Building Supply Chain Resilience with 3Cs: The Covid-19 crisis has exposed organizational and societal lack of resilience. Earlier, I had discussed a framework for creating organizational resilience. Resilience is defined as the ability to withstand and recover quickly from adverse or very adverse conditions. I have classified resilience as internal and external resilience. One aspect of external resilience is the supply chain resilience. In this article, I further develop the concept of a supply chain resilience by identifying the resilience phase, resilience attributes for that phase, resilience category for the phase -the 3Cs, resilience measures, and questions to ask and things to do to assess a supply chain’s resilience and plan towards achieving resilience. The 3Cs are the resilience building blocks.
Resilience phase: The three critical phases for an organization facing a pandemic like event is its ability to survive the event, recover from the event, and rebuild and renew after the event. I will frame the resilience of an organization and it supply chain by considering these criteria. That is, what does the organization need to be cognizant about its supply chain to be able to survive, recover, and rebuild from such an event?
Resilience attributes: I define the ability of an organization to survive the event as the “projected survival time”. That is, how long can an organization survive as the event plays out? Viewed from the Covid-19 shutdown perspective, how long can a business last? What does an organization need to know to be able to size its survival time? I discuss the survival resilience measures later in this article.
Similarly, once a business has survived the event onslaught, how long does it need to recover to a defined “normal” state? This “normal” state may be different from the pre-event normal. I define this as the “projected recovery time”. Viewed from the Covid-19 shutdown perspective, how long will a business supply chain need to recover to a defined “normal” state? What does an organization need to know to be able to size its recovery time to the defined normal? I discuss the recovery resilience measures later in this article.
Finally, after a business has recovered from the event, how long does it need to rebuild and renew its supply chain to reach the pre-event state? Viewed from the Covid-19 shutdown perspective, how long will a business need to rebuild and renew to the defined pre-event state? What does an organization need to know to be able to size the rebuild and renew time to that state? I discuss the rebuild and renew resilience measures later in this article.
Resilience categories: The 3Cs: Capacity, Capability, and Competency.
Capacity– The survival time is dependent on the capacity of a business for certain key elements. For example, one key element is the cash position of the organization. How much money does it have and for how long, for maintaining operations to tide the crisis when there is minimum incoming revenue? I discuss the other key measures to define the capacity state later in the article.
Capability: The recovery time is dependent on the capability of a business for certain key elements of its supply chain. For example, one key element is the ability to assess the damage to the organization from the crisis. How much is the damage from lost sales, permanently lost customers, and other losses? Is the business capable of accurately assessing the impact of its business state on its customers or does it know its supply chain map? These elements are critical in sizing and prioritizing recovery actions. I discuss the other key elements to define the capability state later in the article.
Competency: The renew and rebuild time is dependent on the competency of a business for certain key elements. Competence is the quality or state of being functionally adequate with sufficient knowledge, and skill to operate. One key element of a supply chain rebuild and renew competency post-crisis, is to stress test its re-designed supply chain and examine the results. I discuss the other key elements to define the competency state later in the article.
Resilience elements: I define the key elements for each of the three categories. The key elements for the Capacity category are:
- Cash position measured by Cash on-hand, Line of credit, and any other liquidity instruments.
- Inventory position measured by in-stock quantities by product type.
- Multi-site supplier availability s measured by who can provide how many units of components or finished products and by when. It is also necessary to identify the constraints on the supplier, such as their cash position or other critical survival elements.
- Multi-distribution channels measured by who can delivery how many units of components or finished products consignments and by when.
- Technology infrastructure measured by availability of remote work (how many can remote work, bandwidth amount and set-up needed); remote support (how many are trained for remote support, set-up needed); what kind of collaboration tools are available; can remote security be offered and how; are workers trained for remote work and how to train them; and are vendors qualified and can support remote work. Note that many of these measures need to be further decomposed into work activities, although initially a Yes/No answer may provide a quick assessment of what to do.
- Production re-purposing measured by which, if any, of subsidiary or vendor locations can be re-purposed quickly to resume production. An initial assessment would reveal by products or product families if and how different manufacturing facilities could be reconfigured for re-purposing. This would require product types, demands, and production processes as inputs. An initial quick assessment may provide the answer for follow through.
- Work policies are measured by what types of work policies exist by location, for example, remote working, flexible hours availability, work-type based incentive pay, health checking, sanitization requirements, etc.
- Workforce preparedness measured by ability of the supply chain to immediately respond to a crisis as evidenced by scenario planning. For example, ability to respond to a total lock-down and remote working, partial lock-down by geography, interaction between total and partial lock-down environments, etc. Each of these scenario evaluations require diligent and detailed analysis of each supply chain element and process.
- Customer engagement measured by determining the requirements of the supply chain customer/s for demand for products and support needs.
It should be noted that identifying these measures will require significant work. Therefore, it is recommended to use or deploy tools or systems to aid in the yielding the measurements. For example, to determine inventory positions and multi-site capacity for a global company, one should not only have near real-time visibility of inventory at multiple n-tier suppliers, but alternative supplier sources as well, falling outside the current supplier base. This requires a supply chain and demand management planning process to include alternative outside supplier sources and must be done as part of crisis recovery planning.
The key elements for the Capability category are:
- Recovery plan: Is there a structured recovery planning process in place? Major factors of a recovery plan include the basics: what, when, how, why, where, and by who. Immediately following the survival phase, supply chain recovery starts with a diligent recovery planning process. This must be aligned with the overall business recovery planning process.
- Company damage assessment: What is scope and magnitude of the damage suffered by the organization and its supply chain due to the event? This includes assessing damage suffered on revenue, product introductions, facility shutdowns, employee layoffs, and vendor losses.
- Customer assessment: What is scope and magnitude of the damage suffered by the customers due to the event? This includes assessing damage suffered on revenue loss or business failure, facility shutdowns, employee layoffs, and demand drawdowns.
- Supply chain mapping: Does supply chain maps exist for the organization? Is it complete? It is well known that this is a very labor-intensive process but when done right can significantly aid in recovery, rebuild, and normal business.
- Supplier alliances: The objective here is to develop a keiretsu or a chaebol type of supporting manufacturer-supplier alliances, not only for normal production activities and support, but for crisis management as well. For example, supplier rebalancing if one supplier is impacted or production re-purposing during a pandemic, can be quickly and effectively achieved if there is a working structure in place. To develop and operationalize these alliances require time, effort, and a collective will, often supported by the government or local organizations.
- Supply chain digitization: Aggressively utilize digital transformation capability to digitize the supply chain. For example, (i) use digital to map, manage, and maintain supply chains; (ii) create digital tools to provide near real-time visibility of alternative suppliers; (iii) create digital twins or processes and automate them to the fullest; (iv) connect digitally with suppliers and manage demand and supply.
The capabilities discussed above should be based on a sound organization and supply chain strategic plan. If the major elements of the capabilities exist, recovery becomes a lesser challenge. Supply chain mapping, creating supplier alliances, and supply chain digitization are strategic elements requiring strategic planning, appropriate levels of funding, and prioritization.
Competency is the driver for renew and rebuild stage. While there are others, I will consider two critical competencies for the supply chain for this phase. The key elements for the Competency category are:
- Supply chain stress testing: this competency is a periodic exercise, say bi-annual, to stress test the capacity and capability of the supply chain to recover from severe adverse effects. Thus, a complete and comprehensive stress test plan and execution process should be developed. For example, one could simulate the supply chain impacted by a pandemic environment and test the material, component, and finished goods flow. This is a very difficult, yet essential, exercise for the future. Gaming environments are also promising; a mapped supply chain can be simulated against perverse conditions.
- Learning: Learning is an organizational competency and the supply chain resilience is built and improved by incorporating learning from all events, good or bad. For example, if a gaming exercise or a real event indicates a gap, is the gap validated, and what corrective actions are instituted based on the learning? The learning should cover all relevant people, process, or technology factors. Thus, stress testing and learning are mutually reinforcing as is the feedback to other organizational factors.
In summary, building a resilient supply chain should focus on three phases: survive, recover, and rebuild and renew. Capacity, capability, and competency building are critical to successfully emerging from each phase. The build-out of the 3Cs for supply chain must be a corporate strategy with appropriate levels of planning, prioritization, and funding. If we learn anything from the current Covid-19 impact on the supply chain implosion, it will be to aggressively focus on resilience.