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A Supply Chain View of the Resilient Enterprise

October 15, 2005 | Prof. Yossi Sheffi Sheffi@mit.edu , Prof. James B. Rice Jr. jrice@MIT.EDU | Operations
Many companies leave risk management and business continuity to security professionals, business continuity planners or insurance professionals. However, the authors argue, building a resilient enterprise should be a strategic initiative that changes the way a company operates and increases its competitiveness. Reducing vulnerability means both reducing the likelihood of a disruption and increasing resilience. Resilience, in turn, can be achieved by either creating redundancy or increasing flexibility. Redundancy is the familiar concept of keeping some resources in reserve to be used in case of a disruption. The most common forms of redundancy are safety stock, the deliberate use of multiple suppliers even when the secondary suppliers have higher costs, and deliberately low capacity utilization rates. Although necessary to some degree, redundancy represents pure cost with no return except in the eventuality of disruption. The authors contend that significantly more leverage, not to mention operational advantages, can be achieved by making supply chains flexible. Flexibility requires building in organic capabilities that can sense threats and respond to them quickly.

Drawing on ongoing research at the MIT Center for Transportation and Logistics involving detailed studies of dozens of cases of corporate disruption and response, the authors describe how resilient companies build flexibility into each of five essential supply chain elements: the supplier, conversion process, distribution channels, control systems and underlying corporate culture. Case examples of Land Rover, Aisin Seiki Co. (a supplier to Toyota), United Parcel Service, Dell, Baxter International, DHL and Nokia, among others, are offered to illustrate how building flexibility in these supply chain elements not only bolsters the resilience of an organization but also creates a competitive advantage in the marketplace.
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