What are the keys to implement resilience in our Supply Chains?
Which company has never faced supply disruption? A machining stoppage? Shortage management? Stock disruption?
Who never tried to forecast the customer demand or to improve the production reliability?
Are all these tasks are over? How to change from defensive Supply Chain Management to an offensive Supply Chain Management?
So many questions that Supply Chain Managers would like to get the answer.
But our supply chains are so vulnerable and weak in a highly competitive environment, with high demand volatility and with the target on cost, the economy of scale and globalization.
In our wide supply chains, the development of operational complexity forced our companies to take into account the new weakness and risks linked to the supply chains networks development.
Finally, the final question will be, how to create resilient Supply Chains?
If we come back to the origin of resilience expression, and see it in different environments.
From the Latin origin, resalire, which is the base of “resilience”; this word is built from the verb “salire” which means “jump” and the prefix “re”; which means a backward movement.
From the Oxford English Dictionary, the actual definition of resilience is :
Resilience is approached by sociology as a human characteristic to survive hardships, it allows people to absorb the “potential shock”.
In psychology, resilience is a phenomenon in which patients take into account the trauma to get out depression.
For management sciences, the organization resilience concept is linked to the crisis management – resilience is defined as “capacity to absorb, answer and capitalize from environment disruption” .
Back to the basics
Each disruption has his own profile linked to the company performance.
Each performance is measured by turn over, margin, productivity rate, quality, customer service, etc…
The dynamic reaction of the companies after a disruptive event could be demonstrated by the graphic below.
Disruption profile – Source: Sheffi et Rice, 2005
In this pattern, we observe the company goes through different phases which spend many duration before good performance will be back.
In an intensive competition context, the company shall have the benefit of competitive advantage and by the decrease of the lead time. This capacity to rebound face to a disruptive event is the company's resilience, and especially the resilience of the Supply Chain.
The 7 main characteristics for resilient Supply Chain
This coordination is the basics of the resilient Supply Chain. A logistic network should be sized and managed by real customer demand. It will be necessary to be demand driven rather than forecast driven (always wrong).
Bypass the disruption will be more achievable if we have alternative options.
For example, the multiple sourcing, different physical logistics means, subcontracting some of the activities…
When one part of the supply chain is impacted by disruption, the organization has different possibilities to bypass the problem.
With a limited quantity of partners, higher quality of product and services, and shorter geographical length; it will decrease your transportation cost and your suppliers’ delivery lead time. Moreover, you have the benefit of flexibility and the speed of potential default detection, and correction.
In a networked supply Chain, some links could be weaker than others. This is not due to the high growth of some part of the network, but rather that the organization is more complex. We introduce a simple measure to show the reliability of the network and its organization.
The pattern below shows us one of the reliability calculations for part combination.
Pattern 2.1 – Parallel part increase the reliability and decrease the risk.
Pattern 2.2 – A serial part decreases the reliability and increases the risk.
Redundancy capacity is sometimes more important than the redundant physical stock, and especially for the key part of the Supply Chain. The principle is to get over capacity available that we can use depending on hazards encountered.
Agility means flexibility and efficiency of the operation in front of the demand or procurement speed. The agility is linked to all the networks; so we will prefer short cycles, reliable internal and external processes.
Or also “customer decoupling point”. From Sharman (1984), the demand order penetration point is defined as “the point at which a product becomes earmarked for a particular customer, where product specifications get frozen and are considered the last point at which inventory is held”. From this point of view, the system is driven by customer demand and allows to manage of the operation while reducing the global supply chain stock level.
These generic characteristics of a resilient supply chain are also identified in flow management. Because our supply chains become more complex and interdependent, it is important to bring them “Simplex” and independent thanks to “shock absorber”.
Author: Philippe Bornert, AGILEA Group