Is It Resilience You’re After? Better Start with a Stress Test
“Resilience” is the supply chain buzzword of mid-2020. Almost every look at the current state of affairs (such as here, there and, well, everywhere) declares that organizations need to bake this important quality into their operations.
The thing is, as the headline of a new Harvard Business Review article points out, “Building Resilient Supply Chains Won’t Be Easy.”
In addition to providing that much-needed splash of cold water, the authors questioned another popular idea: reshoring important industries such as life sciences and healthcare back to the United States. Not gonna happen, they argued, simply because China is too dominant of a player for many organizations to easily transfer operations back to the States.
Rather than resorting to simplistic calls to move industries around the globe, writers David Simchi-Levi and Edith Simchi-Levi said building resilience into the supply chain starts with organizations doing a lot of homework and study. (Hey, this is Harvard, after all.)
“The best way to make supply chains more resilient is by mapping the layers of suppliers, manufacturing plants, distributors and other elements of the logistics network and applying a stress test to evaluate the ability to recover from the disruption of these sites,” they wrote. “Once there is an understanding of where bottlenecks are located, various mitigation strategies can be considered, including adding manufacturing capabilities or suppliers or creating buffer stocks.”
The writers cite the example of Ford, which performed this exercise and found its manufacturing operations were vulnerable to a disruption in the supply of a relatively inexpensive sensor. Because this item was not costly in itself, the company’s procurement group did not even have it on its radar as a potential risk.
For some key industries, such as pharmaceuticals, the HBR article even suggested there is a role for government involvement. “There is a precedent: In the wake of the 2008 financial crisis, the U.S. government and European Union instituted a stress test for banks to guarantee that major institutions whose failure could cause the entire financial system to collapse had the wherewithal to survive a future crisis,” the authors noted. “Based on our experience in supply chain risk, we suggest that similarly critical supply chains should be required to pass stress tests.”
Having performed a stress test, an organization might in fact learn that moving some production back to the United States makes sense for it. “But without understanding the vulnerabilities that currently exist, such decisions can’t be made,” they concluded. “Companies need to act now to uncover the weaknesses that exist in their supply networks, and governments must decide which industries are essential to their countries.”