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Supply Chain Resilience - Principles and Strategies

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A summary of principles and strategies of building supply chain resilience by supply chain experts.

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									       Supply Chain Resilience –
            Principles and Strategies

                    Chi-Pong Wong

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• What drive corporations to build supply chain resilience?
  Natural disasters (volcano, flood, tsunami, SARS), accidents (theft, shop floor
  injuries, BP oil spill), other disruptions (strike, infrastructure problem,
  unanticipated IT down time) are just a few obvious impacts that could disrupt
  supply chain operations. Corporations want their supply chains least affected
  under adverse situations.

• The bad news: There is no one secret formula to building supply
  chain resilience.
  The environment, social structure, company culture, characteristics of suppliers,
  product shelf life, and many other factors impact a supply chain. Each company
  could face disruptions caused by different factors at different intensities. There is
  no one single methodology that can mitigate disruptions by all causes.

• The good news: There exist sound principles to building supply
  chain resilience, and there are proven resilience strategies
  practices for reference.
  Corporations should design their supply chain resilience principles to match their
  corporate culture, and establish corresponding practices to guide their operations
  and processes accordingly.

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    Statistics on supply chain disturbances

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Statistics on supply chain Disturbances1

                             1:            “Supply Chain Resilience 2011 – 3rd Annual Survey” published in Nov 2011 by the Business Continuity Institute in EMEA.

                                               5/13/2012                                              4                                                             CPW
   Martin Christopher and Helen Peck’s
  four principles to building supply chain

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In their 2004 paper, Martin Christopher and Helen Peck advocated these four
principles1 to building a resilient supply chain:
1. Resilience should be designed in. Features that are important to supply
    chain resiliency should be identified and engineered into a supply chain.
2. Inter-corporation collaborations along supply chain entities is key.
    A resilient supply chain has to include suppliers and distributors when they build
    a highly collaborative network. High level of collaborations among the entities
    has to transcend all company boundaries along the entire supply chain.
3. Agility is another key factor. Being able to react quickly to unpredictable
    disturbances is a distinct advantage when dealing with uncertain disruptions.
4. Risk management has to be ingrained into the organization
    culture. Entities along the supply chain have to embrace this culture to render
    risk management activities effective.

1: “Building the Resilient Supply Chain”, by Martin Christopher and Helen Peck, International Journal of Logistics
  Management, Vol. 15, No. 2, pp1-13, 2004.

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Yossi Sheffi’s strategies to building supply
               chain resilience

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Creating supply chain resilience by building redundancy
• Creating redundancies throughout the supply chain obviously can help an
  enterprise to absorb the impacts as described earlier.

• A company can have larger inventory, bigger work force, duplicate assembly
  lines, extra factory and warehouse, etc. to increase resiliency, but this is typically
  very expensive both directly and indirectly. A company employing
  redundancy pays for the extra stock, capacity, and workers. As
  well such excesses are likely to lead to sloppy operations, reduced
  quality, and additional operating complexity and cost.

• As a result, this mechanism is employed mostly as a temporary

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Creating supply chain resilience by building flexibility
 Supply chain flexibility can be obtained through:
 • Standardized processes, interchangeable parts and facilities: This
   allows the company to reallocate resources more quickly to respond to
 • Concurrent instead of sequential processes: Maximizing sub-process
   parallelism shortens normal supply chain process turn around time which
   inevitably shortens the overall response time to disruptions.
 • Postponing customization work to the last stages: This allows
   materials and semi-finished products stay shareable longer in the supply chain.
   An Italian clothing manufacturer Benetton1 does generic work like spreading,
   cutting, and sewing first, and leaves the unique requirements like color dyeing
   and buttoning last so that they can adjust to some changed orders more easily.
 • Aligning procurement strategy with supplier characteristics:
   Procurement team should watch their suppliers closely when they employ only a
   few suppliers because a disruption from any single supplier could spell disaster.

 1:   Benetton Group’s web site www.benettongroup.com for information about this company.

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Creating supply chain resilience by cultural changes
Certain cultural traits are beneficial to resiliency. Companies should
understand their own cultural traits and encourage beneficial ones that they desire.
If these traits don’t already exist, they should be created through
cultural changes.

The followings cultural traits help companies be more resilient:
• Continual and adequate communication: This allows employees to have
  just-in-time knowledge and to adjust their work to cope with disruptions more
• Distributed power: This empowers teams and individuals to take necessary
  actions under adverse situations. Toyota assembly-line workers can halt
  production by pushing a special siren; crews of the US Navy on board an
  aircraft carrier can stop flight operations if they detect an emergency.
• Passion for work: A brick layer who sees his work as building a home churns
  out higher quality work and makes changes more willingly and effectively than
  those who don’t see beyond brick laying.
• Disruption drills1: A workforce periodically drilled on random disruptions are
  more resilient real disturbances.
 1:   You can also reference James B. Rice, Jr. and Federico Caniato’s article “Building a Secure and Resilient Supply
      Network” published on Supply Chain Management Review’s Sep/Oct 2003 issue.

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     Other notable supply chain resilience

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1. Embed adequate mitigation policies1 in the supply chain: A set of policies
   designed to reduce negative disturbance effects and to better manage the inherent
   fluctuations from major disruptions can be created and embedded into a supply chain
   process so that when disturbances happen these policies will be triggered to guide
   mitigation efforts.

2. Map out a contingent supply chain flow ahead of time by injecting
   disturbance risks into existing supply chain2: Identify disturbance risks such as
   strike, tornado, bridge collapse, etc. and where their impacts will be along the supply
   chain, then design a contingent supply chain flow map with the best built-in mitigations
   should the identified risks take place. Variations of this mechanism have been described
   on many supply chain risk management3 methodologies and practices in
   journals, books, and on the internet.

1,2:   “Supply Chain Resilience Using the Mapping Approach” by A.P. Barroso, V.H. Machado & V. Cruz
       Machado, Chapter 7, pp161-184, Supply Chain Management, ISBN: 978-953-307-184-8, published by InTech,

3:   “Supply Chain Resilience” report [ZMCD43 (10/09) BBD PP400181001] by Zurich Municipal is one good
      example of mitigating supply chain disturbances through risk management.

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3. Embed Business Continuity Management (BCM) in the supply chain
   process and use only BCM suppliers if possible1: Implement BCM in company’s
   own supply chain and give preference to BCM suppliers in the company’s procurement

4. Embed disruption drills in the supply chain process2: Training and mock
   exercises that include simulations of supply chain disruptions and stress testing of security
   measures and business continuity plans is a key advanced initiative for building a secure
   and resilient supply network.

1:   “Supply Chain Resilience 2011 – 3rd Annual Survey” published in Nov 2011 by the Business Continuity
     Institute in EMEA.

2: “Building a Secure and Resilient Supply Network” by James B. Rice, Jr. and Federico Caniato, Supply Chain
   Management Review’s Sep/Oct 2003 issue

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       Summary of supply chain resilience

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                                                                                                                   Supply chain
Discussed aspects             Relevant research  summary1                                                             resilience
Agility, responsiveness       Christopher (2004) describes agility as one of the most powerful
                              ways of achieving resilience in the supply chain. Agile supply
                              networks are capable of more rapid response to changed
Visibility                    Increasing the visibility of demand information across the supply
                              chain reduces the risks (Chopra and Sodhi, 2004)                                               133
Flexibility/redundancy        Christopher (2005) states that resilient processes are flexible and
                              agile and are able to change quickly. Flexibility enables a
                              manufacturer to respond quickly and efficiently to dynamic market
                              changes (Swamidass and Newell, 1987). Rice and Caniato (2003)
                              suggested a hybrid flexibility/redundancy approach for increasing
                              supply chain resilience
Structure and knowledge       Knowledge and understanding of supply chain structures - both
                              physical and informational - are important elements of supply
                              chain resilience (Hong and Choi, 2002)
Reduction of uncertainty,     van der Vorst and Beulens (2002) view reduction of uncertainty as
complexity, reengineering     the way to improve supply chain resilience Christopher (2000)
                              adds reduction of complexity through business process
                              reengineering initiatives
Collaboration                 Collaborative partnerships help to manage risks effectively (Sinha
                              et al., 2004; Lee, 2004)
Integration, operational      In describing the operational capabilities of resilient supply chains,                    Table II.
capabilities, transparency    Smith (2004) emphasized the importance of integrated                       Supply chain resilience
                              environment that provides end-to-end interaction of orders,                  summary of selected
                              inventory, transportation and distribution to facilitate supply chain                     aspects
     1:   “Understanding the concept of supply chain resilience” by Serhiy Y. Ponomarov and Mary C. Holcomb, The
          International Journal of Logistics Management Vol. 20 No. 1, 2009 pp. 124-143.

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