Should supply chains be built for Efficiency or for Responsiveness?
Leanness / Efficiency is currently the leading approach to supply chain management. The main principle of lean supply chains is elimination of any part of the system that does not bring value (it is wasting)– costly inventory, excessive capacities, duplicate suppliers, distribution elements or transportation. The primary objective is to achieve a highly efficient supply chain (cost minimization) and to satisfy the demanding requirements of customers (competitive level of services). However, the concept of lean supply chain is closely linked with a relatively steady business environment. This is in contrast with the following trends: globalization, outsourcing, centralization, IT-dependence, complex product and service, deficit of information, specialized factories, volatility of demand, technological innovations.
Christopher defines agility as an ability of an organization to respond rapidly to changes in demand both in terms of volume and variety. Sheffi says agility is the ability to respond to unanticipated changes. Sharifi and Zhang focus their attention not only on the changes in demand (market), but on all the changes in the business environment– agility is the ability to cope with unexpected changes, to survive unprecedented threats of business environment, and to take advantage of changes as opportunities.
The resilience of the supply chain will be defined as the ability of a supply chain to return to its original state in case of its serious disturbance.
In any system, of the 3 characteristics – Open, fast and stable – one can have only two.
An open and fast system, like the world we live in, will be inherently unstable. A fast and (relatively) stable one tends to be closed (like China). If the system is open and stable (like the Ottoman empires), it will probably be sluggish rather than dynamic.
Networks with the greatest resilience — ability to stand the test of time–are not the most efficient. In fact, the least resilient networks in nature are the MOST efficient. The most resilient networks have two characteristics:
1. Redundancy: In nature, the networks that last over the generations are those that have the right amount of redundancy. This includes excess capacity, extra nodes, and bypass routes. The efficient network with minimal capacity, node-to-node connections, and no parallel routes fail. This is especially true in push environments.
2. Dynamic reconfiguration: Likewise, in nature, the networks that stand the test of time can reconfigure dynamically under stress. Networks with the most centrality have the greatest failure rate.
New Gartner research shows that only 21% of supply chain organizations believe they have a highly resilient network today. Increasing resilience will be a priority for many supply chain leaders as they emerge from the current crisis and reset strategies to expect disruptions as the “new normal” in the future.