Wednesday, July 2, 2014

Supply Chain Disruptions, Latent and Manifest Resilience

It seems that the severity and frequency of supply chain disruptions seems to be increasing. In response, more attention is being placed on building resilient organizations. Resilience is the ability to bounce back from disruptive events and to continue operating. Programs such as Business Continuity Plans, Crisis Management Plans and emergency programs are all meant to augment a company's ability to get back to normal. With the advent of supply chain disruptions, resilience plans are also starting to incorporate supply chain issues. There is not a week that goes by where I am invited to attend a conference or talk at a panel about supply chain disruptions and organizational resilience. Indeed, focus on organizational resilience seems necessary. In a recent survey conducted by Zurich Insurance 15% of companies confirmed that they have experienced disruptions causing in excess of $1 Million. Data collected by the Supply Chain Disruption Research lab (SCDrl) at Rutgers Business School suggests that over 30% of manufacturers are highly concerned about the  their tier 2 and above suppliers' resilience. 

But there may be a systemic concern in how supply chain disruptions are being dealt with. Some argue that most companies are programmed to build their efforts based on what they have experienced in the past, rather than what they will experience in the future. Often resilience enhancements are based on response to high probably and low impact (HPLI) type disruptions, the advent of low probability-high impact (LPHI) disruptions become more prevalent under these new settings. LPHI disruptions can be natural (such as Superstorms unseen in the East Coast of the United States), or man-made (such as the BP Oil Spill in the Gulf of Mexico).

Companies can improve the way they "bounce back" using a combination of two primary forms of resilience. The first is latent resilience - what is done in preparation for unfortunate events, and to limit their potential for occurring. In the supply chain arena, latent resilience can be developed through system redundancies, system flexibilities and innovation. For instance, duplicate production lines, buffer inventory and extra capacity are forms of system redundancies. Flexibility comes in the form of interchangeability or commonality (in parts, personnel, equipment, suppliers and customers). Innovation can be continual improvements in processes and products so as to limit the potential damage of a disruption. Latent resilience is particularly effective for disruptions that the firm has observed before. For instance, it is much easier to know how to manage a supplier plant fire if there is organizational memory on the type of damages that it causes across the supply chain for instance.

However, many of the new forms of supply chain disruptions show unique characteristics that companies may not be familiar with. The Tsunami/nuclear disaster in Japan, and super-storm Sandy are examples of large scale disruptions that were difficult to fully anticipate and predict. Alongside latent resilience, facing these types of disruptions is particularly dependent on the response and recovery efforts. During response and recovery (after the disruption occurs), how decisions are made and executed become more important. Ample anecdotal evidence suggest for cases when bad executive decisions made a bad situation worse because resources and attention were not directed correctly. The Leadership and system's behavior during Response and Recovery (or R2) is the other important aspect of resilience: that of Manifest Resilience. Manifest resilience in systems can be "ready-made" packets of response that can fit any unforeseen event - one that is experienced before or not. Manifest resilience in systems can also be in the form of distributed decision making - so as to avoid the need for a central body to manage all the decisions. For leadership, manifest resilience is in the ability to handle tough situations, and to make the "tough choices" quickly and responsibly. Resilient leadership combines care and concern through situational awareness, with the agility to make expeditious and the spot decisions.

Much of the efforts, resources, investment and efforts placed in developing latent resilience can be wasted if manifest resilience is not properly executed. Years of preparation and planning can go to waste, simply because the leader did not make the right decision, or the systems in place did not respond as expected. Despite the importance of manifest resilience, as compared to latent resilience, our understanding of manifest resilience is limited. The Center for Supply Chain Management and its affiliate laboratory SCDrl, are placing focus on this particular phenomenon.