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A summary of principles and strategies of building supply chain resilience by supply chain experts.
Supply Chain Resilience – Principles and Strategies Chi-Pong Wong 5/13/2012 1 CPW • 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. 5/13/2012 2 CPW Statistics on supply chain disturbances 5/13/2012 3 CPW 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 resilience 5/13/2012 5 CPW 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. 5/13/2012 6 CPW Yossi Sheffi’s strategies to building supply chain resilience 5/13/2012 7 CPW 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 measure. 5/13/2012 8 CPW 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 disruptions. • 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. 5/13/2012 9 CPW 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 effectively. • 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. 5/13/2012 10 CPW Other notable supply chain resilience strategies 5/13/2012 11 CPW 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, 2011. 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. 5/13/2012 12 CPW 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 process. 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 5/13/2012 13 CPW Summary of supply chain resilience strategies 5/13/2012 14 CPW 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 conditions 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 transparency 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. 5/13/2012 15 CPW
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