Operational Resilience is a strategic (yet often misunderstood) topic. However, by correctly discussing, implementing, and starting a journey toward operational resilience in your company, you can achieve immediate tangible benefits. This blog will define operational resilience, the steps you should take to achieve it throughout your supply chain, and the benefits of pursuing it.
What is Operational Resilience?
As a stand-alone, resilience is defined as “the ability of people or things to recover quickly after something unpleasant, such as shock, injury, etc.” This definition can apply to anything from psychology to the quality of a material, but what does resilience look like from a corporate operational standpoint?
Christophe Philippart is Resilinc’s VP of Sales for EMEA and has worked to come up with an answer. He defines Operational Resilience as:
“A cross-functional and cross-enterprise ability to holistically manage unexpected risks and opportunities affecting Demand or Supply networks. Its goal is to recover from risk and take advantage of opportunities smarter and faster while discovering or predicting sudden impactful changes or detecting hidden strengths & weaknesses.”
Recently during Resilinc’s monthly Toolbox Talk, Christophe gave the Resilinc team an overview of why Operational Resilience matters; here are some of the main takeaways from his excellent presentation:
Why Operational Resilience Matters
Inevitably, your organization will face challenges due to natural (ex: hurricanes) or human-caused (ex: factory fires) risk events. Significant events can even shock your supply availability or cost, causing an impact on demand.
Each new supply and demand shock will always bring a risk and an opportunity to benefit from that risk. In the face of adversity, companies that adapt frequently become more resilient. Conversely, companies that become accustomed to a profitable and comfortable market are often least prepared for risk events, demand shifts, and overall change.
Starting a journey towards operational resilience will make your company more prepared to turn those risks into opportunities.
How to Think About Operational Resilience
Think of operational resilience holistically. By looking at only one side of the problem, you cannot fully take advantage of the opportunity or avoid the risk. For example, problems won’t come only from supply; you must also address aspects of demand. When you consider both perspectives, you can seize the opportunity, recover faster, and become more resilient.
Next, consider hidden strengths and weaknesses within your organization. For example, a lack of sprinklers in your tier-3 supplier is a weakness that could lead to a factory fire and further supply chain disruptions. By addressing your strengths and weaknesses, your company will start to become more resilient.
Finally, look at operational resilience as a cross-functional capability that impacts your entire company. Not only does it affect supply, procurement, and purchasing, but it also impacts sales, marketing, and human resources. Think about it, if the sales team promotes a product – but that product isn’t available to sell, you run the risk of losing trust with customers.
Why You Should Start a Journey Towards Operational Resilience
Historically many companies believed that having adaptability and protection in stable times was enough to be considered a resilient company—and it was partially true. Companies could be resilient if they had, for example, two years of inventory saved, or if they put helicopters between supplier warehouses in case of a shortage, but these preparations require an extra cost and most likely will not lead to sudden impactful changes.
We now know there is a better path to achieve this stability, one that is more relevant to the world today. This path requires a cultural and digital transformation. The first step is to switch from a fatalist approach or reactive workflow (AKA, whatever happens, happens) to a proactive approach. To do this, you must consider the risks, but also the opportunities of a resilient program.
To make the switch, you’ll need to first improve your reactive workflow. This includes detecting disruptions, predicting impact, and confirming with suppliers. Accurate data and speed are key here. With Resilinc, we have over 10 years of supplier validated data—in some industries like high-tech we have mapped over 95% of suppliers. This translates to real ROI. This data and the ability to quickly contact your suppliers from one platform saves time for your experts, improves communication, and starts collaboration directly with the right people on both sides.
Once you move from a reactive workflow to a proactive workflow, you can take your data and fuel your proactive supply chain planning, supply chain design, network design, supplier selection, and supplier management. Then, you’ll know your supply chain and your product is designed for the headaches of the future—allowing for risk adjusted strategist right from the beginning.
Who Should Lead the Journey?
Operational Resilience is an executive committee topic. It should be considered at the same level as innovation, sustainability, operational excellence, compliance, and strategic planning. Currently, most companies do not discuss operational resilience in this way.
However, driving and controlling a digital transformation requires strong governance which can’t come from a product manager. It must come from an executive (or several executives) and a dedicated team. It’s important to note, you don’t need to recruit a large team to do this. You just need to have a center of excellence that focuses on aligning technology and the vision to make operational resilience a concrete reality.
What Does the Journey to Operational Resilience Look Like?
It’s extremely difficult to measure the virtue of operational resilience. If you want to demonstrate value, the first thing you need to do is create an appropriate scope. This is the only way you can compare apples to apples, ensure the company vision is aligned, and focus on the market share that is at stake.
Once the scope is defined, then you can start to build the foundation of operational resilience: data. Find data and map your supply chain, demand, and distribution. From there, the costs attached to your assets. When you know the costs, you can calculate the impact of a disruption once it occurs and set priorities. At Resilinc, we work with the principle of a mixed focus on products that are critical for continuity and not just the products where you spend the most with your suppliers.
Next, set priorities when there are weaknesses and strengths identified. If it’s a risk, it’s a matter of risk avoidance, but if it’s an opportunity, it’s a matter of increasing competition. In the case that you have no mitigation plans in place, you will have to make a trade-off between cost, services, and risk. For example, paying $50 million in additional fees and expedites to secure inventory that might typically costs $5 million.
On the flip side, if you have an opportunity plan, you might face a new opportunity. If you do, you should work on it with your extended team and see how you can create extra margin. This is the point in your journey where your company will start to become resilient. You will become resilient because you find strengths/weakness, alternative sources, and begin purchasing for resilience. Last, measure the impact in terms of EBITDA, (revenue gained/protected, cost avoidance, cost cutting) and market share (protected and gained).
Ready to Start?
The journey to operational resilience is built on a foundation of strong supply chain mapping, monitoring, and supplier data. Monitoring data answers the “what” and “when” for disruptions. As an example, Resilinc’s EventWatchAI scans 104 million news and data sources to provide our customers with real time alerts about potential disruptions to their supply chain.
Next, mapping shows “where” impacts occur. For example, if a typhoon is coming, you should know which suppliers, products and parts are impacted, so you can react accordingly. Resilinc’s Multi-Tier Mapping has mapped 800,000 suppliers, encompassing one million sites and over four million parts.
Finally, you need supplier data and the ability to collaborate in real-time with suppliers across all tiers. Resilinc’s RiskShield creates automated risk scores so you can see how your suppliers stack up. Using Resilinc’s platform, customers can contact a supplier, confirm impact, and make a plan as quickly and efficiently as possible.
Ready to start the journey? Learn more about how Resilinc helps companies on the path to operational resilience.