Yossi Sheffi, Ph.D.
Professor of Engineering Systems, Massachusetts Institute of Technology
Director of the MIT Center for Transportation and Logistics
Author of The Resilient Enterprise
Ultimately, as supply chains are stretched ever thinner, often spanning the globe, I believe the ability to manage disruption in the supply chain is the most important factor for long-term financial success.
The best way to start managing supply chain disruption—the way with the highest chance for success—is to tie resiliency initiatives to other corporate goals and have those goals driven by senior management. Assessing the potential impact of disruption should become part of every decision made—it's that important.
What companies don't want to do is carve out disruption management as a separate initiative, especially in a business environment that must optimally leverage resources to compete. Having a separate disruption management initiative may result in some security elements (dogs, guards, guns and so forth), but it will be leveraging a minimal budget, and the result won't be a truly resilient operation. That capability needs to be embedded in every element of the enterprise.
In any operation there are always supply disruptions, most of them smaller-scale. But in today's global economy, with supply chains crossing oceans many times from raw material to final product, companies are at greater risk for larger disruptions, such as a hurricane, or the West Coast port lock-out in the United States, or the earthquake in Kobe, Japan.
At their core, a disruption of supply and a spike in demand are the same thing. So if you learn how to manage disruptions in supply, then you have, by necessity, created a competency and a supply chain design that can react quickly and properly to fluctuations in demand. The result? A very strong source of competitive advantage.
There are many ways to achieve this kind of resilience, from using modular product design to having multiple sources of supply, distributed manufacturing assets, late customization of products and collaborative agreements with suppliers, as well as information systems capable of monitoring demand in real time. In addition to these classic supply chain management practices, being truly resilient means having the ability to detect disruptions as soon as possible, and then having in place appropriate decision-making processes and management teams to deal with the disruption.
Some very large players, such as Wal-Mart, General Motors and Intel, which have a lot of power over their supply chains, are practiced at this kind of disruption management. They've invested in vulnerability studies and scenario planning and have in place the processes that allow them to detect and respond quickly to disruption. But I would argue this kind of resiliency is even more important for mid-sized companies that don't dominate their supply chain.
If you have less power in your supply chain, then by definition you have more competitors and it is easier for you to be disrupted—primarily by your customers going elsewhere when you have a problem. So it is even more important for those companies to be very resilient and consider the potential for disruption in every major decision they make—decisions on what products to offer, where to source, where to locate manufacturing, how many suppliers to contract with, and how to qualify suppliers—because you are only as resilient as the weakest link in your supply chain.
Robert Anastasi
Executive Vice President, Global Operations
Brooks Automation
Our business is high-mix, low-volume, with very unpredictable demand. Add very demanding customers who view the leading-edge semiconductor capital equipment we produce as a commodity and are always looking to get more for less. So you can see we have to work very hard on performing flawlessly in our operations.
With the global footprint we have, disruptions are a constant issue, yet we have to maintain our on-time delivery, out-of-the-box quality and reliability. In the 1990s, we realized that in this global economy supply chain management was going to be a core element of our strategy and a competitive advantage. So supply chain has had a seat at our executive table, with a full voice in how the business is run, for some time.
At Helix (a division of Brooks), we were a pioneer in developing a manufacturing model that is very responsive to customers—a model that helps us deal with supply disruptions and unexpected demand in a very effective way. We did it by breaking down the barriers of supply chain management, and embedding responsibility for it at all levels of our business.
In many companies, the supply chain function typically spends most of its time dealing with daily issues of materials management. We wanted to change that and elevate the focus of our supply chain team to more strategic efforts—primarily building and managing relationships with our suppliers, and working with our designers so that new products are developed with an understanding of their operational impact.
We have to deal with supply disruptions all the time. Recently, one of our supplier's plants partially burned down, and we had a major disruption in material supply. But because we have developed such deep and mutually beneficial relationships with our supply base over the years, we were able to get preferential treatment that allowed us to replace that supply quickly and maintain commitments to our customers.
More importantly, to keep our customer service levels high, we have to be very good at dealing with daily fluctuations in demand. To do that, we pushed the responsibility for daily materials management right down to the factory floor. The work-cell teams in our plants, and the cell managers, not only have direct responsibility for the quality of the products, but also have direct supply chain management authority for daily operations.
It works like this: Most of the materials we use in the plant are shipped in daily. We have a cell-based, kanban system, so the cell managers have direct, hand-to-hand contact every day with the suppliers delivering material. The cell teams are the first to see unexpected spikes in demand from customers, so they immediately send signals to the suppliers for more materials to meet that demand. It's a simple system, really. The key is removing barriers between the customer and the supplier, so there is little or no [information] latency in sending that information to the supply base when demand spikes.
The results of this model have been impressive. We remain the quality leader in our industry. And, today, our cycle time for most of our products is about one week from customer order to delivery. In the 1980s, it was taking 10 to 12 weeks to do that, and with a much narrower product offering.
Debra Elkins, Ph.D.
Senior Research Engineer, Enterprise Risk Modeling
General Motors R&D Center
At General Motors, we're continually working to improve our enterprise risk-management capabilities, which include dealing with supply chain disruptions. I've been involved in this effort from the analytics side. I had developed some preliminary models to look at cash-flow disruptions based on various risk events, including estimating the enterprise value and volume of lost production. It became very obvious, very quickly, even from simple models, that there were lots of possible supply-chain disruptions, and many could be quite large in financial impact, and could require quite a bit of time and effort to recover operations.
The timing of that initial analytics work certainly helped to get senior management's attention: by then our global purchasing and supply chain teams had successfully dealt with a number of major manufacturing and supply chain disruptions, including the 9/11 terrorist attacks, then the longshoremen's strike in California and a tornado hitting our Oklahoma City assembly plant.
At GM we have an incredibly complex, global supply chain. More than 160,000 unique parts are sent every day to our assembly plants around the world. You have to get them all in the right place, at the right time, in the right sequence, for everything to work. And many of those parts are complex products themselves, with multiple tiers of suppliers having to come together to make the product that will go into a car. It's definitely a challenge to coordinate and manage global operations in real time.
To plan for disruptions, our manufacturing and global purchasing and supply chain leadership encourages cross-functional teams to identify and enhance risk-management capabilities as part of normal business processes at various levels of the company. We're continuing to develop better sense and response capabilities so we can detect signs of disruption, and we're working to enhance the IT infrastructure and decision-support systems that our supply-chain operations experts use in managing daily operations.
We also run regular table-top exercises, playing out various supply-chain disruption scenarios so we can think through response planning in near real time. For example, we'll ask, what if we lose a specific supplier that is feeding 10 assembly plants? What will we do? We call these exercises "running the play." The idea is that our supply chain specialists build up experience with disruption-response management, so that in high-pressure game time, when it really matters to recover supply chain operations, it's just a matter of running the play.
The bottom line is, the opposite of good risk management is crisis management. Reacting to events is painful and expensive. Being proactive to avoid or mitigate risk can be much less expensive and more effective. This capability, this mindset of being resilient, is becoming part of our day-to-day culture.
Surku Sinnadurai
Chief Information Officer
i2 Technologies
Managing Director, i2 India
These days, everything is global, sourcing is dynamic and subject to disruption, and variability is beyond a company's control. Companies need disruption-management processes at all levels of the organization.
At the strategic level, executives should determine what types of supply chain models make sense for their business. In doing so, they should review alternative models for sourcing, transportation and product design, as well as manufacturing strategies such as outsourcing or postponement, and then assess the risks of each model. They should also factor in the potential for changes in government regulations, currency exchange and other factors that can have a major impact.
At the strategic level, you build in processes for "what-if" scenarios to assess the strategic impact of disruptions—those that can cause shortages that last weeks or months, such as the loss of an entire manufacturing plant, or an earthquake that shuts down a major shipping port. Those major disruptions can only be dealt with effectively by significant advanced planning, with response teams and plans in place to act immediately. It's really a "war room" capability, with scenarios and plans mapped out in advance.
At the tactical level, managers should be planning for and responding to disruptions that can cause problems for a few days, or a week, like snowstorms, port delays, parts-quality issues and swings in demand that were not forecasted. Agility at this level includes rapid-response tools and decision-making processes, with some built-in understanding of how to react. For example, if there is a part shortage because of a quality problem with a supplier, then a rule is in place to allocate the short supply available to a higher-profit product line.
At the operational level, front-line managers are used to dealing with day-to-day variability in the supply chain. When a shipment is late, or a production line is behind, and they have to satisfy a customer's order, they typically incur greater overtime costs, premium freight costs and, at worst, lost sales because they can't meet the customer's time requirements. Agility at this level involves better real-time visibility up and down the supply chain, and a culture of collaboration with both internal and external partners, so there is immediate detection of a problem, and there is a decision-making framework for taking action. This provides more flexibility to manage within the lead times of suppliers' and customers' orders. When everyone can see what's going on, it's easier to collaborate on solutions to fulfill the customer's requirements.
Supply chain systems are mission-critical applications that need to be running 24/7, in a protected environment. They must support scenario planning for disruption in supply or demand and have access to data from across the chain available as close to real time as possible.
IT tools are available today that can simulate various scenarios and can develop business rules and plans to deal with prospective disruptions. Data validation and management tools are available also to ensure that planning scenarios are robust. Leading companies are taking advantage of these new capabilities to prepare for and manage the inevitable disruptions in their supply chains.
Opinion interviews were conducted by freelance writer Michael Cohen (mcohen@taylor-harris.com).
