Efficient supply chain management has been seen as a competitive advantage for decades. It helps companies cut costs, block competitors, and react quickly to market demands. Now, there's another aspect of supply chain management - resilience - that has clearly become important to remain competitive, particularly for mid-sized companies.

A few years ago, Japan felt the devastation of an earthquake and tsunami. In addition to the tragic loss of life, the industrial destruction rippled throughout the world. Eighteen months later, organizations in a dozen industry sectors still felt the impact to their supply chains, as the Financial Times reported. Sixty-five percent of companies took at least a month to get their businesses back to normal.

Mid-sized companies were particularly hard hit, lacking the money and capabilities of large competitors. They also face danger from the changing strategies of their big customers, "which are streamlining their vendor lists to cut costs." A company that cannot get back on its feet quickly enough runs the risk of losing key customers.

The chance of facing a major natural disaster has steadily grown since 1980 around the globe, according to reinsurer Munich Re. But there are other sudden changes - natural disaster, pandemic, pricing pressure, reputation damage, and regulation, for example - that can overtake a company. In fact, according to research by Paul Michelman in the Harvard Business Review's Supply Chain Strategy Newsletter in 2005, most companies face some sort of supply chain crisis every four to five years. Of these, 75 percent face a long-term impact and 43 percent never fully recover. Supply chain management resilience has become a critical issue.

As research sponsored by the National Center for the Middle Market has shown, the answer is to look at the studies of ecology and biology and build a resilient organization. Instead of solely focusing on risk management to predict what can go wrong, a resilient organization also develops the flexibility to manage unidentified risks as well as predictable ones.

Whether the potential problems are frequent changes in external factors, deliberate attacks, general external conditions, resource limitations, sensitivity of production and processes to operational conditions, or the degree of interdependence and reliance on other organizations, a resilient organization uses different strengths of its supply chain to weather whatever storm it faces. These strengths include flexibility in sourcing and manufacturing, ability to adapt to new challenges or opportunities, ability to anticipate changes through demand forecasting and rapid response to changed conditions, visibility of supply chain systems and resources, effective collaboration with partners, security, and the ability to recover normal operational states, among others.

The concept is not to focus on becoming invulnerable to problems or even catastrophes. To do so would be exceedingly expensive and consume attention that should be focused on growing the business. Instead, management develops a zone of balanced resilience, where both potential margin erosion and risks are considered, but neither to an obsessive degree.

Mid-sized companies can use a number of strengths their size offers, including nimbleness and ability to make decisions based on a relatively small number of actors, employment commitment to the firm, and a strong but measured approach to innovation. According to the research, there are six steps a mid-market company can take to become more resilient:

  1. Build stronger relationships with inbound and outbound supply chain partners.
  2. Form strategic horizontal alliances with competitors.
  3. Create a cross-functional management team.
  4. Focus on core competencies.
  5. Innovate within core competencies.
  6. Capitalize on employee loyalty.

By developing such abilities, a mid-market company can more thoroughly offset disasters and sudden shifts in the operating environment.

Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, Newsweek, The Financial Times, Chief Executive, Inc., and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter.