A supply chain buzzword that has enjoyed quite a renaissance since the outbreak of COVID-19 is “resiliency”. Whereas phrases like “we need to build resiliency into our global operations” have been bantered about for years, 2020 has seen an onslaught of webinars, white papers and blog posts that have given the word new life and perhaps, an unrealistic meaning.
As a confessed skeptic, all of this talk about the resilient supply chain caused me to question if such a supply chain exists, or if it is simply a myth. I’ll begin by stating that while I don’t believe the pursuit of resiliency is a Fool’s Errand, I’m convinced that there are aspects of the “Resiliency Movement” that go well beyond the physical limits of most international supply chains. The goal here is to point out what those limits are, and what is realistically possible to eliminate or significantly reduce them.
It was the Greek philosopher (and original skeptic) Socrates who said, “Question everything”. Carrying on in that same tradition, I began my quest for a higher supply chain truth by looking up “resiliency” in Webster’s Dictionary, where I found two entries. The first states, “The ability of something to return to its original size and shape after being compressed or deformed” and the second says, “An ability to recover from or adjust easily to adversity or change”.
While words like “compressed” and “deformed” have a place in the global trade lexicon, we’re going to focus on the second definition. “An ability to recover from or adjust easily to adversity or change”. This definition aligns well with the adoption of supply chain objectives and strategies, To build the case on supply chain resiliency, I think we need to dig a bit deeper, and ask the question, “Resiliency against what, exactly”?
Understanding Resiliency in the Supply Chain
To understand the extent to which resiliency can be built into a supply chain, it’s best to break down the events and circumstances that test operational capabilities into two categories. The first we’ll call “macro events”, which for our purposes, means undesired occurrences that impact an entire industry or region, or in the case of Coronavirus, the entire world. Second, a “micro event” is something that strains a company’s operations, but is exclusive to that firm.
With the above said, supply chain resiliency is born of the plans, policies, tactics, processes and technologies that organizations put in place that allow them to react quickly to undesired and/or unplanned events. Certainly a necessary pursuit, the question I keep asking myself is how much of this is attainable, especially when a lot of what can go wrong in a supply chain is completely out of one’s control. Let’s look at some examples that bring this line of questioning to life.
To illustrate our macro and micro scenarios, we’ll call upon a fictitious footwear importer called “Hard Core Soles”, a firm that outsources manufacturing to vendors in China. Starting with a micro-event, envision a situation where a Tier I supplier of raw materials to Hard Core’s top vendor has unexpectedly gone bankrupt. With Hard Core Soles twice removed from any ability to control the situation, how does one build resiliency into that facet of a supply chain?
For our macro event, we can use the congestion crisis at the ports of Long Beach and Los Angeles. Let’s say that Hard Core has ten ocean containers ready for pickup at three terminals, but there are no appointments available for a week and worse yet, not a chassis can be found anywhere. In the heat of the moment and with containers accruing demurrage on a daily basis, it’s only fair to ask, what resiliency can Hard Core draw upon to solve this issue?
In the micro example the obvious example of resiliency is to have a backup vendor(s) that can quickly step in and replace your Vendor’s Tier 1 supplier so that there is minimal supply chain disruption. In the macro example the obvious solution is to have alternative drayage providers that can swoop in and save the day.
In both examples, the solutions would be great (and painfully predictable). But one can only wonder how “easy” it will be for Hard Core Souls to switch providers? Will it even matter in the short term? How much more will it cost? And finally, will the cure be worse than the illness?
Companies Have Less Control Than They Think
The only thing that we can say with certainty about resiliency in this context is that given his definition, it’s clear that Mr. Webster never worked in supply chain. That fact notwithstanding, there is a supply chain myth that I would like to call out, and that is the belief that companies actually have control over their global operations. Especially so in an outsourced model, the reality is that once the gears of trade are in motion, companies have less control than they think.
Now, the above reality is not meant to suggest that an importer like Hard Core Soles should simply place purchase orders on overseas vendors, cross their fingers and hope that containers magically show up four months down the road. Quite the contrary, this lack of direct control calls for an expanded definition of resiliency and more importantly, the use of techniques that are a reflection of that broader interpretation.
In the end, the incorporation of resiliency into supply chain design should be a two-part undertaking. First, companies must combine policies, tactics, processes, and technologies in ways that diminish the probability of unwanted events occurring in the first place. A lot easier said than done, resiliency must also acknowledge that certain things are entirely outside a company’s control, but that reality-based options have to be in place to react quickly.
When a company acknowledges the above, they can focus on building a human and digital network that emphasizes awareness. In the world of supply chain, that means two things: The existence of an Early Warning System that allows for the identification of trouble before it strikes and then, a window into what’s going on after issues surface and recovery measures have been implemented.
Back in the day, it was the founders of Hewlett Packard who made the seminal observation that, “You can’t manage what you can’t measure”. I’d like to paraphrase that quote and apply it to supply chain resiliency by stating that, “You can’t address what you’re unaware of”. In that sense, our evolved definition of resiliency must emphasize the creation of supply chain visibility.
Visibility + Awareness = Control
Needless to say, technology plays a huge role in creating the visibility that companies need to make resiliency a reality. And that is because upstream visibility creates the awareness that supply chain professionals need to quickly react to both anticipated, as well as unidentified events. Ultimately, it will be awareness that counters the aforementioned lack of control that many companies experience when things go wrong. Stated mathematically, visibility plus awareness equals better control.
In the world of supply chain, this level of visibility, awareness and control is achievable with SaaS-based platforms that integrate the activities of all players into a “single version of reality”. Whether it’s a cradle-to-grave view into the status of purchase orders, or anticipation of containers that will soon be sitting idle at the port of discharge, it is technology that
a) creates an Early Warning System to flag problems and
b) allows firms to take rapid and effective action.
Organizational resiliency is expressed as the ease and speed by which human knowledge and technology are applied to and resolve unforeseen physical world problems. The fact is that technology offers the best chance for achieving what can now be considered an evolved definition of resiliency. It is this newly minted definition that compels me to say that supply chain resiliency isn’t a myth, but that it should be viewed differently. While it’s not been the goal of this blog to rewrite his dictionary, I do hope that Mr. Webster would approve of the upgrade!