Understanding supply chain resilience and how to achieve it

November 29, 2022 Anastasiya Malinovskaya

Understanding supply chain resilience and how to achieve it

Now the scale of challenge for supply chain managers is greater than ever. Vital commodities such as crude oil, natural gas, cereals, and more have been affected. Logistical networks have been disrupted and energy prices have skyrocketed. Experts predict that the impact will continue to be severe with inflation staying high throughout 2022.

Uncertainty, risks, and the resulting disruptive events are major vulnerabilities in the supply chain, however, these can be fixed or mitigated with supply chain resilience.

What is supply chain resilience?

Resilience reflects the supply chain’s ability to absorb external disruptions and restore normal operations.

To understand how strategically important supply chain resilience can be, experts compare it to efficient and responsive strategies. Responsive supply chains focus on demand fulfillment and customer satisfaction while efficient supply chains try to utilize lean production advantages and economies of scale.

Responsive supply chains are quick to respond to customer demand, keep low inventories, and have flexible suppliers. Also, lead times are reduced to enable a swift reaction to demand fluctuations.

Efficient supply chains focus mainly on lowering costs through high-capacity utilization, minimizing inventory, and contracting suppliers from low-cost countries.

Resilient supply chains aim at ensuring operations continuity and demand fulfillment when disruptions happen. However, such a strategy builds on some redundancies such as safety stock (buffer inventory) and capacity buffers.

Eventually, the companies should aim for a balance between efficiency, responsiveness, and resilience to design profitable and disruption-resistant supply chains.

Optimization and simulation for resilient supply chains

Supply chains are evolving toward technology-driven networks and digital ecosystems. Data analytics, additive manufacturing, and Industry 4.0 facilitate creating end-to-end visibility for supply chains which is vital for supply chain resilience.

McKinsey claims that today’s technologies are challenging old assumptions that resilience can be purchased only at the cost of efficiency. The latest advances offer new solutions for running scenarios, monitoring many layers of supplier networks, accelerating response times, and therefore changing the economics of production.

Optimization and simulation, being among the most popular techniques for supply chain planning and analysis, help prepare for disruptions before they occur, evaluate potential impacts on supply chain performance, and then develop recovery policies.

Building a resilient supply chain

Supply chain managers use optimization for stress-testing the supply chain production and distribution plans with different network designs. They can also analyze the contingency plans and develop a recovery plan for their supply chains.

Simulation helps dynamically analyze production and inventory control policies as well as operation policies during the disruption, during the recovery, and after it.

To achieve resilience supply chain managers can combine optimization and simulation capabilities and take the following actions:

  • Assess supply chain risks.
  • Mitigate the risk of stock-outs and enable the provision of customer service levels.
  • Diversify the supply chain network.
  • Develop a digital twin.

For more in-depth information about resilience watch the video below in which Prof. Dr. Dr. habil. Dmitry Ivanov provides an overview of technologies that help supply chain managers. He introduces the concept of the ripple effect caused by disruptions and demonstrates how to model resilience in anyLogistix supply chain modeling software.

Optimization and simulation in one tool for developing resilience

Every supply chain is unique and has its own strengths and weaknesses. anyLogistix is a tool for considering these characteristics and building resilient and reliable supply chains. Learn more about how modern techniques of predictive and prescriptive analytics, such as optimization and simulation modeling, can deal with uncertainties.

Read our white paper about supply chain disruption, ripple effect, mitigation strategies, and the supply chain resilience concept.