SNAP. CRACKLE. POP.
Yes, we got what we asked for…. Efficient supply chains that snap and break under stress. Have you ever asked yourself the question, in the design of supply chain networks, should supply chain efficiency be the goal? Based on seven years of supply chain research, I think not. I think that the goal should be resilience.
Recently, I got the chance to reflect on this over dinner with two wonderful thought leaders. I sat between John Hagel (@jhagel on twitter), and Valdis Krebs (@orgnet on twitter). John is finishing his book From Push to Pull (http://http://www.johnhagel.com/view20051015.shtml) and Valdis has spent his life researching networks (all kind of networks from terrorist cells to the networks of nature). Over a great seafood dinner in Austin, we discussed what nature teaches us about networks. Networks with the greatest resilience — ability to stand the test of time– are not the most efficient. In fact the least resilient networks in nature are the MOST efficient. The most resilient networks have two characteristics:
Redundancy: In nature, the networks that last over the generations are those that have the right amount of redundancy. This includes excess capacity, extra nodes, and bypass routes. The efficient network with minimal capacity, node-to-node connections, and no parallel routes fail. This is especially true in push environments.
Dynamic reconfiguration: Likewise, in nature, the networks that stand the test of time have the ability to reconfigure dynamically under stress. Networks with the most centrality have the greatest failure rate.
Ring a bell? Yes, we have designed efficient supply chains that are primarily push-based, with little redundancy and a high dependency on centralized hubs. Most are in trouble. Most do not know it YET.
I reflected back to when I used to install supply chain planning software. When I asked a client to define an objective function for an optimization program that would struggle for an answer. They were not sure what good looks like. However, when I asked if the output needed to be efficiency, they would always nodd their head. In fact, ask anyone if they want an efficient network–especially a financial controller–and you will get a rousing YES!!! But, ask if they want a network that will snap and break under stress and you will probably get an emphatic NO! Few know the trade-offs.
Most companies do not realize that they have designed networks that are not resilent until it is too late. Yep, you got it. We designed supply chain networks with the wrong goal. We defined supply chain excellence as a set of efficient networks with a high level of centrality and little redundancy. It is time to consult mother nature, because she got it right.
SNAP, CRACKLE. POP.
No worries. It is probably an efficient supply chain network breaking somewhere. It will happen frequently as the recession rebounds out of recovery. As currency shifts occur between China, Germany, United States, and India, the networks will strain.
We need to recognize and fix the problem. Enterprise Resource Planning (ERP) and Advanced Planning Systems (APS) were installed with efficiency as their goal. There is too little redundancy, and less than 1% have dynamic reconfiguration capabilities. It will make for great stories on the front page of the Wall Street Journal. I just hope that it is not your name in the article. I think that is time to listen to Mother Nature.
What do you think that we need to do to redirect the course and change the tides?