Resiliency allows a system to respond to a disturbance while maintaining equilibrium within its system boundary. In supply chain words, resilience is how well a system can return to stability when it experiences random or self-imposed variation. Resilience arises from the subsystem’s ability to respond to the feedback loops that regulate equilibrium. The ability to adapt and the diversity or flexibility of options/actions determines how quickly the system can recover and/or improve. The opposite of resiliency is rigidity.9
Obviously, if a system is insufficiently resilient relative to the level of disturbance, it is at risk of collapse. Reeves, Levin, and Ueda identified six basic risks to the resiliency of a complex system.10 Any organization wishing to avoid the threat of collapse must mitigate these risks. In the VUCA world these risks are more prevalent than ever.
The COLLAPSE risk. A change from within or outside the industry renders the firm’s business model obsolete. An obvious example is the impact that the emergence of online retailing giants such as Amazon had on the retail industry. At one time Sears and Roebuck was the largest retailer on the planet, headquartered in the tallest building in the western hemisphere, The Sears Tower. Sears initially built its empire through catalog sales, selling hardware, appliances, tools, and even plans for homes (The Craftsman). By 1980 the vast majority of the United States population had a Sears store or outlet within an hour drive. At the time of this writing Sears is but a shell of what it had been, struggling to meet cash commitments and desperately trying to find a way to survive. After being bought by Kmart to form Sears Holding, the Sears Tower is now the Willis Tower. The building is no longer the tallest in the western hemisphere and United Airlines now occupies much of the building. Sears Holding continues to sell brands and close stores from its location in Hoffman Estates, IL, a suburb of Chicago.
The CONTAGION risk. Shocks in one part of the business spread rapidly to other parts of the business. In 2018 Ford had to close its profitable F150 assembly plant due to a fire in a Chinese-owned supplier located in Michigan. The fire affected many auto suppliers, but the hardest hit was Ford, specific to the F150 truck. The F150 is a multibillion dollar brand for Ford and substantially drives Ford’s profits.
The FAT-TAIL risk. Rare but large shocks, such as natural disasters, terrorism, and political turmoil. Examples here include the tsunami in Japan that affected the automotive and electronics industries. September 11, 2001 stopped industry across the United States and many companies never recovered, especially the airline industry. Massive consolidation and cutbacks in flights and service redefines the new airline industry.
The DISCONTINUITY risk. The business environment evolves abruptly in ways that are difficult to predict. The financial crisis of 2008 created the biggest disruption to the U.S. housing market since the Great Depression. Increased foreclosure rates in 2006 and 2007 led to a banking crisis in 2008. Concerns about the impact of the collapsing housing and credit markets on the general U.S. economy caused the U.S. President to announce a limited bailout of the country’s housing market for homeowners who were unable to pay their mortgage debt. This spilled over into other markets. People simply did not have money to spend. The automotive industry was shocked by the bankruptcy of General Motors. GM was the world’s largest car maker and now it faced collapse because it no longer had sufficient cash to continue operation. It took the U.S. government stepping in to save a national icon and the jobs associated with it.
The OBSOLESCENCE risk. The enterprise fails to adapt to changing consumer needs, competitive innovations, or altered circumstances. Blackberry was the first “smart” phone on the market. Market acceptance of this innovative device that could do email, phone calls, Internet, and a variety of other tasks, however, was leapfrogged by Apple’s iPhone innovation. Blackberry quickly became viewed as obsolete as it lacked a new visual intuitive user interface as well as the access to thousands of specific “apps.”
The REJECTION risk. Participants in the business’s ecosystem reject the business as a partner. The impact of social media has dramatically increased this type of risk. In 2017 a passenger filmed United Airlines personnel forcibly dragging a bloodied passenger off one of its planes. The video went viral, prompting an outcry in both the United States and China (the passenger was of Chinese descent). The airline posted a profit plunge of almost 70 percent in that quarter.
With the exploration of these two characteristics (coherence and resiliency) of a CAS, consider two pivotal questions:
With regard to coherence: what is the goal of a for-profit company and how can the subsystems’ purposes be best aligned to that goal? The three vital metrics of contribution margin, working capital, and customer base are far too remote from the subsystem’s decisions to make them the metric’s focus at the subsystem level. Is there some concept or principle that can ensure those three basic necessities at the higher level but that translates effectively all the way down to and through the subsystems and their respective operational levels? Without this answer, maintaining coherence is under constant threat. This question will be answered in the next section of this chapter.
With regard to resilience: where is the starting point for an organization to create a framework to best mitigate these six risks? The exploration of an answer will begin in Chapter 2.
Authors’ note: This is an extremely abbreviated description of complex adaptive systems. Readers seeking a deeper dive behind this science should consider reading Chapter 10 of Demand Driven Performance —Using Smart Metrics (Smith and Smith, McGraw-Hill, 2014) and the additional resources listed in that chapter.
What is the objective for every organization and a purpose for its subsystems to effectively tie to and drive that objective? Is there a basic fundamental principle to focus every business?
Now more than ever business is a bewildering and distracting variety of products, services, materials, technologies, machines, and people skills obscuring the underlying elegance and simplicity of it as a process. The required orchestration, coordination, and synchronization is simply a means to an end. That much is quite easy to grasp. What is more difficult for many organizations to grasp is what fundamental principle should underlie that orchestration, coordination, and synchronization.
The essence of any business is about flow. The flow of materials and/ or services from suppliers, perhaps through multiple manufacturing plants and then through delivery channels to customers. The flow of information to all parties about what is planned and required, what is happening, what has happened, and what should happen. The flow of cash back from the market to and through the suppliers.
Is this some sort of inspired revelation? No. Flow has always been the primary purpose of most services and supply chains. Very simply put, you must take things or concepts, convert or assemble them into different things or offerings and then get those new things or offerings to a point where others are willing to pay you for them. The faster you can make, move, and deliver all things and offerings, the better the
Resiliency allows a system to respond to a disturbance while maintaining equilibrium within its system boundary. In supply chain words, resilience is how well a system can return to stability when it experiences random or self-imposed variation. Resilience arises from the subsystem’s ability to respond to the feedback loops that regulate equilibrium. The ability to adapt and the diversity or flexibility of options/actions determines how quickly the system can recover and/or improve. The opposite of resiliency is rigidity.9
