If Resilience Is the Goal, How Do You Reach It?
iStock/Olivier Le Moal
Resilience now rivals efficiency as a main goal of supply chain management. The question on many minds: What is the best way to measure resilience and progress made toward achieving it?
With significant disruptions to production estimated to occur every 3.7 years on average, that question takes on particular urgency. Companies need to know whether their supply chains will have the flexibility to withstand the next pandemic-scale event.
“We have gone through a series of disruptions related to trade, in particular, and also rampant inflation and massive shifts in foreign exchange that were changing the cost competitiveness of our supply chain,” Jim Loree, CEO of Stanley Black & Decker, said in a recent virtual discussion sponsored by the McKinsey Global Institute. “We put a performance-resiliency initiative in place, which focuses today’s technologies on value pools in the company to extract the maximum amount of margin impact. That initiative looks like it will produce about half-a-billion dollars of value.”
How can other companies take similar steps, even if they lack the resources of a large organization like Stanley Black & Decker? McKinsey said they need to concentrate on these four crucial areas:
- Performance management — Introduce metrics to measure resilience, and balance them with typical cost and growth metrics.
- Governance and process — Run supply chain stress tests in concert with annual strategic-planning process to assess changing factors in the world and if they will create fragility in the supply chain.
- New tools and capability building — Build cross-functional understanding of end-to-end supply-chain dynamics, including functional best practices, and provide access to the tools needed to perform to the new expectations.
- Investor, board, customer and employee understanding — Help each stakeholder group understand how the company is building resilience and why it matters to them.
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