Robust Strategies for Mitigating Disruptions

There are several scientific research centers on supply chain risks in the US (as around the world): The east coast has several researcher on this topic e.g. with Yossi Sheffi from the MIT, in the center with Joseph Fiksel from the Center for Resilience at the Ohio State University and on the west coast Christopher Tang from the UCLA or Hau L. Lee from Stanford University.

I wanted to write about this article, by Christopher and Tang, for some time now.

History teaches us

After a major disruption there are many firms who severely suffer and take a long time to fully recover. On the other side of the spectrum there are a few companies that continue to satisfy their customers demand, and thus use these capabilities to retain and acquire new customers in the process.

Defining robust strategies

Tang defines “robust” strategies as those which fulfill two objectives at once:

• Help reducing costs or improve customer satisfaction during times without a disruption,
• Support the firm during and after a disruption in continuing operations.

The goal therefore is to create a win-win situation where the investment into the strategy can pay of no matter if a disruption occurs or not.

Cases

Tang lists three cases to highlight some of the few companies that achieved that goal:

1. Nokia vs. Ericsson
   I wrote about this case before, where Nokia and Ericsson were affected by the same disruption at a micro chip plant of a common supplier. Nokia was able to quickly adapt the product design and find another supplier, while Ericsson suffered sever financial consequences leading to the Ericsson / Sony “merger”.
2. Li and Fung
   changed its supply plan in a flash to meet customer demand during a currency crisis.
3. Dell’s adaptive pricing strategy
   to accomodate to supply shortages and still guide and satisfy customer demand.

Robust strategies

Building on these case the author selects and describes nine supply chain strategies that fit above mentioned definition (figure 1).

Figure 1: Robust Supply Chain Strategies (click to enlarge; Tang, 2006)

There are however challenges which have to be considered before implementing the strategies:

1. Cost versus benefits
   These strategies probably make it easier to justify the investments due to their positive effects with or without disruptions, nonetheless there is still a tradeoff which has to be analyzed. Tang suggest to think of the remaining cost surplus as insurance premium.
2. Strategic fit
   Not every strategy may fit for every company. For example Dell’s pricing strategy might be adaptable for airline tickets but not for heavy machinery with a new quote every day.
3. Proactive execution
   Proactive strategies (e.g. rerouting of shipments after a port strike) can be better than reactive strategies (e.g. increasing stocks).

Conclusion

I like this article due to the practice oriented approach taken. But I am missing some clearer description of the ways to generate these strategies. Also, there is no consideration of the completeness of this listing. So I have to assume that it is probably a good starting point. And to my knowledge there are already several studies building on this paper.

As a side note: Nokia also may be a mixed example for a company as role model for good strategies. I would argue that either Nokia was lucky or had a very in-homogenous state of strategy execution: The mentioned disruption happened in 2000, exactly the same time where they should have laid ground for the new smart phone generations which are commonplace now from many manufacturers, but not Nokia.