Winston Churchill’s advice to "never let a good crisis go to waste" is more relevant than ever in today’s volatile commercial environment. As Professor Yossi Sheffi, Director of the MIT Center for Transportation & Logistics, explains in his new book The Power of Resilience: How the Best Companies Manage the Unexpected (MIT Press, October 2015), companies can turn supply chain threats into opportunities to improve their competitiveness.
The 2008 financial crisis hit many enterprises, including P&G’s feminine care division. But rather than cut costs in response to the fallout, the company launched an aggressive recovery program to transform the supply chain.
In The Power of Resilience, Stefan Brunner, the division’s Budapest plant manager for manufacturing in Europe, the Middle East, and Africa, says that the company “saw this as an opportunity to focus on improving some supply chain fundamentals and emerge from the recession in a stronger position.”
P&G tightened internal and external integration, including greater collaboration with key suppliers. It developed rapid product changeover capabilities to launch new products in order to reignite growth. As a result, the company increased manufacturing productivity by 20%, reduced regional inventory by 18% while keeping customer service levels high, cut material lead times by as much as 50%, accelerated new product launches, and dropped total delivered costs by more than 12%.
But disruptions do not have to be on the scale of a global financial meltdown to yield opportunities like these.
When chip maker Intel uncovered a defect in its new Cougar Point plant chipset in 2011, it had to make 6 million replacement chips as fast as it could. Intel used an internal discussion forum called Output Max to expedite production and distribution. The response taught Intel how to speed up when needed, and reset expectations for what could be done when speed becomes a top priority. The event proved to be a key part of Intel’s ongoing evolution to ever-greater speed and agility.
Intel’s Output Max discussion forum also helps the company to maximize the output of its manufacturing lines to deal with disruptions as well as unexpected spikes in demand. If resilience is the ability to bounce back from downside events, it also provides the ability to bounce forward for upside events.
Heavy equipment manufacturer Caterpillar uses visibility tools that help the company to be a more responsive manager of disruptions to streamline its distribution network.
The tools give managers a holistic view of the company’s operations, enabling them to detect and deal with disruptions such as a port labor strike. In addition, managers use the same tools to optimize network flows and drive better predictability. Resilience during disruptions and agility in normal operations are both benefits of the same investments in improved visibility and the management of uncertainty.
Disruptions can also come in the form of competitive threats, such as a new product from a market rival. Mid-size pharmaceutical firm Takeda integrates internal market information with external data from a third-party provider to keep track of market developments. But just gathering data is not enough; speed of response is critical when a competitive threat arises. The company’s efforts to improve its disruption response times have helped it to become a more effective competitor.
For example, if the company hears of a rival’s planned product launch in a particular region, Takeda crunches the numbers in real time and alerts its sales force in that region. The sales team can immediately launch a counter-effort to hold or increase the company’s market share. This is a vast improvement on previous practice were it could take as long as one month before a market analysis was available.
A crisis can also be used to unlock creativity and implement reforms that might not be on the radar screen during normal operations.
After the 9/11 terrorist attacks revealed the vulnerability of Manhattan skyscrapers, the risk management group at a leading Wall Street financial services firm concluded that the organization’s entire staff needed the option of working from home. But senior management balked at the cost of supporting tens of thousands of telecommuters. The risk management group partnered with HR and repurposed the project as a diversity and inclusion initiative, for example by empowering disabled employees to remain active. This creative "rebranding" helped to get the resilience project approved.
The firm discovered how to use its response to a major disruption to make improvements to everyday operations – a lesson that any company can learn.
"The Power of Resilience: How the Best Companies Manage the Unexpected" is available from Amazon.com, and from MIT Press at http://mitpress.mit.edu.