chain Digest Says...   This data-driven performance contrasts with Lean supply chains that minimize cost but may be unable to effectively respond to and recover from unexpected and disruptive events. What do you say? Click here to send us your comments   Click here to see reader feedback

But there is still a lot of uncertainty about what resilience really means, how you know when you have enough of it – and when do companies hit the point of diminishing returns.

A recent column on the web site of the well-known think tank The Brookings Institute by Eleftherios Iakovou of Texas A&M and Chelsea White III of Georgia Tech shed some interesting insights into these issues, highlights of which we summarize here.

Over the past few decades, the report notes, most companies have adopted some form of Lean inventory strategies, while reliance on global suppliers has risen substantially. Global trade, in fact, jumped from 39% of world GDP to 58% between 1990 and 2019.

As a result of these two trends, companies were exposed "to a plethora of supply chain risks, such as extreme weather events, labor disputes, cyberattacks, and supplier disruptions."

The COVID-19 pandemic took supply chain disruption and variability in supply and demand to whole new levels.

What's more, the report says, the ongoing pandemic has "highlighted structural problems in global supply chains. Chinese manufacturing of essential medical goods and equipment has revealed what some regard as a dangerous over-reliance on products critical to national health and economies."

All told, the crisis "revealed the fragility of the modern supply chain and require a reset in the design of supply chain networks to improve resilience and agility" the report says. "Companies and governments alike are realizing that efficiency at the expense of resilience cannot be the sole criterion around which supply chains are designed."

The report says supply chain resilience can be defined by several attributes: the ability of a given supply chain to prepare for and adapt to unexpected events; to quickly adjust to sudden disruptive changes that negatively affect supply chain performance; to continue functioning during a disruption (sometimes referred to as "robustness"); and to recover quickly to its pre-disruption state or a more desirable state.

Enhanced multi-level supply chain visibility is critical, the report says, but not enough by itself. Rather, "to extract value from these data requires action to be taken quickly. Preparing for a disruption before it occurs (e.g., planning, scenario planning, war gaming) is key," it notes, adding, "It may take months to determine what data to collect and how to convert these data into actions for rapid disruption detection, response, and recovery."

The report also states that while there is has been increasing board-level focus on supply risk management in recent years, "this has not led to the broad adoption of supply chain risk management tools," because "A singular focus on operating margins and asset efficiency has resulted in sometimes brittle, Lean, and offshored supply chains."

(See More Below)

The authors note that adding inventory at all levels (raw material, work-in-progress, and finished goods) will improve resilience. So will adding manufacturing and/or storage capacity to improve manufacturing surge capability, and increasing the number and ensuring the surge capability of suppliers of key materials and components.

But such strategies are expensive in the here and now, which is why companies don't pursue them. However, the authors say, "competitive advantage will result if a firm's supply chain resilience and agility is identical to the competition's but at a lower cost."

How to accomplish that? The authors start by saying that new types of information and manufacturing technologies have the potential to boost resilience and productivity through real-time demand analysis. Such insight can be used to determine transshipment decisions of raw materials, work-in-progress, and finished products in order to ensure inventories are kept in balance.

The authors say 3D printing can also play a key role, allowing capacity to be more easily moved geographically.

The result, the authors say, can be "supply chain performance that blends the advantages of distributed supply chain systems (having inventory and/or manufacturing capacity close to demand to enable fast fulfillment) and centralized supply chain systems (to enable economies of scale, inventory and risk "pooling," reduced total safety inventory, and reduced total capital expenditures)."

This data-driven performance contrasts with Lean supply chains that minimize cost but may be unable to effectively respond to and recover from unexpected and disruptive events.

There is a key role in this for the government too, the report says, particularly for supply chains that are critical to U.S. health and economic security. This might include funding to map these critical supply chain at multiple levels of supply – a costly and timely exercise.

The report says following the earthquake and tsunami of 2011, it took a team of 100 people at a major global semiconductor maker more than one year to complete its own supply chain mapping exercise.

Will companies and the government really make these kinds of investments to improve resilience? The recent history would suggest otherwise, but perhaps the scope of the virus pandemic may turn out to be an inflection point.

The full report is available here: How to Build more Secure, Resilient, Next-Gen Supply Chains

Any reaction to these thoughts on Resilience? Let us know your thoughts at the Feedback section below.