Research shows that companies can expect disruptions lasting at least a month or longer every 3.7 years. These disruptions take a significant financial toll on the companies.
We are currently going through one of such disruptions, and the implications are staggering. For example, in the auto industry alone, the estimated drop in profit is over $100 Billion.
Big companies come out of these fluctuations with their massive capital. For midsize businesses, it is not so easy. Their only alternative is to be more resilient.
Resilience
The resilience of any system is the ability to fight against change. A resilient system tries to stay in or reverts backs to its original state.
Resilience has two components:-
Resistance capacity: It is the ability of a system to resist change.
Recovery capacity: The system can recover to its original state experiencing change.
These two features are always competing against each other. Maximizing one leads to the other one lagging. We need to strike the perfect balance between the two.
This balance depends on the type and needs of the company. One company should focus on resistance capacity while, for the other, recovery capacity takes priority.
Benefits of a Resilient Business:
1. Competition:
It can get back to its feet quicker than its rivals. This allows it to start making a profit before its competitors.
2. Facing Challenges:
Facing challenges becomes more comfortable.
3. Long term:
In the long run, more resilient businesses save more money. They also generate more revenue than a non-resilient business.
An excellent example of this is the recovery of Nissan after the 2011 Fukushima Disaster.
Implementing a Model for Resilience
According to a Gartner survey, only 21% of businesses today are resilient.
The tree for supply chain resilience:
● Avoidance: Avoidance refers to avoiding any change in the first place.
● Containment: Containment means containing the degree of change under a certain threshold.
● Stabilization: Stabilization is the act of making sure that the rate of change slows down.
● Return: It refers to returning to the original state of the system.
According to Michigan University, there are eight categories of resilience oriented investment.
- Discovery: Detecting a potential threat as soon as possible. Improvements in information technology, better communication with supply chain partners, and monitoring systems are the strategies used.
2. Information: To improve the quality, speed, and availability of the information available in a supply chain at all times. Better information technology, an SAP Solution, and practical communication help achieve this.
3. Supply Chain Design: Designing malleable supply change with the ability to transform according to the environment’s needs. This step takes place before any other. Supply Base Management strategies and choosing flexible partners help achieve this.
4. Buffers: Predicting a crisis with 100% accuracy is impossible. Instead, increased redundancy in the form of inventory reserves, capacity, or lead times.
5. Operation Flexibility: The ability to change your supply chain’s flow or the products’ specifications. It is a response to the problem faced in the supply chain. Finding alternatives for transportation or other sources of products fall under this category.
6. Security: Your business is at risk of counterfeiting or theft/damage at all times. Firewalls, quarantine, or deployment of physical security are some standard security measures. Talking to an SAP consultant can also help improve your security features.
7. Preparedness: Designing systems and plans to tackle events of the crisis. Coordinating these plans with all the stakeholders is also essential. Training routines, looking for insurance, etc. are some of the strategies used here.
8. Indirect Investment: This refers to investing in areas not directly linked to the business. These areas are still crucial to the company. Some examples of these areas are Customer loyalty, revenue management, relationship with suppliers, etc
Final Thoughts:
A great option is to use SAP Solutions like SAP SME. Around 77% of all the global transactions come in contact with SAP software, and the number keeps increasing. SAP makes planning and managing the investments mentioned above easier.
