From Risk to Resilience: Learning to Deal With Disruption

Globalization has made anticipating disruptions and managing them when they occur more challenging. Although companies originally moved production offshore to countries such as India and China to take advantage of lower labor costs, events such as Iceland’s 2010 volcanic eruption and the Japanese tsunami in 2011 have shown that the vulnerabilities of extended supply chains are real and serious.

Lean supply-chain practices, designed to keep costs low in a stable business environment, can increase risk levels during disruptions due to the lack of buffer capacity. While companies tend to focus on the supply side of their supply chains when scanning for potential risk factors, they also need to pay attention to the customer side.

Approaches to risk management such as enterprise risk management (ERM) and business continuity management (BCM) can help companies avoid supply-chain disruptions and recover normal operations quickly. But in the authors’ view, they rely too heavily on risk identification when many of the risks are unpredictable or unknowable before the fact. They also depend on statistical information that may not exist and address each risk independently. Finally, they are predicated on the goal of returning to a stable operating condition.

Based on their work with a number of companies, including fashion retailer L Brands Inc. (formerly known as Limited Brands), Dow Chemical, Johnson & Johnson and Unilever, the authors present a comprehensive framework for assessing supply-chain vulnerabilities and addressing them through enhanced resilience capabilities. The framework, which they call Supply Chain Resilience Assessment and Management (SCRAM), is based on an explicit characterization and prioritization of the vulnerabilities that make an organization susceptible to disruptions, and the capabilities that help an organization anticipate and overcome disruptions. The framework is designed to help companies identify their most important supply-chain vulnerabilities and to set priorities for capabilities that need to be strengthened.