Supply chains have been strongly impacted by disruptions in recent years. The closure of the Strait of Hormuz is the most recent example, but the blockage of the Suez Canal, the Covid-19 pandemic, and the war in Ukraine have all rattled global supply chains in recent years, leading to stockouts and longer lead times.
Moving from Lean to Resilience
For decades, many supply chains were optimised primarily for cost and efficiency. Lean inventories, global sourcing, and highly specialised production networks reduced costs but also increased vulnerability to disruptions. Recent events like the above mentioned have highlighted that resilience is not simply about avoiding risk. It’s about understanding where the supply chain is exposed and ensuring that operations can continue when disruptions inevitably occur.
Holding more safety stock or working with multiple suppliers can reduce the impact of a supply chain failure. However, these measures also come at the cost of additional capital requirements. This raises questions such as: Which ingredient or product is most vulnerable to a disruption? How much safety stock is needed? What is the added benefit of a second supplier?
Anticipation of the disruption
All these questions can be overwhelming, and it can be hard to know where to start. It therefore makes sense to take a systematic approach and distinguish three stages: anticipation, absorption, and adaptation. Anticipation covers all actions taken before a disruption, absorption encompasses everything done during one, and adaptation addresses the response after it. In this blog, we focus on anticipation, and the other two concepts will be discussed in later posts.
In the anticipation phase, one option is to improve monitoring so that disruptions are identified at an early stage. However, the most disruptive events are difficult to predict. The objective of anticipation is therefore not necessarily to predict the next disruption. Few organisations predicted a global pandemic or a major shipping lane closure. Instead, anticipation focuses on understanding how the supply chain would respond if such events occurred. In other words, it is less about forecasting specific shocks and more about preparing for their consequences.
Insights into the supply chain
Consider a manufacturer that sources a critical ingredient from a single supplier in Asia. If that supplier becomes unavailable for six weeks, the impact may not be immediately obvious. Existing inventory, substitute materials, alternative production routes, and customer demand patterns all influence the outcome. A mathematical model can evaluate these interactions and quantify the resulting service impact, inventory shortages, or lost sales. Using mathematical models, these scenarios can be systematically investigated. The model produces the optimal response for each scenario along with its impact on KPIs, such as total lost sales. The scenarios causing the greatest reduction in your KPIs are the ones to prioritize when identifying mitigating actions.
Beyond that, the analysis can yield deeper insights. For example, which ingredient creates the first bottleneck, or which product is the first to go out of stock. This type of analysis can surface valuable findings that are not always obvious. In complex supply chains, vulnerabilities often emerge from interactions between multiple components rather than from a single weak link. A supplier that appears unimportant in isolation may support several critical products, while a seemingly critical supplier may have ample substitutes available elsewhere in the network.
How to act?
Identifying vulnerabilities is only the first step. Once the most critical scenarios have been identified, organisations must decide where to invest. Should it be in additional inventory, dual sourcing, alternative transportation routes, increased production flexibility, or other resilience measures? Determining which investments provide the greatest reduction in risk for the lowest cost is the next challenge. How mathematics can support those decisions will be explored in our next blog post.