The term resilience was first coined in 1973. For several years now, this concept has also been used in logistics, operations and supply chain management. However, the approach to this topic is not quite as uniform as one might think.
On the one hand, supply chain resilience is considered „not sufficiently defined“. On the other hand, well-known consultancies already offer services in this regard. Google searches or book publications on this topic also show a clear upward trend. So, after taking an all-around look, we can conclude: While the term supply chain resilience is novel, the principle behind it absolutely is not. For many managers, the meaning of the term is immediately clear the first time it is mentioned, and the relevance of this topic is also obvious. But let’s start at the very beginning to consolidate a common understanding of this terminology. What exactly is meant by this type of resilience?
Supply chain resilience can most easily be explained as supply chain resilience. This primarily includes supply chain capabilities…
- to be prepared for unexpected events
- to react quickly to potential disturbances…
- and recover from them to return to the original situation or even cross over into a new desired state.
As described, supply chain resilience becomes necessary to be prepared for „unexpected events“. These events should not negatively impact day-to-day business and reduce profits. But what exactly is meant by „unexpected events“ in supply chain management?
Experts point out here that the structure of supply chains is constantly changing. Resilience therefore becomes necessary when the logistical structure of companies is adapted and further developed. Driven by corporate mergers, termination of partnerships, site closures, reactions to current developments/new findings or other strategic measures, the supply chain evolves and constantly changes its appearance. This must be responded to accordingly.
A somewhat different definition of „unexpected events“ is offered by experts who cite particularly drastic external influences as reasons for the need for supply chain resilience. Above all, natural disasters such as hurricanes, fires or tsunamis, border closures as well as terrorism and war are associated here as such „unexpected events“. Driven by globalization and cost pressure, these drastic events are of course of great relevance for multi-link supply chains, especially today. With their global supplier networks, long transportation routes and numerous transshipment points, supply chains have great potential for disruption and constraint. The Corona pandemic is a prominent, contemporary example of the benefits of some responsiveness to such impactful events. According to this year’s Supply Chain Resilience Report (compiled by 3D Hubs), the Corona Pandemic is the largest supply chain disruption in the last 10 years! It’s no wonder. According to the report, nearly 60% of companies suffered directly from Covid-19, putting the current pandemic far ahead of natural disasters or trade wars.
However, despite its obvious relevance (especially in today’s world), the topic of resilience seems remote to many logistics decision-makers. If resilience only becomes relevant to events such as wars or pandemics, then the urgency of the issue is not tangible to the wider business community. If the need for the right response capability is related to such isolated risks, then resilience is only worthwhile for a few supply chains. This makes it obvious why such a narrow definition of „unexpected events“ is not a call to action for many. Even the largest supply chains do not face such impactful events on a regular basis. In this context, resilience seems more like a luxury than a compelling necessity. So the question is: Does supply chain resilience underlie other risks? Is this type of resilience also relevant across the board? The answer to both questions is, yes. A certain level of variables underlie every process. Particularly in the day-to-day business of logistics, factors and parameters coincide that are largely „left to chance.“ Thus, a certain degree of variance arises, especially in multi-link supply chain processes. With an increasing number of companies involved, increased human interaction or each additional transport kilometer, the risk of „unexpected events“ that deviate from the standard process increases. Every logistics expert knows plenty of examples of this. Even these „smaller“ risks make a certain risk management absolutely necessary. These numerous, everyday risks have been divided by official authorities into five risk cause areas: Environment risks, procurement risks, control risks, process risks and demand risks. Risk in logistics is therefore commonplace and so should be the right way to deal with it! The more uncertainties in the areas mentioned, the more flexibility potential a supply chain must have in order to avoid unintended consequences.
I also point here to an article this year by McKinsey entitled: „Is your supply chain risk blind – or risk resilient?“. In a nutshell, there is always risk everywhere. And responsive is what a supply chain should be on a small scale as well as a large scale to be efficient and effective in the long run.
My point is that resilience and risk management is not just an empty term describing how companies recover from the Corona pandemic. Resilience should be defined and applied much more broadly in companies. All employees should be familiar with this concept or at least have understood and internalized the principle under a different name. It should be comprehensible why such resilience has everyday benefits for all logistics processes. If the concept is understood correctly, many measures can be formulated to make daily business more effective, more stable, but also more pleasant and less stressful. We are not talking about huge catastrophes and one-off events that completely shut down operations (or at least not only), but also about improving day-to-day operations. In doing so, you can focus on „big“ measures and fundamental changes, such as:
- The digitization of information and the sharing of relevant data by connecting systems and programs throughout the supply chain, i.e. across company boundaries. VMI or CPFR could be mentioned here.
- The expansion of the forecasting software used up to the realization of data mining programs and predictive analyses based on them.
- Flexible and adaptable logistics planning with the help of modern and digital tools.
- Adapted investment decisions, in addition mutli-sourcing or development of storage capacities.
- The agreements of special termination rights in the logistics contract or other legal steps.
On the other hand, however, there are also plenty of „smaller“, i.e. also cheaper, measures that are feasible and easy to implement for many companies and should therefore be the first steps:
- Fast, flat and open cross-team communication
- Extensive process standardization
- Stress tests and emergency plans based on incident management
- Transfer of knowledge & documentation of potential learnings
To some, the measures may sound ridiculous, superfluous or inappropriate, but to others, interesting and necessary. And that is as it should be. Of course, these measures are not universally enforceable and are highly dependent on numerous factors. It is important that the realization of such options in any company is planned wisely and prudently. Only the formation of risk-related objectives and a far-reaching risk analysis is highly relevant for the success of the subsequent measures, as always.
Enough theory. In the end, there are numerous ways to make a supply chain risk-resistant, stable, flexible or even resilient. When, how and for what reasons this design takes place is up to each company. The important thing to remember is that supply chain resilience is not a flash in the pan. Investing in a resilient supply chain is worthwhile even after the Corona pandemic and will yield far-reaching improvements. Those who plan well and select and implement the appropriate measures will not only benefit during major, drastic events, but also in daily business.