The Power of Resilience: How the Best Companies Manage the Unexpected

by Yosef Sheffi

How the best companies prepare for and manage modern vulnerabilities—from cybersecurity risks to climate new tools, processes and organizations for developing corporate resilience. A catastrophic earthquake is followed by a tsunami that inundates the coastline, and around the globe manufacturing comes to a standstill. State-of-the-art passenger jets are grounded because of a malfunctioning part. A strike halts shipments through a major port. A new digital device decimates the sales of other brands and sends established firms to the brink of bankruptcy. The interconnectedness of the global economy today means that unexpected events in one corner of the globe can ripple through the world's supply chain and affect customers everywhere. In this book, Yossi Sheffi shows why modern vulnerabilities call for innovative processes and tools for creating and embedding corporate resilience and risk management. Sheffi offers fascinating case studies that illustrate how companies have prepared for, coped with, and come out stronger following disruption—from the actions of Intel after the 2011 Japanese tsunami to the disruption in the “money supply chain” caused by the 2008 financial crisis. Sheffi, author of the widely read The Resilient Enterprise , focuses here on deep tier risks as well as corporate responsibility, cybersecurity, long-term disruptions, business continuity planning, emergency operations centers, detection, and systemic disruptions. Supply chain risk management, Sheffi shows, is a balancing act between taking on the risks involved in new products, new markets, and new processes—all crucial for growth—and the resilience created by advanced risk management.

Genres: Business, Management, Nonfiction

484 pages, Kindle Edition

First published September 18, 2015

Reviews

[Antonio · Rating 4 out of 5]

Although the book is written in 2014 it is fascinating how up-to-date it is today with experience of disruption in Supply Chain in pandemic and energy disruption because of Russo-Ukraine war.

The author goes from the basics of Supply Chain management, what are possible disruptions and how to mitigate them. It's sort of follow-up on the book The Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage by the same author with some new developments in the area of supply chain disruptions (like 2008 recession with financial disruption).

This is my assessments of this book The Power of Resilience by Yossi Sheffi according to my 8 criteria:
1. Related to practice - 5 stars
2. It prevails important - 4 stars
3. I agree with the read - 5 stars
4. not difficult to read (as for non English native) - 4 stars
5. Too long (more than 500 pages) - short and concise (150-200 pages) - 4 stars
6. Boring - every sentence is interesting - 4 stars
7. Learning opportunity - 4 stars
8. Dry and uninspired style of writing - Smooth style with humouristic and fun parts - 3 stars

Total 4,125 stars

The Power of Resilience: How the Best Companies Manage the Unexpected - Yossi Sheffi

───────────────

◆ The Globalization of Supply Chains

▪ From the point of view of a single company, a supply chain—which is actually a network of suppliers, subsuppliers, and service providers39—can be thought of as having five different aspects:
• The parts that go into the company’s products,
• The identities of the network of suppliers who make those parts,
• The locations where parts and products are made, assembled, and distributed,
• The flows of parts and products (including the transportation links that move materials along the chain), as well as the flow of information and cash, and
• The inventories of materials, parts, and finished goods stored or being handled in various stages of the chain.
Each of these five aspects provides different insights into the risks to which supply chain operations are exposed.

▪ Exploding the BOM: The “What” of Supply Chains

▪ To manage the myriad subassemblies, parts, and raw materials required to build a particular unit (a car, for instance, may have 50,000 parts), companies create a bill of materials (BOM) that lists the quantities of subassemblies, parts, and raw materials required to make one unit of a product. For example, the BOM for an automobile would include: one body, one engine, one transmission, four door assemblies, two axles, four brake assemblies, five wheel assemblies, one navigation system, and so forth. Each of these parts, in turn, includes other parts and subassemblies, and so on. The assembled engine might include one engine block, six pistons, six fuel injectors, six spark plugs, twelve valves, etc. Each piston might include: one connecting rod, three piston rings, and so on. The BOM is a hierarchy that, if drawn, looks like a tree in which a set of leaves makes a twig, a set of twigs makes a branch, and the entire collection of branches makes the finished product.

▪ To make some planned number of products on an assembly line, companies use material requirements planning (MRP) software to ensure that they make or purchase the right quantities of every part on the BOM with sufficient lead time. Given a production schedule, the planned number of units of each product during each time period multiplied by the number of parts per product to be manufactured during this time tells the company the number of parts to make or buy (e.g., one car with six pistons and three piston rings per piston needs 18 piston rings) for the manufacturing plan during that time unit. MRP takes a production schedule and generates a purchasing schedule, given the lead time for each part. Each supplier, in turn, uses its own MRP process to ensure that it, too, buys or makes the required raw materials and parts in time to deliver the requested parts to the product manufacturer by the scheduled delivery date.

▪ Organizations in the Supply Chain: The “Who” of Supply Chains

▪ The second aspect of the supply chain is of a network of facilities and companies that manufacture the parts of the BOM, assemble parts into finished goods, and then distribute and sell the products—the “who.”

▪ This aspect encompasses a spectrum of manufacturing strategies.

▪ At one extreme, a supply chain might be vertically integrated. In this case, a single company owns almost all the stages of production, in one or more facilities. For example, Ford’s famous River Rouge plant was renowned for taking raw iron ore, glass, and rubber in on one side and rolling vehicles out of the other side of the massive, sprawling facility. A more modern example is Samsung, which makes many of the parts—such as processors, memory chips, and displays—for its own televisions, smartphones, and computer products.

▪ At the other extreme is an outsourced supply chain in which a company buys complex, preassembled parts from a wide, tiered network of independent suppliers, with each supplier responsible for one or more steps in the production process, which might encompass a single simple part or a complete subassembly. In fact, some companies outsource their entire manufacturing operations, buying finished goods in retail packaging from contract manufacturers. For example, Cisco, Microsoft, and Apple do not have any manufacturing facilities of their own—they only handle the design, marketing, sales, and supply chain of their products.

▪ the direct suppliers of the company are known as Tier 1 suppliers. Tier 1 suppliers would include the providers of steel or aluminum sheets and coil to Ford’s stamping plants or contract manufacturers such as Flextronics International Ltd., Hon Hai/Foxconn, or Pegatron Corp, that manufacture computers, phones and tablets for Apple.40 A company’s Tier 2 suppliers are the suppliers to the company’s Tier 1 suppliers. Tier 3 supplies Tier 2, and so on. These echelons of tiers often correspond to the echelons of branches in the BOM tree

▪ Manufacturing and Services Locations: The “Where” of Supply Chains

▪ Manufacturers may choose to locate production facilities close to raw materials supplies (e.g., a chemical plant near an oil field), close to sources of labor (e.g., low-cost or high-skill regions), close to centers of demand (e.g., major customers or major population centers), in some industrial cluster location (close to other, similar manufacturers) or in a location influenced by government (e.g., via incentives and regulations).

▪ The structure of the supply chain for acquiring and moving raw material and parts to final assembly (the so called “upstream supply chain”) is determined by the choice of suppliers.

▪ At most manufacturing companies, the choice of suppliers is managed by the procurement organization. Naturally, engineering, finance, and logistics also contribute to the decisions in order to ensure quality, capacity, financial viability, and timely deliveries of parts and raw materials.

▪ Lastly, departments such as risk management, compliance, and corporate social responsibility also influence supplier choice and factory location decisions.

▪ To get the product to market (the “downstream” part of the process), the supply chain encompasses the distribution function.

▪ Distribution determines the location and operations of the company’s warehouses and distribution centers. Distribution also usually manages the movement of the finished products to customers—be they retail distribution centers, retail outlets, e-commerce fulfillment centers, or directly to consumers. Many companies outsource distribution, too, either by selling their finished goods to wholesalers who distribute the product, or by using logistics service providers to handle warehousing and distribution to their downstream echelons of retailers and consumers.

▪ Going with the Flows: “How Things Move” in Supply Chains

▪ All of these locations of supply, production, distribution, and demand are connected by flows—the fourth aspect of the supply chain.

▪ Supply chains encompass three essential types of flows: material, information, and money.

▪ The most salient and costly flows of a supply chain are the material flows. In general, materials flow downstream from mines and farms to factories that process raw materials, to the factories that make parts and subassemblies, to original equipment manufacturers (OEMs) that make finished goods products, to distributors and to retailers, and, finally, to end consumers.

▪ At each stage, companies add value to the materials, often differentiating them into many types of parts or products. Materials, parts, and products can travel on a variety of conveyances such as trucks, railroads, ocean freighters, canal barges, aircraft, and pipelines—the “how and where things move” in the supply chain. Intel, for example, manages 14,000 origin-destination “lanes” around the world, connecting the chipmaker to its suppliers, its network of internal facilities, and its customers

▪ At the same time that materials flow down the chain, money flows up the chain when consumers pay the retailer, the retailer pays the distributor, and so on.

▪ Information—in the form of, for example, forecasts, purchase orders, shipping notices, and invoices—flows in both directions to coordinate activities throughout the supply chain.

▪ In fact, both materials and money also go in both directions to some extent, as returns and defective goods travel back to the manufacturer, and as rebates and discounts flow from suppliers to customers. An increasingly important part of supply chain management involves the returns part of the supply chain, be it for responsible disposal, recycling, remanufacturing, or the return of packaging material.

▪ Transportation carriers have their own operating strategies for how they handle and route freight.

▪ The two basic strategies are known as “direct operations” (DO) and “consolidated operations” (CO).

▪ In direct operations, a dedicated conveyance carries the cargo directly from origin to destination (like a taxicab). This is the case with full truckload movements, unit trains, and leased conveyances in all modes of transportation. Direct operations are not cost efficient for small shipments, however, so smaller shipments are usually consolidated geographically through transshipment hubs

▪ Examples of CO modes (think public transit or passenger airline hubs) include less-than-truckload (LTL or “groupage”), boxcar trains, ocean container ships, and many others. CO also include in-vehicle consolidation, such as pickup and delivery operations in which shipments destined for a variety of places are loaded on a single vehicle for distribution (like postal service mail delivery).

▪ The Story of Inventory: “Where Things Sit” in Supply Chains

▪ The economic order quantity is the production batch size (or shipment size) that has been optimized vis-à-vis inventory carrying costs and ordering costs.

▪ The batching of production and transportation implies that both manufacturer and customer must hold inventory—the manufacturer will hold finished goods inventory because of the efficiency of batch manufacturing and/or until it has produced enough for a cost-effective shipment;

▪ the customer company will hold this cycle inventory until it is sold off.

▪ In addition, each echelon in the supply chain may hold additional inventory—safety stock—to cover random fluctuations in customer demand or in parts’ supply.

▪ because processes along the supply chain—especially transportation—take time, inventory also sits in trucks, on the high seas, or while undergoing some manufacturing process and is called the work-in-process (WIP) inventory.

▪ Inventory is costly. It consumes capital on a company’s balance sheet, consumes space for storage, and requires labor to put away, maintain, service, manage, and pick-and-pack. Inventory can degrade over time (e.g., perishable food, medicines, and chemicals) or go obsolete (e.g., last-year’s skirts or silicon chips). Consequently, companies try to minimize the amount of inventory they hold.

▪ In the 1950s and 1960s, Toyota pioneered the just-in-time (JIT) manufacturing and supply chain inventory management method as part of the Toyota Production System. The system was designed to reduce inventory along the supply chain while increasing product quality and service levels. This practice spread within Japan and then throughout the world. JIT and the related strategy of lean manufacturing/lean supply chain enable companies to operate with less inventory and be more responsive to changing market conditions.

▪ Views on the Risks

▪ Each of these five aspects of the supply chain offers respective insights into the many different risks in supply chains.

▪ The “parts” aspect of the supply chain is associated with materials availability, defective parts, and pricing risks associated with the various inputs to the final product or assembly

▪ The “who” and the “where” of the supply chain affect many geographic and operational risks such as natural disasters, supplier bankruptcies, and regulatory risks.

▪ Outsourcing—especially off-shore—reduces a company’s level of control over the outsourced steps of the manufacturing process and can expose the company to geographic, legal/regulatory, and political upheaval risks.

▪ The “who” and “where” aspects also determine the natural resources footprints (e.g., energy, water, and carbon) and potential social responsibility risks in the supply chain

▪ The “flow” aspect of the supply chain depicts the range of connective risks in the logistics, financial, or information infrastructure that underlies the fabric of the chain.

▪ The material flow aspect includes risks in the timeliness of shipments and potential disruptions in key transportation terminals, lanes, and hubs.

▪ The information flow aspect highlights the vulnerability of global supply chains to information technology disruptions (e.g., computer failures, software glitches, or cyber-attacks).

▪ The money flow aspect depicts the vulnerability of commerce to financial crises, bankruptcies, and exchange rate risks.

▪ Finally, the “inventory” aspect of the supply chain includes geographic risks, product quality risks, and parts obsolescence. Yet, inventory also represents an opportunity to buffer many supply risks by allowing companies to maintain the flow of parts and products during a disruption.

◆ Rising Vulnerability on All Sides of the Supply Chain

▪ More Trade, More Distance, Longer Lead Times, More Players

▪ Containerization and larger conveyance sizes aid global trade by reducing transportation costs. In 1999, the largest container ships carried 8,700 TEU (twenty-foot equivalent unit)

▪ By 2013, the largest ships carried 18,270 TEU43

▪ More Variety

▪ Colgate—one of the more than 16 competitors selling toothpaste in the United States—advertises 14 types of toothpaste. Higher SKU counts mean that each variant sells in relatively small quantity, making the problem of predicting demand difficult.

▪ The reason is that product demand is often subject to random variations. The relevant measure of the variability of demand is the coefficient of variation: the ratio of the standard deviation to the mean.

▪ As the average sales of each SKU grow smaller, this ratio increases (owing to a linear decrease in the mean but only a square-root decrease in the standard deviation), resulting in more difficulties in forecasting demand, and leading to overstock/understock and higher costs.

▪ More Technology, More Complexity

▪ Automobiles now contain between 30 and 100 microprocessors, with each subsystem of the car having its own controller and software

▪ With product complexity comes the need to use more suppliers, who, in turn, may use more suppliers, leading to more complex supply chains

▪ Complex, Broad, Long, and … Vulnerable

▪ Computers may make complex global supply chains more efficient and they work constantly to make them easier to manage, but they don’t make them less risky.

▪ Companies can more readily manufacture complex products using complex supply chains, but the systems are inherently more fragile precisely because modern computers and communications enable tighter coordination and lean, inventory-less operations.

▪ While such controls and processes make a company more competitive in normal times, they also make it more fragile to any event that disrupts the finely tuned global network of business machinery

▪ “deep” bills-of-materials

▪ In the end, the rise of global trade means that companies have more moving pieces stretched over greater distances and with less slack in the system. And with a growing global population and a growing global economy, significant supply chain disruptions are inevitable.

◆ 2 A Classification of Catastrophes

▪ Russian novelist Leo Tolstoy wrote, “Happy families are all alike; every unhappy family is unhappy in its own way.”1 This so-called Anna Karenina Principle applies to supply chain disruptions in that every disruption comes with its own litany of misery, its own roster of causes, and its own cascade of effects. No two disruptions follow identical scripts, but the management of risk and disruption does encompass three general activities: prevention, detection, and response. Those three activities can frame companies’ resilience efforts.

◆ A Menagerie of Misadventures

▪ Natural Disasters

▪ Ash from a volcano in Iceland in 2010 grounded air traffic across the European Union

▪ A 2011 flood in Thailand inundated 877 factories,2 halted 30 percent of the global hard disk manufacturing industry,3

▪ A drought in the US Midwest in 2012 damaged crop yields and sent corn and soybean prices soaring. The price spike hit food producers, especially meat and dairy producers.4

▪ In total, natural disasters created $360 billion in losses in 2011.5

▪ Accidents, Safety Violations, and Noncompliance

▪ Disruptive accidents, often caused by lax safety measures, run the gamut from massive conflagrations to simple failures in critical pieces of equipment:

▪ A barge on the Rhine River capsized, closing the river for twenty days, causing a stack-up of 450 barges and hindering the 170 million tonnes of goods shipped on the river annually.15

▪ Intentional Disruptions

▪ Intentional disruptions come in many forms. In November 2012, 400 office clerks walked off their jobs at the ports of Los Angeles and Long Beach, thereby halting the movement of $760 million a day worth of goods.19,20

[Denis Korsunov · Rating 4 out of 5]

Great-for-reference book of anecdotes with live (most of them) proof hyperlinks.

[Ankur · Rating 5 out of 5]

1. In the current VUCA world, this is a MUST READ book for every supply chain professional, management professional. Provides detailed insights on Risk Management from Supply Chain perspectives.
2. Detailed real life examples on how large companies like HP, Cisco, Walmart, GM etc. handled large scale supply chain disruptions (Tsunami, Earthquakes, Floods, Hurricanes, Cyber Attacks, Political situations etc.)
3. Good blend of theoretical concepts & case studies that makes this book an interesting read.

[Pankachu102 · Rating 4 out of 5]

A collection of lessons learned by previous disasters and supply chain disruptions from companies like AT&T, Ford, and Apple.

Read as part of an MBA disaster recovery course. Read in the following order: Chapter 2, 4, 1, 3(o), 9, 5, 12, 14, Preface(e), 6(e), 7(e), 8(e), 10(e), 11(e), and 13(e). I largely agree with my professors exclusion of the 6 chapters as they go into areas not entirely relevant to the class.

(o) - Optional
(e) - Excluded from course.

[Jithu Krishna · Rating 5 out of 5]

This books gives in depth explanation of how disruptions can affect the supply chain. For example-a natural disaster in Japan has serious implication on an equipment manufacturer in US. This implication need to estimated properly to mitigate it quickly. Various failure scenarios and contingency plans are discussed.

[Matthew Wilcox · Rating 4 out of 5]

Good book about companies that prepared for supply chain disruptions, even among the lower tier suppliers. The author provided excellent examples of what happens to companies that don't prepare. We should consider all aspects of the supply chain, not just the Tier 1 and 2 suppliers.