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SCM Categories II - Resilience

Resilient Supply Chain

 

Disruptions within Supply Chain

Nowadays, organizations perceive Volatility as a systemic condition. They face with demand uncertainty, variability in orders, and maintaining inventory and with many disruptions at any time. When demand rises, organizations try to match it by increasing production or supplies. When demand slumps, they slow down processes to reduce cash outlays for network assets and inventory stocks. Risk events occur not only in the period of instability and often have unprecedented magnitude. The speed of changes is accelerating. During the period, when disruptions are taking place, the global supply chain is spreading impacts instantly among all the connected parties. Some of them may experience severe consequences caused by disruptions. Under these circumstances, the marketing, economic and financial results of organization are deteriorating.

Supply Chain is

the network of organisations that are involved, through upstream and downstream relationships, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer (Christopher, 2011).

According to Supply Chain Resilience Survey 2012 (Glendon, 2012) 87% respondents, who were asked whether they had known the sources of disruptive incidents in their supply chain over the last year, answered positively. They pointed that 61% of disruption had originated with the immediate supplier and 39% had originated with suppliers of previous echelons (tier two - 32%, three and more - 7%). Disruptions within supply chain have negative impacts, such as financial loss, cost increases, market share declines, customer defection and damage to the brand. Figure 1 shows the performance dynamics after a disruption occured in an organization with traditional practices (the scheme were made by Sheffi, 2005 and reproduced by Mensah et al., 2014).

Performance after disruption

Fig. 1. Performance dynamics after disruption

 

It should be noticed that the Survey by Business Continuity Institute declares yet another concept as we see - Business Continuity. It is the organizational ability to continue delivery of goods or services at acceptable predefined levels following a disruptive incident. So, if we are talking about management process aimed at business continuity, we are keeping in mind that it includes the identification of threats and impacts to business operations and the framework for making resilience. The outcome of the process is

an effective response that safeguards the interests of its key stakeholders, reputation, brand and value‐creating activities (Glendon, 2012)

Most risks to business continuity originates from the wider supply chain (Peck H. et al., 2003). Due to rapidly changing conditions for supply chain, new problem situations and disruptions against the background of intensifying competition among supply chains, not just among firms, "4Rs" principles emerged. These are responsiveness, reliability, resilience and relationships (Christopher, 2011).

C. Robinson mentioned the following about Resilience.

While gaining efficiencies and reducing costs will remain high on the list of priorities, analysing different levels of risk and building in Resiliency is the next frontier in supply chain management (Robinson, 2015)

 

Supply Chain Resilience

Supply chain evolving has been based on looking for efficiencies. The mainstream has elevated solving the problem of wastes, relying upon the shift to finite customer demand and implementation of "just-in-time" processes. However, there are many disruptions occur within the supply chain.

Acknowledged practices in supply chain management such, as "just in time", lean, sustainable and others may create highly efficient supply chains. Nevertheless, risk events and problem situations occur in these supply chains usually and adversely affect its performance. Hence, organizations are still in need for fast, lean and Resilient Supply Chain (Harrington, 2014). In this case, management should be based on the methods of performance improvement, cost reduction, and estimating rational and appropriate capabilities, capacities, assets and processes that is the Scalability of Operating Systems. Resilient processes and scalable operating systems are likely to be flexible and agile and might be modified quickly in response to environment's requests.

M. Christopher emphasized that resilient supply chain can cope with unexpected disturbances, "surge" effects and uncertain business environment (Christopher, 2011). The Accenture's and the World Economic Forum's report (Bhatia et. al, 2013) includes definitions of Resilience from some experts. It is the ability of a system (supply chain or operating system)

  • to reorganize and deliver its core function continually, despite the impact of external and or internal shocks to the system
  • to return to its original [or desired] state after being disturbed
  • to bounce back from large-scale disruptions
  • to be better positioned than competitors to deal with – and even gain advantage from – disruptions
  • to maintain output close to potential in the aftermath of shocks

A. Zolli clarified the meaning of resilience as system's ability (Zolli, 2012)

  • to maintain a core purpose
  • to restore core purpose in the face of a disruption

Let's supplement the set of definitions with the one formulated by C. Legnick-Hall and co-authors. They states that the resilience is the firm's ability

to effectively absorb, develop situation-specific responses to, and ultimately engage in transformative activities to capitalize on disruptive surprises that potentially threaten organization survival

There is another useful definition of Supply Chain Resilience given by Ponomarov and Holcomb and cited by Spiegler and co-authors (Speigler et al., 2015). They emphasized the adaptive ability of supply chain to prepare for unexpected events and respond to disruptions. The maintaining of operations continuity at least at an acceptable level, or better, at a desired level of connectedness and control over structure and function facilitates the recovering from these events.

 

What is required to make supply chain resilient?

The mentioned above report (Bhatia et. al, 2013) cites Gary S.  Lynch (Managing Director and Global Leader, Marsh Risk Consulting, Marsh), which said that optimising resilience and efficiency requires

discipline, analytics, decision modelling, and the involvement of a broad cross-section of business, technology, and operation leaders both inside and outside the organisation

Also it requires decision tools for supply chain risk assessment, monitoring, data analysis, and modelling supply chain's processes.

In addition, there is one more still relevant report's thesis. Foremost, after the investigation of dynamic operations Accenture has recommended certain Organizational Capabilities, which can make supply chains more resilient to potential disruptions (Bhatia et. al, 2013).

  1. Supply chain operators should be able to synthesize external and internal data and rapidly take action to minimize the impact of a disruption
  2. Supply chain structures should be adaptable and agile so that they can quickly adjust and respond to the market and economic conditions

Thus, by making supply chain resilient organizations may avoid disruptions and furthermore contribute in reaching competitive advantages. Intention to improve supply chain in the context of its resilience engages managers into the logically ordered set of tasks. Primarily, they should understand the supply chain, its structure, patterns, strategy and business drivers in an industry sector. The external and internal phenomena across supply chain is nonlinear in the reality. That is why understanding of supply chain dynamics is difficult. Despite this managers should get the undestanding and find out how to improve the supply chain. It is necessary to have adequate ways how to align processes. There is need to examine such risks to business disruptions, as supply, demand, assets, process and value stream, control and environmental risks (Christopher, 2011; Glendon, 2012).

Managers must form supply chain community and collaborate on gathering and exchanging information to get greater visibility of processes, capabilities and risks. The community generates and shares knowledge and provides putting it into practice of participants cohesively. The term "Supply Chain Intelligence" denotes this process.

The Excel's report by Lisa Harrington (Harrington, 2014) highlights other assumptions about what help build resilient supply chain. The community has to account for systemic risk since supply chain is economic agent too and its activities and events might increase volatility and destabilize the processes of organizations. The period between the moment when an event occurs and the moment when managers recognize it must be minimal.

These statements along with other requirements causes creating a wholly new model of supply chain efficiency. Such model is based largely on "Contingent Scale" than on traditional economies of scale and scope. The first one means the ability of organization(s) to scale capacity and throughput up or down. It can enlarge or reduce assets and to speed up or slow down processes in accordance with demand fluctuations. This is important out of the plinciple of quick responce to disruption. There is also the need for a new model of managing the activities, flows and processes among the assumptions about creating and supporting resilient supply chain. The new models take into account possible conditions for returning to stable mode of operations or finding a new one.

References

  1. Bhatia, G., Lane, C., Wain, A. et. al. (2013) Building Resilience in Supply Chains: An Initiative of the Risk Response Network. World Economic Forum, Accenture, 42p.
  2. Christopher, M. (2011) Logistics and Supply Chain Management. Pearson Education Limited, FT Press, 288 p.
  3. Glendon, L. (2012) Supply Chain Resilience 2012. 4th Annual Survey. The Business Continuity Institute, 36 p.
  4. Harrington, L. (2014) The Resilient Supply Chain: The Emergence of a New Paradigm. Exel. Supply Chain 24/7. URL: http://www.supplychain247.com/paper/the_resilient_supply_chain
  5. Lengnick-Hall, C.A., Beck, T.E. and Lengnick-Hall, M.L. (2011) Developing a capacity for organizational resilience through strategic human resource management. Human Resource Management Review, 21, pp. 243-255.
  6. Mensah, P., Merkuryev, Y. and Longo, F. (2014) Using ICT in Developing a Resilient Supply Chain Strategy. Procedia Computer Science, 43, pp. 101-108.
  7. Peck H. et al. (2003) Creating Resilient Supply Chains: A Practical Guide. Centre for Logistics and Supply Chain Management, Cranfield School of Management, 100 p.
  8. Robinson, C.H. (2015) Add Resilience to Supply Chains. Supply Chain 24/7. URL: http://www.supplychain247.com/paper/add_resilience_to_supply_chains
  9. Sheffi, Y. (2005) Building a resilient SC. Supply chain strategy, 8 (1), pp. 1-14.
  10. Spiegler, V.L.M., Naim, M.M., Potter, A. and Towill, D.R. (2015) Establishing a Framework for the Effective Design of Resilient Supply Chains with inherent non-liniarities. The 20th Int. Symposium of Logistics (ISL), Bologna, Italy, 5-8 July, pp. 66-75.
  11. Zolli, A. (2012) Resilience Strategies for a Volatile World. Harvard Business Review. URL: http://blogs.hbr.org/ideacast

 

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