March 2022 | Vol. 27 No.3
Supply chains continue to be the defining economic story in the U.S. Our most basic economic inputs — energy, semiconductors, and raw materials, e.g., lumber, metals, plastics — are still hitting snags. Meanwhile, as the previous issue of electroindustry covered, the country is poised to embark on a once-in-generation infrastructure buildout. Yes, it’s time to build. But for our supply chains, it’s time to rebuild and rethink.
The nation is counting on our industry to deliver the digital backbone of this new infrastructure. Yet our infrastructure transformation will only go as far as our supply chains will take it. So, let’s take this issue to explore solutions for transforming supply chains — a topic near and dear to my heart.
A Time to Recover, a Time to Survive
Over the past decades, supply chains were designed to optimize for cost. But lean supply chains led to too much fragility. Going forward, resilience must take on a more prominent role in supply chains, and it can’t all be about efficiency alone. Of course, cost and even productivity remain factors — but serving customers should take center stage. Further, most companies don’t have the means to spend capital to insulate their supply chain fully, so they have to look for methodologies to prioritize investments.
What does this all mean in practice? I’ve discussed this with supply chain expert Dr. David Simchi-Levi of the Massachusetts Institute of Technology. As Director of the MIT Data Science Lab and Professor of Engineering Systems, his supply chain stress testing method focuses on two metrics: Time to Recover and Time to Survive. Time to Recover measures how long it takes to restore a supply chain node once it’s disrupted. Time to Survive measures how long the entire supply chain can meet demand after such a disruption. Analyzing your supply chain using these metrics allows you to assess performance impacts and cost-benefit tradeoffs.
Once you understand the risks, you then prioritize solutions. This may include adding safety buffer inventories, adopting “power of two” dual-sourcing, optimizing lead times with nearshoring, re-planning capacity, and simplifying the offer or combining all the above.
Digitizing the Stress Test
You realize how important digitization is when you consider the amount of data required to run these analyses across your entire supply chain. With a digital backbone in place, it becomes feasible to model all kinds of stress tests, similar to what the Federal Reserve now requires the banking industry to do following the financial crisis of 2008.
Stress testing enables you to plan for everything. And if there’s anything these past two years have shown us, it’s to expect more of the unexpected as Black Swan events have been on the rise impacting supply chains. According to NOAA, over the last five years, billion-dollar disasters have resulted in an average of $148.4 billion in annual damages. That’s nearly triple the 42-year average.
I talked about the need for digitization in last month’s column on infrastructure. I’m talking about it as a solution for supply chains, too. That’s no coincidence: digitization is the quickest path to resilience for both infrastructure and supply chains. Supply chains are infrastructure — the same principles apply. It’s time we optimize both for digitization and resilience.
Annette Kay Clayton
Chair, NEMA Board of Governors