June 12, 2018

Supply chain resilience has received a considerable amount of attention over the last decade or so, and although companies have achieved much in making their supply chains more resilient, many are still unprepared for disruptions. For example, a 2017 Zurich Business Continuity Institute survey with 400 responses found that 23% of the respondents experienced a supply chain disruption leading to at least $1 million losses and 9% experienced a loss in excess of $100 million.

An interesting finding was that 51% of the respondents reported that the supply chain losses were not covered by their insurance.  While Business Continuity insurance to cover supply chain disruptions is gaining popularity, its cost is partially dependent on company resilience. Consequently, it seems that assessing resilience will remain an important capability.

There are certain areas where resilience is consistently taken into account. Sourcing is an example, where it is accepted practice to use multi-source contracts to reduce the potential of a single point of failure. Also, in our research we have encountered a few forward-looking companies that are developing formal processes for investing in resilience.

However, anecdotal evidence suggests that investments in resilience tend to be based on knee-jerk reactions to the last disruption rather than systematic appraisals of risks and responses. 

We see a growing awareness in the corporate and research community that an approach to operationalizing resilience investments may be needed.  By embedding resilience in operational processes, companies will be better prepared to react to disruptions and recover speedily. Our preliminary research suggests the S&OP/IBP process can provide such a platform.

We believe that resilience investments can be quantified, but a regular systematic process is needed when these investments are reviewed and implemented. The S&OP/IBP process could act as the forum for assessing which resilience investments are funded. It can fulfill this role because major corporate functions (sales, marketing, operations, finance and leadership) are part of the process. The participation of these functions makes it easier to get buy-in, to proactively decrease the impact of adverse events and help organizations to serve customers holistically. 

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