Month: January 2020

The Yoga of Resilience – It Is About Balance*

Whether you are reading the headlines, looking at data trends, or living it in the trenches, it is easy to see that our world is full of potential and actual disruptions that can affect business operations.  Examples from the last year include Hurricane Dorian, the UAW strike at General Motors, and the ongoing threat of tariffs and Brexit, and from today’s headlines we have a new threat – the coronavirus. Some disruptions like natural disasters come with little warning, others lurk in the environment and managers struggle to decide if, when and how they should prepare for them.  Being the proverbial ostrich with your head in the sand does not keep the disruptions at bay – it just guarantees you will be blindsided by them. In today’s business environment, it seems managers across all functions need to be always ready to respond.  We call such an organization ‘resilient’ and we define it as the “capacity of an enterprise to survive, adapt and grow in the face of turbulent change”.  While many focus the resilience discussion on surviving the disruption and getting “back to normal”, we believe the concepts of adapting and growth are important elements, as 1) all disruptions are learning opportunities that can make us better next time; and 2) some disruptions necessitate changes that put is in a better position for sustainable future growth.

     Our research efforts working with national and multinational companies led us to conceive of resilience as a balance between understanding your vulnerabilities and building appropriate capabilities.  Vulnerabilities are the environmental factors that make an enterprise susceptible to disruptions

Figure 1: Balanced Resilience

(more details to follow).  We typically think of vulnerabilities as inherent in the environment – not something we can control.  Some organizations face a lot of vulnerabilities – others relatively fewer.  Capabilities are the management controls that enable an enterprise to anticipate and overcome disruptions.  You can think of these as the risk mitigation strategies that managers can choose between.  The goal of an organization is to be in a state of ‘balanced resilience’ – that is one where they have developed the right level of capabilities for the level of vulnerabilities they face (see Figure 1).  If your capabilities aren’t sufficient for your level of vulnerabilities, you are exposed to risk.  If you have built capabilities that go beyond your level of vulnerabilities, you could be eroding profits by over-investing in those capabilities.

Of course, this is a simplified view because it is also necessary to have the right capabilities.  If your organization is highly vulnerable to cyberattacks, it doesn’t matter how much redundancy you have in your supply network.  So, we have to think about this a bit deeper to truly help managers with their decision-making.

To dig deeper, we identified 36 vulnerabilities, which we categorized into 6 categories (see Table 1).  When people discuss risk, they often focus on vulnerabilities like natural disasters, supplier issues or technology failures.  However, a firm’s risk profile is determined by far more than these risks.  Let’s take brand awareness as an example.  Both Coca-Cola and National Beverage face external pressure because they make soft-drinks that research has shown increases obesity and rates of diabetes.  However, the strength of Coca-Cola’s brand makes them more susceptible to public attacks, and therefore at a higher risk of demand fluctuations if another research report hits the headlines connecting their products to consumer health.  Similarly, well-known companies might be more popular targets of cyber-attacks or terrorism than smaller firms.  We must therefore think broadly about vulnerabilities and even understand how multiple risk areas might interact. 

Table 1: Vulnerability and Capability Factors

We also identified 71 capabilities, which we categorized into 14 categories (see Table 1). As with the vulnerabilities, some of these are often the focus of discussions on risk management – flexibility, redundancy and visibility are all terms that get a lot of attention.  Others, like brand loyalty, might not be as obvious, but if Apple delays the launch of a new product because of a supply chain glitch, can they take advantage of their customers’ loyalty?  Yes, many of their customers are willing to wait and are less likely to turn to a competitor’s product, so they can weather the disruption better than, say, Nokia might.  We have also had many interesting conversations with managers and executives around organizational capabilities.  Some organizations (particularly smaller ones) are able to make quicker decisions in a time of disruption because they have empowered decision-makers throughout the organization, or they have better lines of communication between functional areas.  One company we worked with credited their strong employee loyalty for how they managed through a data disruption – the employees were dedicated enough to their jobs and the company that they jumped in and took pride in working overtime to see the organization through the crisis. Indeed, resilience capabilities come in many forms.

Figure 2: Resilience Gaps

Now that we have them identified, we are at a point where we can discuss matching vulnerabilities with capabilities.  For each vulnerability in Table 1, we have identified the specific capabilities that an organization could build to help them prepare for or recover from a disruption caused by that vulnerability.  Think of this as a large matrix with the 36 vulnerabilities down the side and the 71 capabilities across the top.  If you are facing a particular vulnerability, you can look across the row and see the menu of capabilities that you could consider building to help mitigate that risk.  Or if you are thinking of building a particular capability, you can look down the column and see which risks that might help you mitigate.  To further help with decision-making, we have created a tool (SCRAM™) that will help you measure the gap between a particular vulnerability-capability pairing.  If you rate a vulnerability as high, and a capability as low, you have a large gap in that corresponding cell.  Figure 2 shows the results for a SCRAM™ assessment at the factor level, but it can also measure gaps at the subfactor level.  Again, a manager can look at these results across a row or down a column to help determine the menu of capabilities that could be built to match the pattern of vulnerabilities the organization faces, and therefore increase their state of resilience.

SCRAM™ is just one of many tools managers have at their disposal to help develop resilience and be better prepared for the turbulence that lies ahead.  Risk registers, business continuity planning, war-gaming, supply chain mapping and simulation are others that can help firms understand the risks they face and develop action plans to mitigate them, or help the efficiency or effectiveness of recovery efforts if a disruption occurs.  Regardless of the tool applied, the important thing is to think about risk and disruptions as inevitable – be proactive (don’t be an ostrich) and try to create a state of balanced resilience.

This article is based on the following published articles, which would also make good further reading:

  • Fiksel, J., M. Polyviou, K. Croxton, T. Pettit, “From Risk to Resilience: Learning to Deal with Disruption”, MIT Sloan Management Review, Winter 2015. 
  • Pettit, T., K. Croxton and J. Fiksel, “Ensuring Supply Chain Resilience:  Development and Implementation of an Assessment Tool.”  Journal of Business Logistics.  Vol. 34 (1), 2013, pp. 46-76.  Winner of an Emerald Citations of Excellence Award.
  • Pettit, T., J. Fiksel and K. Croxton, “Ensuring Supply Chain Resilience:  Development of a Conceptual Framework.”  Journal of Business Logistics.  Vol. 31 (1), 2010, pp. 1-21.  Finalist for the Bernard J. LaLonde Best Paper Award.  Most cited paper of the decade (2010s).

Fiksel’s Resilience Model – Part 2

In Part One we looked at Dr. Joseph Fiksel’s Resilience Model in general and the two slower changing quadrants in particular.  In Part Two, we look at the dynamics of abrupt changes in the supply chain and what Fiksel’s Resilience Model suggests.

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As we move further to the right on Fiksel’s Model, we venture into the territory of more abrupt change.  This is the business equivalent of full battle engagement.  Sirens wail.  Red lights flash.  “Battle Stations!” is sounded over the PA.  And supply chain professionals don flack jackets and helmets as they charge toward their bunkers, telephones, and computers. 

To say the least, this is the part where things get a bit less routine and a tad more interesting.

So, let’s look a little closer at these next two quadrants.

Sense & Respond in Fiksel’s Resilience Model

The Low Magnitude/High Abruptness Quadrant covers those sudden disruptions you quite often didn’t see coming.  These can range from short-term backorders to the black swan – the rare and unpredictable event – that can have lasting impact.

Sensing is an important part of this.   Companies such as Resilinc provide supply chain intelligence and monitoring that can alert its client companies to upstream disruptions early on, allowing time to avoid or mitigate the impact.  More on this in the future.

This type of data can be consolidated, visualized, and utilized to respond to changes in the supply chain ecosystem.  A perfect example of this is Flex Ltd.’s (formerly known as Flextronics International Ltd. or Flextronics) Flex Pulse.  Pulse is Flex’s End-to-End software-based, digital collaboration tool that provides unprecedented levels of inventory visibility and real-time global intelligence for managing supply chains. This software-based system combines and interprets live streaming data from multiple sources to provide intelligence on any global variables that may impact or disrupt manufacturing supply chains. Flex Pulse also provides a consolidated view that allows active monitoring of inventory, material quantities, and quality, as well as transportation tracking, including shipment volumes, delivery times, and other aspects of order management.

Flex Pulse Center – Photo Courtesy Flex

Flex Pulse Center is a physical location enabled with multiple collaboration capabilities allowing real-time monitoring of different aspects of Flex global supply chain.

Currently, there are nine Flex Pulse Centers located at strategic manufacturing locations in Milpitas (CA), Guadalajara, Tczew, Althofen, Austin (TX), Chennai, Migdal HaEmek, Wuzhong and Zhuhai.

In addition to Flex Pulse Centers, Flex Pulse is accessed through any computer, tablet, or smart phone, and serves as a platform for collaboration between multiple users.

Risk Management & Business Continuity

For most events that fall in this category, having well-defined risk management processes and emergency procedures in place will help mitigate the problem. Melinda McCants, External Supply Risk Management and Senior Resiliency Officer for Amgen, recommends the creation of broadly cause- or scenario-based (i.e., fire, flood, terrorist activity, etc.) playbooks focused on priorities:

  1. Life preservation
  2. Asset preservation
  3. Business continuity

At the business continuity level, things begin to shift to both a resource-based and more functional point of view.  The switch to a resource-based perspective means we no longer care so much about the situation which caused the disruption (was it a chemical spill, a plant fire, etc.) to what resource was compromised or removed from action (e.g., did we lose a fabrication facility, a metal plater, or all our suppliers along the northeast coast of Japan?).  In other words, the effect of the event. Here ISO 22301, Business continuity management systems – Requirements, provides an internationally recognized standard that practitioners can use to architect their organization’s business continuity management (BCM) program.  From an operational standpoint, this ISO Standard contains a requirement not previously addressed in business continuity standards – the need to plan for a return to normal business.  Key to this is identifying and maintaining alternate supplier(s) for mission critical materials, a plan for personnel substitution or replacement, and Business Impact Analysis.

When establishing alternate suppliers, it is important to confirm to the degree possible that these are, indeed, true alternate suppliers.  The point here is that Spacely Sprockets and Cogswell’s Cogs are not genuinely alternate suppliers if they both share a common, critical first-tier supplier, Harlan’s Hardware. A plant fire at Harlan’s cripples both of these suppliers. Clearly, the more upstream suppliers our suppliers share, the more fragile our supply chain becomes and the accumulation of additional “alternate” suppliers that share those same upstream vendors adds little more than further onboarding and maintenance costs.

This is where supply chain visibility comes into the equation.

Survive and Flourish in Fiksel’s Resilience Model

“The green reed which bends in the wind is stronger than the mighty oak which breaks in a storm.” ― Confucius

The world of the Supply Chain Engineer is complex and getting more so every day.  Offshoring.  Nearshoring, Reshoring.  Global suppliers.   Regional civil unrest.  Inconsistent trade regulations.  On and on….

To address the issues associated with the Survive and Flourish quadrant, Fiksel recommends the following functional actions:

  1. Scenario-based planning,
  2. Crisis management,
  3. Opportunity realization.

He also suggests the following structural configuration changes to support this quadrant:

  1. Asset security and fortification,
  2. Modularity and redundancy,
  3. Business diversification.
Chart Courtesy of Resilinc

Antifragility

With each new layer of complexity comes an exponential increase in risk and vulnerability to disruption.  And catastrophic failures in supply chains are consequently becoming increasingly frequent.  For this reason, companies can no longer rely solely on risk management and business continuity plans.  These are reactive survival tactics, a set of tools to get through a Terrible, Horrible, No Good, Very Bad Day …. They do not, however, do anything proactive to anticipate these disruptions and to build a capacity of resilience. To lift a phrase from Nassim Taleb, traditional risk management and business continuity planning do nothing to make the supply chain organism (SCO) “antifragile”. Taleb defines antifragile as the opposite of fragile.  And while Fiksel argues that the term “resilience” incorporates Taleb’s concept of the antifragile, I think they are complementary, but somewhat different, concepts. Going forward, we will use the term antifragile to describe the resilience tools and processes used in the Survive and Flourish quadrant of Fiksel’s Resilience Model.

Taleb says,” Antifragility is beyond resilience or robustness.  The resilient resists shocks and stays the same; the antifragile gets better.  This property is behind everything that has changed with time: evolution, culture, ideas, revolutions, political systems, technological innovation, cultural and economic success, corporate survival, good recipes (say, chicken soup or steak tartare with a drop of cognac), the rise of cities, cultures, legal systems, equatorial forests, bacterial resistance … even our own existence as a species on this planet. And antifragility determines the boundary between what is living and organic (or complex), say, the human body, and what is inert, say, a physical object like the stapler on your desk.”[i]

Imbedded in Taleb’s definition are two key ideas:

  1. Antifragile systems can actively benefit from disruption, chaos, volatility, and uncertainty; and,
  2. Antifragility is the hallmark of the “living”, complex system and differentiates them from “inert” objects.

When we look at the specific ways to address and mitigate risks in this quadrant in later posts we will examine these two features along with a Paleontologist’s view of what happened following the K-T extinction event 65 million years a

[i]  Taleb, Nassim Nicholas. Antifragile (Incerto) (Kindle Locations 331-336). Random House Publishing Group. Kindle Edition.

The Making of the Supply Chain Engineer – Now Here’s a Crazy Idea

In a previous post, I pontificated on what a Supply Chain Engineer (SCEng) does.  What I didn’t go into is the idea of the making of a Supply Chain Engineer.

Training a Supply Chain Manager

In general, when we talk about a supply chain management professional, we think of the Buyer, or the Logistics Specialist, or the Inventory Manager, etc.  While many of the practitioners out there learned their profession on the job, more and more, employers are looking for SCM professionals trained through more formal education – Bachelor’s, Master’s, even Doctoral degrees.  In some cases, a general background in finance and accounting, economics, and business administration is enough.  In others, training specifically focused on supply chain management, logistics, operations, and procurement is preferable.     In any case, these programs are business administration degrees.  That is to say, they concentrate on the business of managing the flow of goods and services from raw materials to finished goods delivered to the end customer.

Training the Supply Chain Engineer

The SCEng’s training is somewhat different in that it is geared toward developing a business-savvy engineer. The product of this training is a thorough knowledge of analytic methods, engineering practices specifically focused on designing and synchronizing highly complex regional, national, and global supply chains, coupled with enterprise management and professional practice skills.  Here, in addition to business courses related to SCM, the areas of study include:

  • Supply Chain Analytics
  • Machine Learning and Data Mining
  • Supply Chain Cost and Financial Analysis
  • Optimization Methods
  • Designing Logistic and Warehousing Systems
  • Supply Chain Information Systems and Technologies
  • Supply Chain Design

The approach is much more technical.  The Supply Chain Engineering degree is usually (although not always) a Master’s-level degree in Applied Science.  It is a true Engineering degree.

Now for the Crazy Idea

The Master’s-level SCEng degree generally consists of around 30 credit hours of training.  Come to think of it, a Bachelor’s degree usually requires about 30 credit hours of courses in the Major.  And even an Associate’s degree requires around 30 credit hours in the Area of Focus. 

Hmmm.  It seems to me that given 30 credit hours of time with a given student, I could likely teach the same material independent of the setting.  To put a sharper point on that idea, I could teach the same student the same material whether he/she was attending an Ivy League Graduate School, getting a Bachelor’s at a State College or even an Associate’s at a local Junior College.   It may not be quite a nuanced and as detailed at the undergrad level as the graduate program, but fundamentally the same

See where I’m going with this?

So, if they all get the same training, what’s the difference to the student?  Well, after four years of undergrad work and then an MASc from the Ivy League school, the student graduates with knowledge of supply chain engineering along with around $300,000 of student loans.  The State College undergrad graduates with the similar subject matter knowledge and about $125,000 of debt.  But the Junior College student graduates with the same core knowledge and little to no debt.

And how does that impact the company that hires these grads?  Well, let’s assume that the starting salary of a newly minted SCEng runs around $70k and that we place the State College grad at that salary.  The Ivy Leaguer would need to earn at least $95k to have the same disposable income after paying his/her student loan debt.  But the Junior College student could live just as comfortably at around $55K.  So, from a hiring company’s point of view, what is the advantage of paying 20 – 40% more for the same knowledge?  From where I stand, not much.  Alternately, you could pay them all the same base rate (i.e., $70K), but the likely result is that those with the higher student loans will need to move on to better paying positions faster than those with lower overhead.

Finally, how does this benefit the profession?  Two ways immediately come to mind.  First, it allows skilled engineers to go into the field quickly and replace other, less skilled and less trained individuals masquerading under the title of Supply Chain Engineer.  Just as the guy who picks up your trash each Thursday is not a true “sanitation engineer” (or likely any other type of engineer for that matter), neither are most of the people presenting themselves today as Supply Chain Engineers genuine engineers. And the longer they can pose as such, the more it damages the image of the SCEng.

Second, the whole point of an Applied Science degree is just that – for the practitioners to apply their science.  Sure, if you want to be an academic you need to dive into higher ed for the long run.  You need to memorize the names.  You need to know the details of the profession’s history.  You’ve got to really grasp the theories that underlie the science and technology.  But, if you want to be an engineer, you want to do only one thing – apply your science.  So, by making SCEng an undergrad program we provide more people the opportunity to enjoy the satisfaction and sense of contribution that engineering offers.

The Icing on the Cake

I recently discussed this idea with Todd Larson, AVP & Asst. Director Corporate Services at Amica Insurance.  Todd posed an interesting concern: will new employees with an undergrad degree be more inclined to ‘jump ship’ quicker than new hires with advanced degrees after they get some experience under their belts?  Indeed, most companies look at a two to two-and-a-half-year breakeven point on new hires.  If these new engineers are going to come onboard and stay only long enough to get a new line in the experience column of their resumes, that’s going to be a problem.

Thankfully, the US Government helped to provide a little insight.  According to the Bureau of Labor Statistics[i], “The median number of years that wage and salary workers had been with their current employer was 4.2 years in January 2018, unchanged from the median in January 2016.”  Against that baseline, we then look at the median years of tenure with current employers for employed wage and salary workers by educational level and we find that overall those with Associate’s, Bachelor’s and Doctoral degrees all have the same median tenure, 5.1 years.  And when comparing the youngest group, those 25 to 34 years old, the Associates Degree holder had a median tenure of 3.1 years, 2.9 years for Bachelors and 2.8 years for Masters. So, there is no significant difference in early tenure based upon attained education.

To further enhance longevity, some businesses in the US and UK have professional or engineering apprenticeships.  These programs involve hiring a new employee into the apprenticeship at an intermediate or other level.  This could be the case of someone currently working the business side of SCM, somebody with some college, or a military veteran with military technical training. The employer hires the employee to work in their Supply Chain Management Department, pays them a salary and, so long as they stay with the employer and in the apprenticeship program, for their degree.  As the apprentice progresses through their apprenticeship – from Intermediate to Advanced to Higher Apprenticeship to Degree Apprenticeship – both their income and experience increase until they finally graduate and become a full SCEng.

So, there you go – my crazy idea.  Supply Chain Engineers can be trained in an undergraduate environment and done under an apprenticeship program to the benefit of the employee, employer, and the profession.  You know, when you think about it, it might not be all that crazy after all.

[i] US Department of Labor, Bureau of Labor Statistics, September 20, 2018 New Release, “Employee Tenure in 2018”