DPW Amsterdam 2022
The headlong rush for supply chain resilience
David Simchi-Levi is a Professor of Engineering Systems at MIT and serves as the head of the MIT Data Science Lab. He is considered one of the premier thought leaders in supply chain management and business analytics.
Stéphane Crosnier leads Accenture’s Supply Chain & Operations practice in the UK and Ireland, where he helps clients digitally transform their operations for improved performance and enhance their supply chain resilience through strategic risk management and stress testing.
With DPW Amsterdam 2022 fast approaching, we caught up with Stephane Crosnier, managing director (partner) at Accenture, and David Simchi-Levi, professor of business and supply chain analytics at MIT to talk resiliency and visibility in an ever-changing supply chain landscape.
Interview with David Simchi-Levi Professor of Business and Supply Chain Analytics at MIT and Stéphane Crosnier Managing director (partner) at Accenture
Everyone’s talking about resiliency today, but what does it really mean for supply chains and operations? How do you define resiliency?
DSL – I think it’s appropriate to talk a bit about the genesis of supply chain resiliency. To put it into perspective, in the 20 years prior to the pandemic, industry focused on supply chain efficiency and cost reduction through strategies like lean and outsourcing. As a result, companies were very successful at reducing costs in their supply chains. But the very thing that helped companies cut costs, also increased exposure to risk and this is something we’ve known for a long time. My team at MIT started focusing and collaborating on supply chain resiliency in 2012, after the tsunami in Japan and the floods in Thailand (both in 2011). We collaborated with the Ford Motor Company and created a new way of measuring the level of resiliency in the supply chain. We define resiliency as the ability of the supply chain – end-to-end – to observe and respond to a disruption anywhere in their business. We developed the technology that allowed you to quantify this resiliency, identify hidden risks, and design mitigation strategies. Until the beginning of the pandemic, there was some interest in our technology and some interest in focusing on supply chain resiliency, but it was very limited. Most companies focused on cutting cost and improving supply chain efficiency. I was knocking on doors but there was not much interest in investing or focusing on this area.
How quickly did this change?
DSL – Very quickly. But perhaps not in the way you imagine. In January 2020, the pandemic was in China, it was not in Europe, it was not in North America. I received data from China and I used the technology that I had developed six years earlier to predict that the supply chain in North America and Europe would stop in mid-March. I didn’t keep this prediction to myself, it was published in a piece by the Harvard Business School in February. By the time that prediction had come to pass, there was a tsunami of interest in supply chain resiliency and in our technology.
SC – When you now look at supply chain resilience, you can look at it the same way you look at it like supply chain planning, through time horizons – whether issues are going to happen now, or happen in the future. There have been techniques and tools in place to provide visibility on the operational horizon, and people were already using analytics to help mitigate risk, some were doing scenario planning, and using network simulation tools to look at their supply network. But of the things that already existed, none of this had proved sufficient to deal with the level of disruption we were facing, first with the pandemic and now in Ukraine.
Can you give some examples of the benefits of resiliency? Why should a company care about it?
SC – People have sometimes short memories. It was on everyone’s radar back in 2012 because of Fukushima (in 2011). We’ve seen some companies take positive steps to create a dedicated organization to map their full supplier network. The obvious benefit is that your business is less impacted when these kinds of incidents happen because you’re better placed to face a massive disruption if you’ve already placed strategic buffers proactively, you have alternate sources of supply in different parts of the world and you’ve maybe created more regional supply chains. As you protect your revenue, you also create trust with your customers, and, as a result, you’re already seeing companies showcasing their resiliency and turning this into a competitive advantage to win new business.
Most companies focused on cutting cost and improving supply chain efficiency. I was knocking on doors but there was not much interest in investing or focusing on this area.David Simchi-Levi, Professor of Business and Supply Chain Analytics at MIT
What are some of the ways companies can gain greater visibility across their operations?
SC – You can look at this in two ways. You can have structural visibility, which is like an X-Ray – a picture of your supply chain. That allows you to understand the nodes of your network – the nodes being the distribution centres and the manufacturing plants – your supply nodes, which could be your tier one suppliers and also your tier two and tier three suppliers too. Getting visibility of this interior network can sometimes be difficult but this really represents the materials and the physical flows between these nodes. But through this, you can create the digital twin of your network and gain some invaluable insights, for example supplier concentration in a same area. The other element is dynamic visibility where you’re able to simulate the real-time impact of disruptions. So, when something happens on the other side of the world, like if a supplier site has to suddenly shut down for a month, you understand the ripple effect and can simulate mitigating actions.
DSL – Visibility is a powerful concept, so let me give you a couple of examples of both types. At the beginning of the Ukraine/Russia war, our team worked with a large supplier in the automotive industry and applied the resiliency technology to their supply chain. When the supply chain executive asked ‘what is my exposure to what’s happening in this part of the world’, within 15 minutes, the team was able to identify and quantify exactly that. His response was, that without the technology, this would have taken months. The second relates to real-time, dynamic exposure to supply chain disruption. Think about an earthquake in Asia. Right now, there is no problem in the supply chain, right now we have enough raw materials to feed the assembly lines. But, because the system knows there was a disruption to a supplier in, say, Thailand, it can estimate when it will hit my assembly facilities in Europe or North America. If I know today that I will have a shortage of raw materials in six weeks, then I can take corrective action today to solve a problem that I don’t even have yet.
Can you talk about the supply chain stress test you’ve created—how it works and why it’s important?
DSL – After the financial crisis of 2008, the Federal Government in the US, and Governments across Europe, require that banks need to take their businesses through stress tests to make sure that were ready for the next financial crisis. After publishing the Harvard Business Review paper in February 2020 warning that supply chains would stop in mid-March, in April I published a follow up paper stating that companies need to take their supply chains through a stress test so they could identify hidden risks and design mitigation strategies. I pointed out that the technology was there – it was available for companies to use.
SC – From there we at Accenture leveraged technology to industrialise the Supply Chain Stress Test concept and be able to simulate hundreds of disruptive scenario fairly quickly. The idea is that, particularly for national security industries, healthcare, life science, food and semiconductors, for example, you need to take your supply chain through a stress test so you can find the right balance between efficiency and resiliency. You get 2 things. One, a resilience score which enables you to understand where you are and track progress on building a more resilient supply chain. Second, a view exposing points of weakness and ability to create a clear roadmap to resilience. It allows you to design and adapt your supply chain in a way that it is structurally better prepared to face severe disruptions.