In my previous blog(https://blogs.infosys.com/infosys-cobalt/cloud-applications/supply-chain-volatility-the-problem-of-today-and-tomorrow.html) , I talked about the supply chain challenges that are encompassing today and also will impact tomorrow. It also defines some of the opportunities for improvement which the organizations can look at overcoming those risks. Extending more to that, I would say that organizations need to have a resilient supply chain to overcome and address those concerns and the more proactive we are, the risk for impact and recovery or even avoidance is much more. So, the first question that comes to our mind is what are these risks or threats that can cause disruption. Some of the examples are as below:
a. Lack of Production & warehouse capacity
b. Issues in logistics due to delays, global economic scenarios changes, theft or damage
c. Market challenges in raw material shortage or price fluctuations
d. Supplier relationship issues and lack of backup opportunities in case of high usage or high critical items
e. Natural disasters impacting production or logistics i.e. Covid19
So, the organizations need to be extra careful to predict and analyze the threats and challenges for their industry and take necessary steps. This is what we call as resilience which is the time taken for predicting and analyzing risks and as well respond and recover from these disruptions. There are 2 critical components which are needed – the resistance capacity (Reduce impact of disruption) and recovery capacity (Resume normalcy after disruption). The key steps in this process:
A. Identify Risks – both Internal & External
B. Analyze Risks – Evaluate & Determine impact
C. Respond to Risk – Steps to protect & manage supply chain impacts
In a way, it the supply chain’s capacity to reduce the impact of threats by either reducing or evading the time of impact. It helps to predict and lessen the impact of disruption. It also includes the recovery time needed by the supply chain to return to normal operations.
Considering the recent natural disaster Covid19, there was a major disruption in the supply chain area which has impacted the various industries in various forms. The close-down of factories in certain highly impacted countries created shortage of raw materials and inputs for various other industries thus impacting other downstream industries. Also, movement of materials across industries due to lockdowns impacted the overall supply chain. In many cases, materials got wasted or lost in intransit due to the logistics disruptions. Loss of lives in the pandemic also created a major shortage of trained labor force. So, the impact of this was huge and there were many organizations which shutdown and some which took substantial time and some which were quick enough to recover. The organizations which were more resilient were able to recover much faster and reduce impact. Similar situations also arose from Hongkong riots, Russia-Ukraine war or the Trade Compliance related risks with China imports.
Now the question is what takes for an organization to be more resilient? Are there other factors that contribute to the level of resiliency that an organization is in? Is it the like the insurance cover that the individual has, and how is the chance of a high-risk disease and the surrounding expenses. It is a tradeoff between supply chain risk and business efficiency and increased cost. It is not simple and needs a holistic view and commitment from the entire organization. The five pillars that needs focus in this process:
a. Vulnerability: Risk exposure & assessment of an organization
b. Management Culture: Identification of risk at the executive level
c. Procurement: Supplier collaboration & backups
d. Operations: Production & Inventory carrying strategies
e. Demand & Visibility: Future order predictions and strategies to fill.
To achieve these pillars, we first need to have a framework for risk assessment for the supply chain which would:
i. Constant monitoring & assessment of vulnerabilities
ii. Real time visibility of supply chain & manufacturing network
iii. Built-in redundancy & agility in sourcing & procurement contracts
iv. Improve predictability using AI/ML
v. Workforce planning & management for worst case scenarios
Having identified the pillars for resilience and the framework for risk assessment, we would then need to look at the various supply chain capabilities that needs focus:
· Anticipation: Futuristic situation recognition using forecasting techniques, monitoring and risk identification
· Adaptability: Ability to respond to challenges or opportunities with technology developments, learning experiences and strategic simulation
· Efficiency: Ability to achieve results with minimal resource requirements using labor productivity, asset maintenance and process standardization
· Visibility: View of assets in terms of inventory, equipment, personnel, customers, and suppliers
· Capacity: Ability to map up to different production levels
· Financial Strength: Impact Cash flows and liquidity with diversification and additional costs of insurance
· Market Position: Manage brand statuses/share with differentiators and customer loyalty/retention
· Organization: Skill and culture mapping for employees with learning, caring and flexibility
· Security: Defense against attacks – both physical and on the web. Cyber-security & Physical security
· Collaboration: Ability to work effectively with other sub-groups and departments in decision making, communication and risk management
· Dispersion: Decentralization with distributed suppliers, production, distribution, and decision making
· Recovery: Ability to return to normal operations with mobilization, communication, & crisis management
So, the three core enablers are processes, people and technology. Thus, there is a major overhauling that is needed in these organizations to make it resilient. Organizations need to strategize properly to achieve it: Some of the strategic moves that help create resilience are:
a. Inventory buffers: Companies try to create buffers for highly complex or shortage items thus reducing the risk of shortage or manufacturing wait times. On the reverse, the inventory carrying cost increases and may result in stockpiling in certain cases
b. Multi-sourcing: Organizations need to follow a multi-sourcing approach for all their material from suppliers and contract manufacturers to cater to spikes in demand, unavailability, or regulatory control on suppliers.
c. Near-shoring: Organizations try to reduce geographical dependence and shorten cycle time by bringing raw material supply near to their manufacturing facilities.
d. Ecosystem partnerships: Companies collaborate with strategic raw material suppliers and external service partners to diversify production and operations.
The other advancements that the world has gone into for organizations to go for digital transformation and modern supply chain technologies also help business develop their resilience. Area of work in artificial intelligence, machine learning, robotics, IOT and additive printing has helped the cause.
We talked about the pillars, framework, capabilities and strategies for resilience and how companies can become resilient. But how do we measure resilience? There are three core metrics that are used:
i. Time-to-survive: Amount of time needed for resumption of operations after a disruption
ii. Time-to-recover: Time taken to recover all backlog
iii. Time-to-thrive: Evaluation of a company after recovery from a disruption
Now the question that comes up, is your organization resilient? Have you evaluated it based on the metrics as defined above? Do we know what we need to do for that? I would say, it is not possible for an organization to be 100% resilient but there must be a balance based on all the capabilities and pillars which would define the level of resiliency.
Please share your feedback / questions in the comments section or via email.
“Resilience is accepting your new reality, even if it’s less good than the one you had before. You can fight it, you can do nothing but scream about what you’ve lost, or you can accept that and try to put together something that’s good.”
― Elizabeth Edwards