Global business is at a crossroads. Volatility has emerged as a systemic condition, disruption occurs at any time, often with unprecedented magnitude, and there are no longer discrete sets of risk events with periods of stability in between. When disruptions occur, the global supply chain – now an intricately intertwined web – acts as a massive neural network, spreading impact instantly among all the connected parties. Effects cascade across the extended supply chain, and frequently gain intensity as they ripple outward from the epicenter.
In this environment, traditional supply chain management models begin to break down, bending under the strain of the unknown and the unexpected. Just-in-time, lean and other acknowledged best practices create highly efficient supply chains. As it turns out, however, these supply chains are also brittle and high risk.
In the face of this realization, a new paradigm is emerging: The fast, lean and resilient supply chain. This hybrid tempers efficiency and cost management with rational and appropriate contingent capacity, scale and capability. The new resilient supply chain embodies what futurist Andrew Zolli refers to as the two defining aspects of resilience:
• The ability to maintain a core purpose, or
• The ability to restore core purpose in the face of a disruption.
It goes one step further than that, however. The resilient supply chain not only reduces and recovers from risks but also anticipates, rapidly adjusts, and even capitalizes on unanticipated supply chain events or disruptions. To the latter point, by being able to respond, redirect resources, and shift to alternate strategies and tactics when a disruption occurs, resilient supply chains can capture sales and market share from companies that do not have this ability. Thus, true supply chain resiliency is about growth and competitive advantage – not just disruption avoidance and mitigation.
Building a Resilient Supply Chain
Building a supply chain that is both lean and resilient means creating a new hybrid that balances the need to reduce costs with effective use of redundancy, contingent scale and capacity. This is no easy task, and the solutions are dependent on multiple variables. They differ by customer, by geography and by provider.
Although approaches differ by industry sector, certain attributes are emerging as the hallmarks of this lean-resilient supply chain hybrid. We discuss these below:
The control tower approach: Integrating supply chains so that all the upstream and downstream partners can see the full picture enables them to plan ahead more accurately and manage demand more cost-effectively. It also reduces risk, because the supply chain is operating according to a single plan and a single ‘version of the truth.’ This kind of collaborative model already exists in industries like automotive and technology – and is beginning to be adopted by other sectors as well. The model, called the supply chain control tower or lead logistics provider, is executed by some third party logistics companies.
Exactly what is a supply chain control tower? “Picture a room with computer consoles and overhead displays. Instead of air traffic controllers, you have a dedicated staff of supply chain experts monitoring those screens, which allow them to track freight movements and stay on top of any relevant developments. That visibility results in rapid notification of disruptions, allowing companies to take corrective action.”
At the heart of the control tower concept is real-time visibility across the extended supply chain –incorporating suppliers, manufacturing nodes, carriers and third party logistics service companies, and customers. A lead logistics provider (LLP) sits at the top of the control tower, using real-time visibility tools to constantly monitor and assess the condition and performance of the supply chain. Thanks to alerting systems, potential or real problems can be identified and addressed proactively – before they disrupt the supply chain
Real-time visibility enables the supply chain to be orchestrated in a collaborative fashion, reducing risk from the unknown and thereby improving resiliency. Global best-in-class LLPs can provide what amounts to an on-the-ground sensor grid in their countries of operations, geared to continuously monitor supply chain conditions. This capability is particularly important for companies that are expanding their geographic footprint in new markets.
The control tower model can be a highly effective way to manage the daily operations of a global supply chain, and, on a more strategic level, identify and manage risk and disruptions. Better visibility also reduces inventory in the channel. And supply chain network design, a hallmark of the control tower model, optimizes the network for both cost and service.
This article was excerpted from a recently published report titled “The Resilient Supply Chain” written by Lisa Harrington, a strategic consultant, academic and co-author of three books. The report was sponsored by DHL, a part of Deutsche Post DHL. At the Robert H. Smith School of Business, University of Maryland, Harrington is associate director of the Supply Chain Management Center and lecturer on supply chain management. She also is president of the lharrington group LLC, a firm providing strategic consulting services across global supply chain strategy, operations and best practice.