Make Smarter Investments in Resilient Supply Chains

Many companies invest in resilience only after a disruption. Applying the concept of real options can help decision makers fortify supply chain capabilities no matter the crisis.

- Walid Klibi, Kai Trepte, and James B. Rice Jr.

MORE THAN EVER, COMPANIES need supply chains that are resilient to disruptions, whether the cause is a natural disaster, an infrastructure failure, labor actions, or a global pandemic. Yet the conventional approach to resilience is seriously flawed. Many companies follow a boom-and-bust pattern, making big investments in resilience after a supply chain disruption and then paying little attention to the issue until the next crisis.

This reactive way of protecting supply chains is based on the approach of mitigating the risk that a disruptive event will occur. But that is not enough for creating true resilience, which is the ability to bounce back as quickly as possible after a disruption.¹ A more effective approach focuses not on risks but on outcomes - that is, on the value of maintaining operations when adversity strikes rather than on the cost of a supply chain disruption. The goal is a robust supply chain that can sustain value creation under any plausible risk scenario.²

Developing such an approach is difficult. It requires companies to determine in advance how much to invest in resilience and how to implement those investments across different parts of the organization. These challenges have long frustrated efforts to make supply chains more resilient.