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Supply Chain Resilience Depends on the Internal Capabilities of Partners - Ideas for Leaders
Idea #798

Supply Chain Resilience Depends on the Internal Capabilities of Partners

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KEY CONCEPT

Increasing supply chain resilience against disruptions and interruptions depends not only on cooperation among supply chain partners but also on cross-functional cooperation within the companies in the supply chain.


IDEA SUMMARY

Competition, complexity and global outsourcing are making supply chains more vulnerable to disruptions and interruptions, with issues ranging from inefficient production scheduling to broken equipment to financial crises and natural disasters. 

Supply chain capabilities, such as adaptability, agility and cooperation among supply chain partners, will help supply chains be more resilient to disruptions. But what role do capabilities within the companies in the supply chain play in increasing supply chain resilience? More specifically, how can cross-functional integration and cooperation at the company level support cooperation among partners at the supply chain level?

To answer these questions, a team of researchers conducted a case study of an automobile industry supply chain in Brazil based on in-depth interviews with 18 managers in six companies. 

The interviews confirmed six supply chain capabilities that increase supply chain resilience: 

  • Redundancy, for example, using safety stock as backup in response to disruptions.
  • Flexibility, such as flexibility in supply and order fulfilment.
  • Visibility, that is information and knowledge, such as the production capacity or logistic capabilities of a company, that is visible to partners in the chain. 
  • Agility, which is the ability to make changes and react to fast-moving developments such as demand fluctuations. 
  • Adaptability, which involves changing operational processes as required.
  • Collaboration, notably external collaboration but which this study will show requires internal collaboration.

From the interviews, the researchers then identified a number integration factors that increase cross-functional cooperation in companies, including: adequate communication across functions; longevity of relationships; willingness to work together to resolve conflicts; trust; information sharing; joint planning; physical proximity of workplaces and cross-functional meetings, cross-functional training and cross-functional teams.

The next step was to explore the link between these internal integration factors and resilience at the supply chain level. The interviews revealed that three of the supply chain resilience capabilities—agility, visibility and adaptability—depended in large part on two capabilities in individual supply chain companies: internal collaboration and internal agility. These two organizational capabilities depended in turn on the integration factors described above. 

For example, if a disruption occurs in the supply chain, different functions within the company are willing to work together to find a response. They hold cross-functional meetings at which they share their knowledge about the disruption, thus increasing the visibility of the problem impacting the supply chain. The various functions then work together to propose some quick solutions to the problem, thus enabling the supply chain to respond with agility to the disruption.

To summarize, willingness to work together to resolve conflict (an informal integration factor) and cross-functional meetings (a more formal integration factor) lead to the organizational capability of internal collaboration, which in turn leads to the supply chain resilience capabilities of visibility and agility.

Based on their detailed interviews with the managers of various partners in the focal supply chain, the researchers thus developed a framework in which cross-functional integration factors lead to internal collaboration and agility capabilities of partners in the supply chain, which in turn strengthen the resilience capabilities of the supply chain as a whole.


BUSINESS APPLICATION

To anticipate and prepare for disruptions in the supply chain, the standard approach is to focus on information sharing and collaboration among the partners in the chain. From the company’s point of view, in other words, supply chain disruptions require an external response.

Supply chains do need resilience capabilities such as flexibility, agility, or visibility to respond to disruptions. For the researchers, however, internal collaboration is the linchpin to strengthening supply chain resilience.

Companies seeking to support the resilience of their supply chains should begin by looking inward, and ask themselves: Do we have the informal and formal integration factors in place—from information sharing, adequate communication and trust to cross-functional training, cross-functional meetings and joint planning—that builds the organizational capabilities that will allow us to contribute significantly to our supply chain’s resilience?

Supply chain collaboration begins with internal collaboration.


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FURTHER READING

  Tayanne Ferraz da Silva Poberschnigg’s profile at MIT Sloan School of Management
  Márcio Lopez Pimenta’s profile at MIT Sloan School of Management
  Per Hilletofth’s profile at University of Gävle

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