In our previous blog, we introduced a systematic way to think about resilience in supply chains by distinguishing three phases: anticipation, absorption, and adaptation. Anticipation tells you where your supply chain is exposed. What it cannot do is make the disruption go away. When a supplier fails or a shipping lane closes, the question shifts from where we are vulnerable to what to do right now. That is what absorption is about and the subject of this blog.
Have the response ready
When a disruption occurs, there is often no time for lengthy analysis. A supplier suddenly cannot deliver, a port is blocked, or a production line goes down, and decisions need to be made quickly.
Consider the same manufacturer from our anticipation blog, sourcing a critical ingredient from a single supplier in Asia. Suppose that supplier now actually becomes unavailable. The manufacturer has some safety stock and a substitute ingredient that works for some but not all products. Then several questions arise at once: should the substitute ingredient be used, and if so, for which products? Should the available stock be rationed across customers, or fully allocated to the largest accounts first? Is it worth finding a second supplier, given the cost and the time it would take? Each of these choices interacts with the others, and the right combination is rarely obvious by inspection.
This is where absorption comes in. Absorption is about making the best possible operational decisions while the disruption is unfolding. A mathematical model can take the current state, such as remaining stock, the availability of the substitute ingredient, and open customer orders, and quickly compute the response that minimises lost sales or cost across the network. Rather than allocating stock by intuition or by whichever customer calls first, the model can determine, for example, that the substitute ingredient should be reserved for two specific products where it works best, while the remaining stock is rationed across the others according to their margin and contractual service levels.
One of the most valuable benefits of absorption planning is that it gives an operational advantage of already knowing what you can do when a disruption occurs. The anticipation phase has already formulated the best response for the supply chain behaves under all disruption scenarios. So, the absorption phase does not start from scratch. This means that when a disruption occurs, the organisation can move directly to evaluating and implementing the best approach.
Reduce the impact of a shock
It is also possible to go one step further and combine the insights from the anticipation and absorption phases. If the anticipation phase reveals a scenario in which even the best absorption strategy is not enough, preventive measures are needed. Returning to our manufacturer: the analysis may reveal that a six-week supplier outage consistently exhausts safety stock by week four. That is the signal to revisit stock levels before the next disruption.
If safety stock levels should be increased, a natural question is what the optimal quantity is. The answer to that question depends heavily on a company’s KPIs and their importance. Higher levels of safety stock reduce the risk of lost sales but increase total inventory costs. Mathematical models make this trade-off explicit and can suggest optimal decisions.
Fuel for strategic discussions
Crucially, the weighting between these two costs is not something the model decides on its own; it reflects the strategy of the organisation. A discounter, for whom margins are thin and price is the main competitive lever will accept more lost sales in exchange for leaner stock. A premium manufacturer, for whom customer satisfaction and a high fill rate are central to the brand, will weigh lost sales much more heavily, even if that means carrying significantly more inventory. The model can determine the optimal solution for all strategies which gives insights for strategic discussions.
Integral view on the supply chain
It is worth noting that absorption decisions are rarely made in isolation. A choice made today, such as allocating the remaining stock of the critical ingredient entirely to the largest accounts protects service levels this week but leaves nothing in reserve if the supplier outage extends into a third or fourth week. Mathematical models can account for this by looking not just at the immediate impact of a decision, but also at how it affects the entire supply chain’s ability to respond future events.
Once the disruption has passed, attention shifts to recovery: rebuilding inventory and restoring normal operations. This is the adaptation phase, and it will be the topic of our next and final blog in this series.