We will explore the aim of Resilient Supply Chain and some methods to achieve the promise it offers. After all is said and done it’s easier to talk about the perceptions of resiliency than to implement them in real time systems. There are many myths and constraints which we will gradually discuss as we delve further in Part B of this post in the next week. In Part A, we will try to understand the meaning, significance, and some of the approaches to achieve a resilient value chain during disruptions.
Flexible, Robust, and Resilient Supply Chain
Flexible, Robust, and Resilient are the three management characteristics which are used in the context of any ecological, human, or industrial system. Since Supply Chain Management is also a closed loop ecological system, these also come into picture in the above chronology with respect to gradual maturity of the value chain.
Though the above characteristics are similar; but, they have a few basic differences which we will try to develop and understand:
The objective of any Supply Chain is to satisfy end customer demand within a promised lead time. The objective is achieved by the effective flow of product/service, information and value through a network of supply chains, or shall we say, supply networks and nodes which connect the networks in a community of ecosystem commerce (Figure-1).
What-if one or more of the link(s) break and/or one and/or more node(s) is gone and/or the end demand changes radically and unexpectedly (Figure-2)?
We must fulfill the end need within promised lead time. How can we achieve that in light of the disruption? Please also note that in an actual disruptive scenario, the network is much more complex and mostly non-linear (Figure-3).
Source: “A physical representation of Supply Chain” (Ghiani et al. 2004)
The objective of the supply network is to keep the “flow” moving during disruptions irrespective of the length and breadth of the effect(s) of the disruption.
“Flexibility” refers to how quickly we can adjust our whole network to fulfill the changes in Demand even if we are not capable of fulfilling that through the existing network. Normally we don’t consider a major disruptions in the network when we talk about flexibility. “Adjust” is the key here. The network is generally adjusted though the change in the capacity parameters in different members of the network which we refer to “Constraints” and/or outsourcing from other systems in the networks which supply the same product/service. The fallacy of flexibility is its elasticity, i.e you can be flexible until the network/system reaches its modulus of elasticity (stretching limit). So, flexibility is a actually a measure of reactiveness of a supply network.
So, the objective we started out with was to find out how quickly the network can operationalize or respond even if any major disruptions (i.e. breakage in the network and/or early forecast of change in demand) occurs and how to minimize the bad effect to fulfill the end demand by adjusting the supply network without significant change in the existing structure of the network. That is referred to as “Robustness”. For example, how robust my ERP system is if we are going to upgrade our planning system which is having a tight integration with the ERP. Here, the measure of robustness is for an ideal case there should be least/no downtime of the whole system. It is achieved by adopting proper design and system governance.
What-if we can resist the disruption from occurring and if at all it occurs, we delay the disruptions so that we get enough time to respond to the disruption? Another key ask is that our flexibility should go beyond our own supply chain network to quickly respond to the changes that have the least operational efficiency recovery time. If we consider these actions, it is supported by the elements of prediction and proactiveness and goes beyond the existing constraints optimization. The above phenomenon is termed “Resilience”.
Resilience is a continuous vigilant practice consisting of predictability, design, and quick response. Supply network practitioners are considering resilience as an emerging strategic initiative to tackle disruptions.
The Response lifecycle of a Disruption and the role of Resilience is depicted in Figure-4
A small example of path “AC” with regard to a retail business- If the retailers would have guessed a big lock down is on the way, then they could have cleared the stock through sale/discount before it started and could have had higher liquidity which is now locked inside a closed facility. Also, it must be noted that many perishable goods are non-recoverable and had to be thrown away as the Lockdown ended.
Disruption Severity Matrix and situation of COVID19 (Figure 5)
Disruption Assessment Matrix on your Supply chain (Figure 6)
Key Outcomes of the above 2 matrices and mapping with the response cycle
- How accurate are you assessing your supply network through the above matrix (Figure6)?
- What is the break/vulnerable points of your supply network with regard to each scenario of disruption (Figure5)?
- What are your continuous activities to achieve Figure 4 through rectification of point 2?
- Decide on CD, DE, and EF strategy (Short, Medium and Long Term)
The main point here is ‘Predictability”. Predictability provides the time and options to respond the disruptions. “Resilient” and “Predictive” are complementary to each other.
‘Resilient” Supply Chain tactics as we have discussed with regard to Short, Medium, and Long-term sustainability
Short Term (Revenue is the Key not Cost)
- Liquidity- Eliminate perishable items and retail finished good inventory as much as possible through discounted /other incentive means.
- Cycle stock raw materials- keep inventory of raw materials to run your business in the time of the disruption boom period
- Health and safety
- Emphasis on internet for business
- Concentrate on revenue not margin
- If required, collaborate and exchange thoughts/stocks with competitors
Medium Term (Short term goals adn Focus on effectivity not efficiency)
- Flexible switch of Resource- Can you adjust your jigs/fixture/machines to produce other SKUs which are in need at the time. For example, can you produce Masks/PPE instead of garments? ITC started producing sanitizer in their perfume making division. Source:- “Economic Times”, Mar31, 2020 –“ ITC converts perfume plant to produce sanitizer”
- Flexible switch of Product Mix- For example, a beverage company used to source plastic straws from China. Scarcity of straws was delaying the perishable beverage sell. They switched to environmentally friendly paper straws without disrupting the sale of end beverage.
- Increase the SKU breadth and reduce the length- Identify the highest selling segments/SKUs. Stop putting a variety of SKUs rather concentrate on vital few with enough stock.
- Collaborate with other companies to identify a new Product mix- For example, a Beverage company can collaborate with restaurants to deliver a beverage with very little cost along with ordered food. Ford and GE built a partnership to build a simplified version of an existing ventilator. Source: CNBC, Mar 30, 2020 “Ford, GE plan to produce 50,000 ventilators in 100 days”
- Alternate services using your current resources- Food delivery companies Swiggy and Zomato partnered to use their last mile delivery system to deliver ”groceries/essentials instead of less essential products. Source : India Today”- Dated June 5, 2020 “Instagram collaborateswith Swiggy andZomato”
- Can you change your packaging to sell your products to other segments?
- Renegotiate with suppliers.
- Save and skill/reskill your human resources.
- Showcase resilient capabilities that are improving your response to the market.
Long Term (Transform and Innovate- A closer look at the business model)
Implement End to End visibility – Understand the veins of whole supply network, i.e. Suppliers’ suppliers and Customers’ customers. Understand the disruptions/ positive/negative vulnerability points and decide the following strategies.
- Onshoring vs Reshoring
- Diversify your supplier base.- Reduce the source and geographical vulnerability by procuring from different regions
- Inventory strategy
- Help/develop suppliers to eliminate a sole source market environment
- Contract management- inclusion of disruption protection clause for business continuity planning
- Merger/Acquisition Strategy to reduce vulnerability- ITC recently bought Sunrise spices- Source:- “Economic Times”- Dated May 24, 2020 “ITC acquires Sunrise Foods”
- Forecast management refinement
- Transform to Analytics from KPI/Dashboard driven performance matrix
Short and Medium Term Goals can be propagated to the Long term to have a new growth strategy for any supply network.
Practical achievability of the above points will depend on multiple factors and a successful supply network resilience strategy that will be discussed next week in PART B of this series.