How Supply Chains Can Become More Resilient
Facilitated by a data-driven resilience index, companies can identify vulnerabilities earlier and take countermeasures
Jan Sporkmann / Martin Schlappa / Jonas Winkelmann / Stefan Spinler - December 7, 2021
Supply chains are prone to disruption, particularly when unforeseen events occur, as clearly demonstrated by the COVID-19 crisis. One of many examples of disrupted supply chains is the current semiconductor shortage, with which not only car manufacturers are struggling. But what can companies do to prepare for such difficult situations? How can they identify their vulnerabilities at an early stage? Researchers at WHU – Otto Beisheim School of Management are researching one possible approach as part of the SPAICER consortium project: The concept of a data-driven resilience index opens up the possibility of simulating vulnerabilities in supply chains even before a real disruption occurs.
Resilience – the ability to withstand disruptions and continue functioning – is the most integral factor for companies to cope with crises successfully. It can be increased by good preparation, targeted responses to disruptions, and quick adaptability to newly emerging situations. But how does a company recognize how resilient it is? Often, there is a lack of adequate tools to measure resilience, thereby limiting a company’s ability to act. As economist PeterDrucker put it, “You can only manage what you can measure.”
A data-driven resilienceindex could fill this gap. The SPAICER project’s concept of a simulation-based approach reveals how well a company can handle potential disruptions. In doing so, the index can provide insight into a company’s resilience by simulating the extent to which a firm’s performance changes when confronted with specific, difficult situations. If a company is resilient, its performance is unlikely to deteriorate even when supplychains are disrupted. It is important to note that the resilience index is not just a one-time assessment but a continuous process that constitutes part of a company’s day-to-day business. Appropriate resources should be made available for it.
The strengths of the approach lie in its objectivity and individual adaptability. Unlike strategies that rely on subjective empirical assessments, a data-based approach allows weak points to be identified objectively and precisely. Since every company is different, it does not offer one-size-fits-all solutions but considers peculiarities, such as organizational structure and product orientation. To strengthen its resilience, every company should actively manage it and identify its potential weaknesses as early as possible.
In addition, this resilience index could be more efficient than previous measurement concepts. Large amounts of data can be collected continuously and analyzed without the need for excessive human resources. The results lend themselves to a quantitative cost-benefit analysis that companies can use to take appropriate measures to increase resilience. Benefits of a data-driven approach in the modern operational environment are also apparent, as companies are increasingly required to function under more volatile, uncertain, complex, and ambiguous conditions.
The SPAICER consortium sees difficulties only in the often still limited availability of data, for example, due to data silos – data repositories that can only be accessed by certain user groups. To improve the availability of data, it is advisable for companies to invest in their own IT infrastructure and build up a uniform “data ecosystem”.
Tips for practitioners
- As an entrepreneur, take advantage of the increased objectivity of the SPAICER resilience index! This approach allows organizations to objectively identify areas for improvement within their resilience strategy. In doing so, organizations must no longer rely on subjective measurements or individuals whose experiences may result in potentially biased assessments, a phenomenon that can often be observed in industrial companies. A holistic, data-driven approach can go beyond what subjective, questionnaire-based indices reveal, ultimately enabling a far more targeted and detailed resilience analysis.
- Benefit from better scalability in your organization through the resilience index! The case-specific application of the resilience index allows for greater scalability and adaptability of the index, which better reflects company-specific characteristics such as organizational structure, product and service offerings, or the company environment. The resilience index is therefore deliberately not offered as a plug-and-play solution but rather as an evolutionary process.
Take advantage of increased resilience! The resilience index approach is well suited to quantitative cost-benefit analyses for selecting the right resilience measures. For example, unlike existing resilience indices, the data-based resilience index takes into account a company’s constantly changing conditions. It considers large amounts of data from internal and external sources in the resilience assessment. Once implemented, the data-based resilience index provides a convenient way to continuously assess a company’s resilience capabilities while eliminating the labor-intensive aspects of previous approaches.
Literature reference and methodology
The study is part of a wider research project entitled SPAICER funded by the Federal Ministry for Economic Affairs and Climate Action (“Scalable adaptive production systems through AI-based resilience optimization”). The research project is a joint endeavor with various industry partners and universities.
- Öksüz, N.; Bouschery, S.; Schlappa, M.; Unterberg, M.; Sporkmann, J. (2021). Towards an Artificial Intelligence based Approach for Manufacturing Resilience, In: 22. VDI-Kongress AUTOMATION 2021 - Navigating towards resilient production. VDI Automatisierungskongress (AUTOMATION-2021) June 29-30 Germany VDI 2021.
Jan Sporkmann is a doctoral student and research assistant at the chair of Logistics Management at WHU – Otto Beisheim School of Management. In his research, he focuses on developing a digital freight marketplace and supply chain resilience. He holds an M.Sc. in Business Administration and Engineering from RWTH Aachen and an M.Sc. in Engineering from Tsinghua University (Beijing). Previously, he worked as a consultant at McKinsey & Company.
Martin Schlappa is a doctoral student and research assistant at the chair of Logistics Management at WHU – Otto Beisheim School of Management. His research focuses on supply chain resilience as well as practical applications of machine learning, more specifically reinforcement learning in industrial plants. He holds a B.Sc. in Business Administration from WHU - Otto Beisheim School of Management and an M.Sc. in International Management from the London School of Economics and Political Science. Previously, he worked as a consultant at McKinsey & Company.
Jonas Winkelmann is a research assistant at the chair of Logistics Management at WHU – Otto Beisheim School of Management. His research interest comprises Sustainable Supply Chain Management and Supply Chain Resilience. His doctoral thesis focuses particularly on optimizing the decarbonization of commercial transport fleets. Previously, Jonas worked as a management consultant at McKinsey & Company, where he specialized in the strategic design of physical supply chains.
Prof. Dr. Stefan Spinler
Prof. Dr. Stefan Spinler holds the Chair of Logistics Management at WHU – Otto Beisheim School of Management. His research mainly focuses on the areas of sustainability and supply chain risk management. All research activities are conducted with leading logistics service providers and industrial companies. Previously, he held positions as Visiting Professor at Massachusetts Institute of Technology and the University of Pennsylvania, The Wharton School.