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Introduction: Supply Chain Resilience and Homeland Security This week we are examining the U.S. Supply Chain and its’ relationship to resilience. One element of a successful homeland security regime is the free and unencumbered movement of goods and services in an out of the United States. As Americans we are used to going into a grocery store and see a wide variety of fresh fruits and vegetables. We are used to driving to a gas station and filling our car up. The biggest decision typically is which gas station brand we want to patronize. It is choice upon choice upon more choices. Ever walked into a grocery store and looked at just the different kinds of lettuce available? This choice is provided by a security Supply Chain that is resilient to disruption. However, the era of COVID has underscored that this resilience is perhaps not what the world’s manufacturers and transportation systems operators thought it was.

In every one of the purchases described above two things are critically important points stand out. First, we live in a “just in time” shipping economy. This means that companies do not have large stores of supplies, either raw material, components or finished product “on hand”. Gone are the days of massive warehouses. Second, it also means that everyone from manufacturers to retailers place a demand signal for a constant, sustained, uninterrupted flow of material. As long as the goods and services flow without disruption, businesses thrive individually, and the economy grows collectively.

Understanding Supply Chain Resilience/ By Steven A. Melnyk, David J. Closs, Stanley E. Griffis, Christopher W. Zobel, and John R. Macdonald (researchgate.net)

Resilience is the capacity for complex systems to survive, adapt, evolve and grow in the face of turbulent change. The resilience enterprise is risk intelligent, flexible and agile.no more is this more evident that than in the supply chain. Face it, we live in a just in time delivery system for both raw materials and parts and finished products. There are multiple estimates, but most studies have shown that American manufacturing has less than a week of “supplies” on hand and a non-resilient system. Nassim N. Taleb, in his book “The Black Swan: The Impact of the Highly Improbable” has underscored a serious issue involved with supply chain resilience “Our world is dominated by the extreme, the unknown, and the very improbable...while we spend our time engaged in small talk, focusing on the known and the repeated.”

Additionally, Fiksel et al. noted, “The reality is that supply chain practices designed to keep costs low in a stable business environment can increase risk levels during disruptions. Just-in-time and lean production methods, whereby managers work closely with a small number of suppliers to keep inventories low, can make companies more vulnerable due to the lack of buffer capacity.”

Fikse et al. work was expanded in the Deloitte White Paper entitled, “Supply Chain Resilience: A Risk Intelligent Approach to Managing Global Supply Chains” indicated that 85% of global security chain’s experienced at least one major disruption in a 12-month period. That is a pretty significant number. The impact of a significant disruption is almost immediate.

Consider the west coast port lockout which was mentioned earlier in the course. On September 27, 2002, the Pacific Maritime Association, which was a managing association representing shipping and stevedoring employers, closed all 29 ports on the West Coast. The closure occurred during one of the most significant contract disputes ever with the International Longshoremen's and Warehousemen's Union and underscored the brittle nature of just “in time manufacturing” and the lack of resilience in the intermodal transportation system. The impact to the nation’s manufacturing process was almost immediate. The lockout, which was covered extensively by the world press, lasted just 11 days, was the first major work stoppage on the western docks since 1971.

The Economic Cost of Disruptions in Container shipments The impact and visual image from the lockout was immediate with hundreds of merchant ships queued up off shore. There were no ports available on the west coast to take them and even though merchant ships get re-routed routinely. Some merchant ships require specialized off-load capability. There also may be a need for rail or other port capabilities that simply don’t exist from one port to another. So, the ramifications on just a single port disruption is not isolated to that port alone.

According to the Public Policy Institute of California’s Haverman and Shatz the Port of Los Angeles-Long Beach processed 23 billion dollars’ worth of goods. This accounted for 10 percent of all U.S. trade and 25 percent of all waterborne trade. When you combine final figures this single dual port complex accounts for 2 percent of the entire U.S. Gross Domestic Product (GDP). The same impact was underscored by a 2006 Congressional Budget Office report entitled, “The Economic Cost of Disruptions in Container shipments” further highlighting a lack of resilience in the U.S. Maritime Transportation System and the intermodal transportation nodes. To further underscore the impact of this disruption, take a look at pages 11-28 of the report”. The CBO looked at the economic impact of a closure of 1 week and 3 weeks. The impacts are significant. The longer a port is shut down…the impact on the national economy and our country’s GDP.

Haverman and Shatz’s work found a similar conclusion in Melnyk et all who noted, “In today’s increasingly dynamic and turbulent world, one where the supply chain plays an increasingly more important role, numerous events occur each day that threaten to disrupt operations and jeopardize the ability to perform effectively and efficiently. These events include natural and man-made disasters such as equipment failures, fires, labor disputes, supplier defaults, political instability, and terrorist attacks.

Each can have devastating effects on a firm. Such disruptions reinforce the insights that not only can supply chain disruptions affect operations; they often result in financial damage well beyond the immediate operational impacts.

One approach to dealing with disruptions is the development of supply chain systems that are resilient. However, this notion of resilience, which is at the heart of so much of our current thinking about supply chain risk and management, is often not well-defined and subject to a great deal of confusion”.

COVID-19’s impact on the Supply Chain has and continues to be significant. In the September- October 2020 Harvard Business Review’s article by Willy C. Shih entitled, Global Supply Chains in a Post-Pandemic World Companies need to

make their networks more resilient. Here’s how noted:

When the Covid-19 pandemic subsides, the world is going to look markedly different. The supply shock that started in China in February and the demand shock that followed as the global economy shut down exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere. Temporary trade restrictions and shortages of pharmaceuticals, critical medical supplies, and other products highlighted their weaknesses. Those developments, combined with the U.S.-China trade war, have triggered a rise in economic nationalism. As a consequence of all this, manufacturers worldwide are going to be under greater political and competitive pressures to increase their domestic production, grow employment in their home countries, reduce or even eliminate their dependence on sources that are perceived as risky, and rethink their use of lean manufacturing strategies that involve minimizing the amount of inventory held in their global supply chains. (Global Supply Chains in a Post-Pandemic World Companies need to make their networks more resilient)

Dr Cyrus Hadavi the CEO of Adexa, an Artificial Intelligence powered supply chain planning company (2021) noted:

For many years, companies have invested to become more agile and slimmer, operating at higher and higher efficiencies. Resiliency, on the other hand, demands a company’s capability to deal with the unexpected. As an example, investing more in certain types of raw material inventory may reduce efficiency however is the premium to ensure availability of the products when an unexpected event causes disruption in the delivery of these raw materials.

Resiliency also implies having multiple sources of supply from different regions and different suppliers. Given the current geopolitical and socioeconomic dynamics in the world, it is highly unreliable to depend on a single source of manufacturing or raw material availability. To this end, supply chain design takes a critical role to ensure cold redundancies at every step of the supply chain. Simple what-if scenarios can identify the criticality of certain suppliers, subcontractors, types of equipment or regions that are likely to face breakdowns or disruptions.

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How To Build Resilient Supply Chains

European School of Management and Technology - Berlin Contributor Follow

Dec 7, 2021, 03:44am EST

Listen to article 5 minutes

By Catalina Stefanescu-Cuntze, ESMT Berlin

Leaders in supply chain management have a wide scope of tasks and responsibilities. The

minutiae of daily operations, logistics, and the performance evaluation of diverse and

dispersed suppliers must be managed alongside implementing visionary strategies that

address trends, threats, and opportunities in fast-paced and complex marketplaces. Until

the disruption of the COVID pandemic, supply chains appeared to generally run at peak

efficiency. Globally dispersed suppliers provided B2B and B2C consumers with goods

across all industries and at speed.

Aerial view of fully loaded container ship GETTY

Efficiency has been a cornerstone concept for industry for decades. But it was the very

structure of the efficiency-driven industry model that contributed to supply chain failures

under the pandemic, during which COVID restrictions were merely one of several critical

factors. Geopolitics, Brexit-related regulatory restrictions, the Suez Canal obstruction,

Hurricane Ida and energy shortages – these crises crippled supply and created huge

barriers to meeting demand.

Tomorrow’s leaders must better prepare for such contingencies. But how can they

identify the causes of supply chain fragility and mitigate its effects?

Causes and effects of supply chain fragility

What manufacturers and service providers across industries learned about supply chains

during the pandemic is that supplies are often too far, in too few places, and with too little

inventory to meet unpredictable and highly variable demand.

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Too far. Sourcing supplies in far-flung locales has been a go-to solution for

manufacturers looking to lower their costs. But this requires long transportation chains

and thus increased exposure to adverse events. When the container ship Ever Given

blocked the Suez Canal for nearly a week in March, the resulting traffic jam affected

approximately 12% of global trade at a cost estimated at nearly $10 billion each day.

Shipping rates also skyrocketed – costs that were partly passed on to customers used to

lower prices on faster deliveries.

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Too few. Focusing on a single geographic region or country for supplies has further

helped some manufacturers to drive down costs, due to economies of scale and increased

specialization. But, as diverse manufacturers learned, this can mean exposure to specific

vulnerabilities in supply, while alternatives are largely absent. For instance,

semiconductor production in Taiwan and South Korea makes up 70% of the chip

manufacturing market, a fact that – under COVID restrictions in Asia – meant shortages

for automobile and electronics manufacturers relying on chips.

Too little. The just-in-time model pioneered by Toyota in the 1970s has long dominated

manufacturing. The financial advantages of having less standing inventory – meeting

only the needs of the next operation – are considerable. But as the pandemic showed, just

one major adverse event meant there was little inventory to tap into to absorb the shock.

And the shocks reverberated further throughout the supply chains creating a bullwhip

effect.

Stressed worker sits in container box at shipyard GETTY

Building resilient supply chains

Manufacturing executives can mitigate the effects of the efficiency paradigms in order to

make supply chains resilient in the face of critical threats. Three top solutions are:

Reshore production. Instead of offshoring, relocate production closer to home. Ford

recently did this – launching a new battery development center in southeast Michigan to

meet growing demand for electric vehicles without increasing reliance on overseas

suppliers.

Diversify suppliers. More inventory in still too few places will not be enough to

mitigate the risks of significant disruptions. Manufacturing executives must diversify the

suppliers they draw on to hedge global supply chain risk.

Increase inventory. Alongside just-in-time supply chains, consider what experts are

calling just-in-case solutions. This requires building inventories at critical points of the

supply chain so that they weather the storms of diverse crises.

While these strategies come at significant cost, supply chain fragility must be addressed

in order to meet demand and restore consumer confidence. We must acknowledge that

the earlier gains in efficiency undermine resilience. Sustainable business futures need

both efficiency and resilience, as well as visionary leaders ready to learn and apply the

lessons on the value of resilience.

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