The implementation of modern manufacturing operations management practices including manufacturing systems, lean manufacturing and six-sigma have improved effectiveness and operating costs within many manufacturing companies. However, it takes an entire supply chain to bring manufactured products to the marketplace and supply chains are more vulnerable than ever due to a range of risks including small inventory buffers, reduced slack in lead times, higher product complexity, and global interdependence.
We have learned that events like the COVID-19 pandemic, 9/11 and Hurricane Katrina can cause big and sudden disruptions in supply chains. Disruptions so big that regular inventory buffers of materials and parts cannot diminish the impact. Customers are left waiting for product deliveries and market shelves cannot be replenished on time.
During these times, it behooves companies in the same supply chain to innovate as a collaborative team to enable new levels of efficiency and resiliency in producing manufactured goods through higher levels of transparency, agility and orchestration. A general supply chain resiliency strategy strives to maintain performance measures during potential disruptions including fulfillment of orders, delivery reliability, and customer satisfaction.
Supply Chain Resiliency Definition
Supply chain resiliency is the ability of a supply chain to both resist disruptions and recover operational capability after disruptions occur. Where operational capability is the continuity of operations at the desired level of connectedness, control, and delivery of products and services to end customers.
Resistance capacity is the ability of a system to minimize the impact of a disruption through tactics including inventory buffers and supplier redundancy. Recovery capacity is the ability of a system to minimize the time between disruption onset and the time when the supply chain returns to regular performance levels of delivery to end customers. The recovery time includes (a) the time to detect the problem and (b) the time to orchestrate the response and recovery. However, it is important to note that, after big disruptions, the demands from the market might have changed and might not support or require the prior levels of performance.
Supply Chain Resiliency Tactics
- Minimize the time it takes to detect a disruption in the supply chain. Review practices and systems for supply chain monitoring, communication and orchestration. Establish a digital supply chain. Implement an early warning system that quickly bubbles up concerns from lower tiers in the supply chain.
- Increase the capability to switch to a different product mix to adapt to shifts in demands due to a market disruption. For example, in response to a weather or health related crisis, the demand for essential products increases as the demand for nonessential products decreases.
- Increase supplier loyalty through partnership programs and incentives for key suppliers to deliver during tough times.
- Assess sensitivity to failure in supplier nodes in the supply chain for each product line. For each node, determine the possible impact of deliveries stopped for a few weeks. The impact to end-customer deliveries based on the expected time it takes to recover from the failure of the node.
- Review inventory buffers. It is tempting to increase buffers and hoard critical materials and parts to avoid any disruption but there are inventory costs associated with this tactic.
- Design products for configuration flexibility to allow for the use of alternate materials and parts. If possible, design to use off-the-shelf parts
- Establish supplier redundancy. Wherever possible, establish more than one supplier for critical material and parts. For off-the-shelf parts, buy from distributors that pool supplies from several suppliers to minimize the impact of losing one supplier during a disruption period.
- Work with suppliers ready to engage in a digital supply chain and flexible to converting production lines, switching processes, increasing capacity, and supplying alternate parts when needed.
Major disruptions will always have an impact, but we can be better prepared for major and minor supply disruptions through risk mitigation strategies.
Additional articles on the topic:
Supply Chain Resilience for an Era of Turbulence, The Economist, 2020
Building Supply-Chain Resilience for Turbulent Times, Supply Chain Brain, 2020
The Resilient Supply Chain Benchmark: Ready for Anything? Turbulence and the Resilience Imperative, The Economist, 2020