Is your business prepared to survive a major supply chain disruption? If not, consider this. Two years after a major disruption, stock prices of unprepared businesses have lost up to forty percent of their value. (K. Hendricks & V. Singhal, See p.1.) That underscores the value of resilience in a concrete way.
With the unprecedented rise in supply chain disruptions, businesses must have resilient supply chains. Resilient enterprises can outmaneuver their competitors and gain sales, revenues, and market share. Therefore, it is important to build resilience into your supply chain. Doing so enhances your longevity and your competitiveness.
In reviewing the key attributes of resilient supply chains, we need a working definition. Essentially, resilience is the ability to avoid, contain, stabilize, and return and recover from a disruption.
In a 2005 Harvard Business Review article, Yossi Sheffi, identified three key attributes of resilient supply chains. Those attributes identified 16 years ago are still relevant today. The three attributes are: (1) Redundancy; (2) Flexibility; and Cultural change.
To understand resilience better, let’s dive into each one of these.
#1 Redundancy. According to Sheffi, the value of redundancy has limits, but it’s still a useful measure. It’s limited because it’s expensive and therefore not a long-term option. Redundancy implies carrying more safety stocks. It can also mean duplicating sources, processes, employees, or equipment. That duplication entails a larger investment that dilutes revenues and profits.
So, you should consider it as a temporary measure. That’s because it helps to diminish the effects of disruptive events. But the costs prevent redundancy from being a long-term solution. Namely, redundancy is a measure you can use to reduce the effects of a disruptive event. So, it’s an effective tactic but not an efficient one.
As a short-term remedy, you should include redundancy as one option to manage disruptive events.
#2 Flexibility. Achieving flexibility is more effective and sustainable than redundancy. However, achieving it is more challenging. But flexibility offers a higher payoff than redundancy. Thus, building flexibility into your supply chain is a “must-do” event.
To begin with, flexibility can help you avoid and/or mitigate a supply chain disruption. It enables your business to respond to and rebound from a disruption – effectively and efficiently.
Sheffi identifies four way in which you can achieve flexibility:
- Adopt standardized processes
- Use concurrent instead of sequential processes
- Plan to postpone
- Align procurement strategy with supplier relationship
You can find a detailed description of each criterion here.
#3 Cultural Change. The third key attribute that sets resilient businesses apart is culture. In his article, Sheffi lists four cultural traits successful firms exhibit.
Here they are in no particular order.
- Continuous communication among informed employees
- Distributed power, so empowered teams and individuals can take necessary actions
- Passion for work
- Conditioning for disruption
This list underscores the value of culture and people. It’s important to create a working environment conducive to accepting change. The combination of culture and people results in the ability to halt, sidestep, or prevent disruptive events.
Build a Resilient Supply Chain Today
It’s clear that Sheffi’s three key characteristics still remain relevant today. That’s notable because they’ve withstood the vagaries of time. More important, however, is that resilience has assumed a higher priority today in 2021 than in 2005.
Due to the increasing number and severity of disruptions, resilience is now a top concern.
Be aware, building a resilient supply chain is a long-term endeavor. The sooner you get started, the sooner you’ll harden your supply chain against the next disruption.
Are you satisfied with your supply chain’s ability to respond to and rebound from a future supply chain disruption?
If you want to build a resilient supply chain, contact American Global Logistics today. We seek long-term partnerships with businesses focused on realizing strategic goals like achieving resilience.
Contact us to find out more about we can work together to neutralize disruptions to your supply chain.