It's a paradox: You won't know if or how an investment in supply chain resilience pays off until you actually have to use it—which, ideally, you won't.
The major disruptions of the last few years have made supply chain resilience top of mind of many companies. But because resilience is so hard to measure, it's very difficult to know how much to invest in it.
James B. Rice Jr., Walid Klibi, and Kai Trepte explore this issue and offer some solutions in a recent article in Harvard Business Review. Here's a brief excerpt:
Given the host of disruptive forces that companies have endured over the last few years, it comes as no surprise that supply chain resilience is attracting a lot of attention. Yet creating resilient supply chains remains a difficult challenge for most enterprises. One of the main stumbling blocks is deciding how much to invest in resilience-building programs. Without a clear financial case, such investments often fail to materialize or companies compromise with half-hearted efforts that do not achieve their resilience objectives.
The challenges of trying to make the financial calculus work fall into three key areas: the deficiencies in being able to measure resilience, the uncertainties inherent in projecting future cash flows from investments in improving resilience, and problems obtaining the data required to estimate the discounted cash flow from investments. However, these shortcomings can be addressed by changing the way resilience investments are framed and evaluated.