In this stage, three actions can be critical to building resilient supply chains: creating a nerve center for the supply chain, simulating and planning for extreme disruptions, and reevaluating just-in-time strategies.

Create a nerve center to consolidate organizational responses. A cross-functional team for such a nerve center coordinates and manages proactive responses to issues that might range from caring for distressed colleagues to testing financial stability under a range of scenarios. The nerve center could be organized under four categories: people, operating cadence, decision-enabling tools, and an early-warning system, which could, for example, signal potential political developments or cyberthreats, as well as compliance or regulatory issues (see sidebar “Designing an integrated nerve center”).

Simulate and plan for extreme supply-and-demand disruptions. This second category of actions involves ordering components earlier than usual and allowing extra time for delivery; accounting for the higher cost of energy, materials, and transportation; and checking inventories of critical materials to reprioritize production should shortages seem inevitable. If logistics disruptions are likely, try to get capacity on alternative routes. Another tactic to avoid building up excess inventory is simulating the effects of regional demand shifts on production. Examine the risks in supplier networks, labor, manufacturing, and delivery to determine if any part of the value chain is exposed to internal or external disruptions. Set up controls to minimize their effects.

Reevaluate just-in-time inventory strategies. If a crisis on the scale of the pandemic occurs, the absence of a back stock of inventory or materials can seriously threaten supply chains. Many of today’s most pressing supply shortages (semiconductors, for example) occur in supplier subtiers where manufacturers have little visibility. To achieve transparency beyond the first tier, companies could work to identify suppliers from spending data, N-tier mapping, or both. Prioritize them by their importance to the business and assess their vulnerability. Some potential measures to mitigate risk include finding new suppliers, redesigning networks, resetting inventory targets, keeping safety stocks, and sourcing locally or regionally.

Achieving structural resilience

CEOs and other top executives may focus on quick responses during a crisis but may also need to consider the difficult concern of building longer-term resilience. Transparency may be hard to attain. Diversifying the supplier base, though critical for resilience, is expensive. And the cost of keeping safety stocks on hand may be hard to justify if they are not used in several years. These issues are real and can make the task of building resilience in supply chains feel like wading through molasses, but leaders may have to continue to focus on them. (See sidebar “Creating long-term resilience in a high-tech supply chain: A case study,” to learn how one global telecom maker structured a strategy to protect itself from shortages of raw materials.)

Some ideas and proven techniques can help with the difficult work of building long-term supply chain resilience, such as the following:

Construct a ‘digital twin’ of the most critical parts of a supply chain. A digital twin is a virtual replica of a business’s operation that allows companies to simulate how a product, process, or service will perform before it is implemented in the real world. If building a digital twin isn’t feasible, two models could be constructed: one to estimate the current flow of Ukrainian or Russian commodities and materials that may be going into an organization’s products, and the other to show where a product originates in the value chain. This approach can help organizations pinpoint hidden suppliers or materials flows and expose previously invisible interdependencies.

Create and test ‘what if’ scenarios. Suppose you want to find out what would happen if the shift from rail to sea transport reduced the supply of vessels by 25 percent. One technique you may want to consider is building several what-if scenarios that can be tested quickly and then prioritizing and mitigating the parts of the supply chain that fail most often. It may seem daunting to create a large number of scenarios nearly continuously, at varying levels of detail and impact, but that is critical for this technique to provide insights. The vulnerabilities it reveals may make a big difference, but leaders shouldn’t expect any one scenario to play out.

Increase data sharing with suppliers. To minimize risk when sharing data, businesses could consider terms that require the disclosure of data under specific conditions. Even if data sharing is restricted, companies may be able to have clean teams share data with a third-party firm that analyzes the supply chain for weaknesses and provides recommendations.

Consider ringfencing a small part of the supply chain team. Charge this subgroup solely with building long-term resilience, not resolving day-to-day supply chain issues.