Why Resiliency is the answer to supply chain disruptions

Recently I attended Sapphire Orlando, my first live SAP event in over two years. It was much smaller and more intimate than past Sapphires’ I’ve experienced but equally compelling. Digital Supply Chain was front and center (literally and figuratively) with a clear emphasis on resilience and sustainability. This was evident from Christian Klein’s opening keynote all the way through the individual SAP and customer sessions. In one such session, I discussed how we’re all living in a globally networked economy, reminiscing about the pre-pandemic days of 2019 when mature economies were humming along, and emerging ones were joining the party. This provided customers and consumers everywhere access to a growing number of quality products and services, accompanied by the promise of a better standard of living.

Of course, we know all too well what happened in early 2020 when everything came to a grinding halt. Suddenly this global network we’d all come to depend upon stopped working and we were faced with shortages of essential products and excesses of discretionary ones. What we we’re experiencing was global supply chains adjusting to a new reality brought about by unprecedented disruption. The problem is that most supply chains are not designed to handle a disruption of this magnitude and the shock continues to reverberate today, much like the aftershocks following a massive earthquake. The impact of these are more shortages of both essential and discretionary products, from baby formula to automobiles, accompanied by rampant inflation. At the same time, we’re experiencing a new set of disruptions from the war in Ukraine, which poses a threat to global food and energy supplies, not to mention the humanitarian crisis, which will likely impact our collective standard of living for years to come.

So how can companies infuse resilience into their supply chains to mitigate the risks presented by these disruptions? Many have undertaken large-scale digital transformation projects, but these will simply take too long to mitigate the current situation. A more agile, flexible approach is needed. In January of 2020 such an approach was outlined in a Harvard Business Review article which recommended the following:

“[…] businesses can build structures to be modular rather than fully interconnected so that elements can be changed or removed later. This also increases resilience by ensuring that failures are contained at a local level rather than allowed to spread across the entire organization. And modularity facilitates evolutionary innovation, because modules can be interchanged without undermining the viability of the whole.” [1]

If we replace the word “structures” with “systems” this approach can easily be applied to large-scale digital transformation projects.  Also, the term “fully interconnected” should not be confused with “interoperability”, a key requirement for the success of any such project.  In fact, the guiding principle is that such systems should be modular and interoperable to deliver both near- term benefits and sustained value over time.

SAP has taken this approach to addressing the current supply chain dilemma that companies are facing in two dimensions.  First, we enable a process called Design-to-Operate, which digitally connects the five key pillars of Design, Plan, Manufacture, Deliver and Operate across the supply chain.  This process is fully documented as a set of best practices in our enterprise architecture repository.  Second, each pillar contains a set of best-in-class solutions that are fully interoperable and can be implemented in a modular fashion.  This allows companies to focus on their most critical issues by taking advantage of the latest supply chain capabilities in each pillar while maintaining interoperability with their core ERP environment.  Many companies across multiple industries have begun to deploy this approach and are seeing enhanced supply chain agility and responsiveness as a result.  In my next blog we will explore how they are doing this in greater depth.

Click here to discover why logistics and supply chain professionals now rate resilience as their top priority – and what they plan to do about it.

[1] Reeves, Levin, Fink and Levina, “Taming Complexity” (Harvard Business Review, January 2020)