How to build a resilient supply chain?
Figure 1. Supply Chain Resilience (Polarixpartner, n.d.)
In today’s complex business environment, companies have become more than ever vulnerable to supply chain disruptions. Therefore, supply chain resilience was introduced to allow companies to maintain short-term survival and long-term competitiveness. The definition of this concept will be explained at the beginning of this article, followed by strategies and case studies for establishing a resilient supply chain.
According to Tukamuhabwa et al. (2015), who have studied several research on this topic, supply chain resilience (SCR) is the adaptive capability of a supply chain to prepare for and respond to unexpected events, in order to make a timely and cost-effective recovery, and therefore progress to a post-disruption state of operations. In this time of volatility and competitiveness, SCR also should emphasize the ability to manage risk better than competitors do, and even gain sustainable competitive advantage from these disruptions.
There are several strategies to build SCR, but they are often categorized as proactive and reactive strategies. A proactive strategy tends to focus on the preparation and mitigation of disruptions. For example, companies encourage and facilitate cross-functional information sharing internally and externally. In other words, collaboration among different stakeholders in the supply chain has been proven to improve SCR by reducing uncertainty. Investment in information technology is indispensable to enhancing SCR. One of the most important IT aspects is supply chain visibility. This allows a company to see through its entire supply chain and make a timely and proactive forecast/recognition/warning of potential threats. Another example is to incorporate flexibility into an operation, including a flexible supply base, flexible transportation, flexible labor arrangements, etc. Transferring or sharing risks via outsourcing and offshoring is also a proactive strategy that stimulates a stronger collaboration with all SC partners to build SCR together. In addition, organizations should distribute power, so that individuals and teams are empowered to take action when needed. After experiencing those unexpected events, it’s recommended to establish a contingency strategy consolidating all lessons learned and creatively specifying measures to deal with reoccurring or potential events. Finally, Lean Six Sigma provides a method for the continuous process by squeezing out process variability to achieve as fewer defects as possible.
A reactive strategy is often the one responding to disruptions after these unexpected circumstances occurred. It could also be the case that some strategies are planned before a disruption, but they are expected to be applied in post-disruption. For instance, firms can choose a postponement strategy, which defers current demand to a future period. Besides, redundant suppliers may be selected before a crisis but will be only contracted afterward, to replace the affected supply network and continue operations. Redundancy can also involve spare capacity and inventory, resulting in avoiding delays and supply shortages. However, this strategy can be expensive and potentially vulnerable to building SCR.
Some real case studies illustrating how companies have improved their SCR are:
- The classic case of SCR – The Albuquerque fire: In 2000, a fire fit Philips’ semiconductor plant, which was the key supplier to Nokia and Ericsson at that time. Nokia actively moved to tie up spare capacity at other Philips plants and other suppliers they could find. Furthermore, they re-engineered some of their phones which could incorporate chips from Japanese and American suppliers. Meanwhile, Ericsson accepted and settled down for the loss.
- The Aisin fire: In 1997, a fire destroyed Aisin Seiki’s Kariya plant, Toyota’s sole source of P-valves. This event threatened to suspend Toyota operations for weeks. Because Toyota and Aisin’s strategy is just-in-time production, only two or three days of stock was on hand. Nevertheless, its factories started up again five days after the fire. The secret of this success lies in the close relationships between Toyota and its parts suppliers. Many local suppliers rushed to take blueprints for the P-valve, improve tooling systems, and set up production lines.
- Thanks to supply chain visibility, Cisco was able to trace its customers and fulfill 118 customer inquiries within 24 hours after the Japanese earthquake and tsunami in 2011 (Saenz & Revilla, 2014).
- Intel built semiconductor fabrication factories with the same layouts for machinery and production processes. In case of a specific facility suspension, the company can easily switch to another production site. Similarly, Somic, which makes all of Toyota’s steering linkages, revamped its system so it could easily shift to another site in case of disaster.
- Dell employees have continuous access to a wide variety of data, in which they will immediately know products’ status when a crisis takes place.
- UPS tests its recovery processes daily because of regular disruptions, which are subject to a carrier operation – adverse weather, traffic congestions, etc.
In conclusion, no sure way exists for overcoming all these disruptions and risks. Regardless of that fact, there are multiple strategies for organizations to prevent disruptions and prepare for unexpected threats. It’s essential to note that a supply chain recovers from a disruption to the same or better state than before, at a reasonable cost.
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Tukamuhabwa et al. (2015) Supply chain resilience: definition, review and theoretical foundations for further study.
European Parliamentary Research Service, (2021) Resilience of global supply chains.
Pettit et al., (2010) Ensuring Supply Chain Resilience: Development of A Conceptual Framework.
Series Supply Chain Resilience