The Resilient Supply Chain: Competing on the Ability to Come Back from Disaster
Supply chains are becoming more complex and interconnected just as economic, environmental, political, and technology-related shocks grow more frequent. Research indicates that a majority of companies will face a crisis every four to five years, and of those that do almost 75% will close or suffer a significant long-term impact. The ability of any firm to prosper may depend on how well its managers are prepared to face these challenges.
For Middle Market companies, the situation is especially dire. Many sell to larger businesses, which are streamlining their vendor lists to cut costs. Middle Market firms cannot risk letting glitches in their own supply chains make them weak links in their customer's supply chains.
To better prepare for future disruptions, Middle Market companies should do more than improve risk management: they should improve resilience. Risk management is a structured process of risk identification, assessment, and mitigation. Resilient organizations practice risk management, but they are flexible enough to deal with unidentified risks as well. And resilient companies are prepared not just to weather disaster but also to adapt to dramatically altered environments. In a truly calamitous event, resilient companies can benefit by continuing to operate while competitors stall or stop. They are also prepared for slower moving threats.
Keely Croxton, A. Michael Knemeyer, and Joseph Fiksel, fellows of The National Center for the Middle Market studied three Middle Market industrial companies. In addition to conducting in-depth interviews with senior managers, they analyzed the firms - vulnerabilities and capabilities using a tool developed by two of the paper's authors. That tool, called SCRAM (Supply Chain Resilience Assessment and Management), is also being deployed by Dow Chemical. The authors identified six steps that Middle Market firms can take to shore up their operations and become, in turn, model links in their customers - supply chains.
Six Steps Towards Enterprise Resilience
1: Share risks and rewards with links up and downstream.
A company's most trusted and collaborative customer or vendor may carry more weight than the customer or vendor with whom it does the most business. Rather than rely on the volume of their sales or procurement, Middle Market firms can gain leverage by sharing risks and rewards with upstream and downstream supply-chain members. Stronger relationships can translate into more flexible contract terms, which help mitigate capital constraints and demand fluctuations.
2: Collaborate with competitors.
Cooperating with competitors is common in this networked world and can help overcome constraints in supply chains. For example, automotive giants Aston Martin, Jaguar Land Rover, and Toyota formed a community of "collective protection" against supply-chain risks. The benefits of joining such an alliance include access to physical and knowledge resources, risk sharing, and improved efficiency. But cooperation with competitors poses risks as well. Company leaders should weigh tradeoffs before making this decision.
3: Develop a risk register.
A risk register is a repository of information about the probability and impact of risks as well as mitigation strategies. Middle Market managers often work in the same building and know each other's functions well. Not infrequently, their supply chains are simple enough to draw on a single whiteboard. Applying shared knowledge to the identification and mitigation of risks can create significant advantages over larger companies, where many people analyze more complex systems.
4: Focus on core competencies.
Eager to grow, Middle Market firms can lose focus on the things they do best. They pursue potential customers by investing in products and services outside of their core competencies. Lack of focus can lead to ill-advised diversions of scarce resources.
5: Innovate within your core competency.
Constant innovation keeps companies agile and delights customers. Innovation, quality, and reliability are among the key contributors to brand loyalty. Since quality and reliability may suffer in a disruption, a reputation for innovation will help weld customers to your brand, thus increasing their willingness to wait for your recovery.
6: Capitalize on employee loyalty.
In a resilient culture, employees are protective of the company's welfare and willing to stick with it, even in bad times. Their deep knowledge and institutional memory help identify problems and find solutions. In emergencies, they will put in extra hours and do whatever else is required. While you're anxiously scanning the horizons, loyal employees have your back.
To learn more download the white paper or to see how your company's supply chain stacks up, check out the Center's Supply Chain Resiliency Assessment.