Lessons from 2005

2005 was quite a year.  Yossi Sheffi, Director of MIT's Center for Transportation and Logistics and author of The Resilient Enterprise:  Overcoming Vulnerability for Competitive Advantage, has some helpful tips for companies and business leaders who want to avoid many of the painful disruptions that plagued businesses and communities in 2005.  Looking forward to 2006, Sheffi warns that we must be resilient, flexible, and we must not only prepare for the unexpected, we must expect it. 

The year that started with the Christmas 2004 tsunami, continued with the London bombing, Hurricanes Katrina and Rita and the devastating earthquake on the Pakistan-India border. The year ended with Russia abruptly halting the natural gas supply to Europe because its price dispute with the Ukraine. At the onset of 2006,the critical message to businesses worldwide is: your survival may depend on how prepared you are for the unexpected. In the next few years businesses should learn not only to expect the unexpected, but to get ready for it.

At a minimum, companies should review their safety stock policies for parts and finished products, their supplier relationships and the extent to which they have access to redundant capacity. They should also make sure that their information and detection systems are such that they can discover an unfolding problem quickly and act on it - be it a failing supplier, deteriorating labor relations, a worsening political climate, or meteorological warnings. Given the expected potential disruptions that are currently in the news, including a possible avian flu pandemic and the continuing threat of more terrorist attacks, and those that are unexpected and may take the business community and the government by surprise, enterprises should take bolder steps to increase their resiliency. Leading companies are reviewing their entire supply chains to determine whether the ability to respond flexibility in a crisis situation is built into the extended enterprise.

Companies can take a number of steps this direction. For example, they can redesign products and processes for postponement - stocking parts and semi-finished products, so they can be finished into any one of several variants - depending on where and when demand materializes. Companies can also reduce the number of parts they use in their various products, as well as standardize parts and processes so they can be interchangeable.