History of supply chain resilience
Supply Chain Resilience (SCR), is a subject that has been studied in the scientific literature since the beginning of the new millennium. Some crucial episodes, both from an industrial and an economic point of view, have in fact guided the scientific community into the re-thinking of some doctrines.
One of these episodes has been the attack at the Twin Towers on 2011 September 11th, an event which caused a dramatic death toll of 2974 people, and, in addition, triggered a series of events that caused short and medium-term influences in the economic, financial and industrial worlds, as confirmed by the report for the American congress written by Gail Makinen (2002).
Additionally, according to Ernst and Young estimates (2002), the attacks resulted in a $13 billion loss of destroyed private equity and government bonds, along with an estimated $35 to $50 billion loss of insured losses and extreme equity market volatility that wiped out $1.2 trillion of equities in the first week after trading resumed. These figures are just a few examples of the macroeconomic consequences that could be observed in the short term.
Some case studies also exemplify the consequences that this event has had at a widespread level.
For example, due to the immediate closure by the United States of its borders and all incoming and outgoing flights, there was an immediate impact on many Supply Chains (SCs).
As trucks carrying components from Canada and Mexico were delayed in arriving, Ford Motor Co. was forced to run some assembly lines periodically empty, resulting in a 13% drop in fourth quarter 2001 production compared to its original production schedule.
Toyota experienced comparable effects as a result of manufacturing ceasing at its Indiana facility while it awaited the arrival of steering sensors, which typically arrive by air from Germany. (James B. Rice Jr. and Yossi Sheffi, 2005)
Another emblematic episode happened right at the beginning of the new millennium has been the “fire that changed an industry” (Mukherjee, 2008): on March 17, 2000, a lightning bolt struck a semi-conductor manufacturing plant in New Mexico, U.S., owned by Philips. This plant was one of the primary suppliers of, simultaneously, Ericsson and Nokia. Both companies were informed of the plant’s disruption and both were notified that production would resume regularly in a week. The behaviour of both companies in the following days would irreparably affect their future.
The Nokia executives, in fact, immediately checked if the damage could be solved in a week, once they knew that the damage would be solved in more than a month and that this would have delayed the production of millions of mobile phones, they implemented three key actions:
1. A group of executives and engineers concentrated on Philips, looking at the creation of alternate strategies and applying pressure to Philips executives on Nokia’s behalf. Philips rearranged its plans in its factories in Eindhoven and Shanghai in response;
2. Some chips were modified by a second international team so that they could be fabricated in other Philips facilities rather than Philips. When necessary, they consulted Philips to determine how their decisions may be affected;
3. A third team searched for substitute producers to ease the strain on Philips. Within five days, two of my current suppliers responded.
On the other hand, Ericsson’s executives began to take action more than a month after the incident, when the damage was now unrecoverable.
Then, on July 20, 2000, Ericsson announced that the fire and component shortages had resulted in a $200 million operational loss in its mobile phone segment during the second quarter. As a result, earnings per year would be reduced by $333 million to $445 million.
However, Nokia’s early recognition of the issue and quick, decisive response won the day: in the third quarter of 2000, its profits increased 42% as it increased its market share globally to 30%. All because of a fire that had been put out in ten minutes, the mobile phone industry had undergone a permanent transformation.
From resilience to SC resilience:
According to the “Oxford Advanced Learners Dictionary”, resilience is the ability of a substance to return to its original shape after it has been bent, stretched or pressed. Many research fields borrowed then the term “resilience”, in fact this concept is multidimensional and multidisciplinary, since it has been the subject of scientific research for many years in disciplines e.g. psychology and ecosystems.
In ecology, Holling proposed systems to have two distinct properties: resilience and stability. He associated in fact “resilience” to the ability of systems to absorb changes, opposed to “stability” as the ability of the latter systems to return to a state of equilibrium after a temporary disorder (Holling, 1973).
From a social point of view, Timmerman (1981) was one of the first to define the resilience as “the measure of a system’s, or part of a system’s capacity to absorb and recover from the occurrence of a hazardous event”.
This definition has been then evolving: the United Nations Office for Disaster Risk Reduction, for example, provided a more complete definition i.e. “the capacity of a system, community or society potentially exposed to hazards to adapt, by resisting or changing in order to reach and maintain an acceptable level of functioning and structure” (Living with risk, 2004).
An analogy between a business and a person’s needs, for instance, can be drawn to highlight the significance of resilience in contemporary society. The Maslow Pyramid lists human needs in order of importance and the priority with which they should be satisfied (fig. 1).As can be seen, every person prioritizes meeting his or her physiological needs first, i.e., those required for survival. Only after meeting these needs does the same person care about meeting its next level needs, which are those related to security, and progressively those of membership, estimation, and self-realization.
Only when the level before it is satisfied are all the levels of the pyramid taken into account. This is due to the fact that needs do not all have equal priority. Certain considerations should be given higher priority than others.
Even though a corporate organization has more processes and activities than a person does, it nonetheless exhibits the same dynamic: not all processes and activities are given the same importance.
Because of this, a pyramid of demands that applies to humans may also be applied to businesses: in this pyramid, resilience should be at the level for safety. It thus occupies a position of some significance and is necessary for a firm to survive, which warrants the attention that should be paid to its research and growth.
Researchers who specialize in SC have used the resilience idea throughout the past few decades to describe the new performance standards for businesses acting as SC participants. In fact, given the development of modern corporate society, resilience has emerged as a crucial competitive advantage.
In their research, Tukamuhabwa et al. (2015) compiled the most significant SCR definitions created to date. The shortest of these definitions is as follows: “The capacity of a system to transition from a disrupted state to a new, more desired one or to return to its initial state”
SCR resilience definition literature review
Key Take Aways
• Every event from the smallest can be influential and have unforeseen consequences;
• The most concise SCR developed is: “The ability of a system to return to its original state or move to a new, more desirable state after being disturbed”
Check your understanding
• What is one of the possible definitions of resilience?
• In which part of the Maslow’s pyramid is the SCR located and why?
•Makinen, G., 2002. The Economic Effects of 9/11: A Retrospective Assessment 60
•Ernst and Young, 2002. The state of the industry: assessing the impact of September 11
•Yossi Sheffi, James B. Rice Jr., 2005. A supply chain view of the resilient enterprises. MIT Sloan Manag. Rev. 47
•Mukherjee, A.S., 2008. The Fire That Changed an Industry: A Case Study on Thriving in a Networked World | Design Principles for Adaptive Businesses | InformIT [WWW Document]. URL http://www.informit.com/articles/article.aspx?p=1244469 (accessed 11.6.18)
•Holling, C.S., 1973. Resilience and stability of ecological systems. Annu. Rev. Ecol. Syst. 4, 1–23
•Timmerman, P., 1981. Vulnerability resilience and collapse ofsociet. Rev. Models Possible Clim. Appli-Cations.
•Living with risk: a global review of disaster reduction initiatives, 2004 version. ed, 2004. . United Nations, New York.
•Tukamuhabwa, B.R., Stevenson, M., Busby, J., Zorzini, M., 2015. Supply chain resilience: definition, review and theoretical foundations for further study. Int. J. Prod. Res. 53, 5592–5623. https://doi.org/10.1080/00207543.2015.1037934