The Resilient Enterprise The Resilient Enterprise Overcoming Vulnerability for Competitive Advantage Yossi Sheffi The MIT Press Cambridge, Massachusetts London, England Additional material can be found at www.theresiliententerprise.com ©2005 Massachusetts Institute of Technology All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or informa- tion storage and retrieval) without permission in writing from the publisher. MIT Press books may be purchased at special quantity discounts for business or sales promotional use. For information, please email [email protected] or write to Special Sales Department, The MIT Press, 55 Hayward Street, Cambridge, MA 02142. This book was set in Sabon by SNP Best-set Typesetter Ltd., Hong Kong Printed and bound in the United States of America. Library of Congress Cataloging-in-Publication Data Sheffi, Yosef, 1948– The resilient enterprise : overcoming vulnerability for competitive advantage / Yossi Sheffi. p. cm. Includes bibliographical references and index. ISBN 0-262-19537-2 (alk. paper) 1. Business logistics—Management. 2. Strategic planning. 3. Competition. I. Title. HD38.5.S547 2005 658.7—dc22 2005040875 10 9 8 7 6 5 4 3 2 1 To Anat Contents Preface ix Acknowledgments xi I When Things Go Wrong: Disruptions and Vulnerability 1 1 Big Lessons from Small Disruptions 3 2 Understanding Vulnerability 17 3 Anticipating Disruptions and Assessing Their Likelihood 35 4 Effects of Disruptions 57 II Supply Chain Management—A Primer 75 5 Basic Supply Chain Management 77 6 Demand-Responsive Supply Chains 93 III Reducing Vulnerability 113 7 Reducing the Likelihood of Intentional Disruptions 115 8 Collaboration for Security 137 9 Detecting Disruptions 155 10 Resilience through Redundancy 171 IV Building in Flexibility 181 11 Flexibility through Interchangeability 183 12 Postponement for Flexibility 195 viii Contents 13 Strategies for Flexible Supply 209 14 Customer Relations Management 225 15 Building a Culture of Flexibility 243 V Resilience for Competitive Advantage 267 16 Moving Ahead 269 Notes 287 Index 317 Preface This book examines the ways in which companies can recover from high-impact disruptions. The focus is on the actions they should take to lower their vulnerability and increase their resilience. A notion borrowed from the materials sciences, resilience represents the ability of a material to recover its original shape following a deformation. For companies, it measures their ability to, and the speed at which they can, return to their normal performance level following a high-impact/low-probability disruption. After 9/11, governments around the world elevated the fight against terrorism to the top of their agendas. The U.S. government reorganized its defense and intelligence agencies and adjusted its foreign policy for that mission. In contrast, the private sector quickly went back to business. The daily pressures to perform— worrying about yields, supplier performance, machine up-time, customer requirements, product launches and market response— quickly overtook most terror worries. Yet in the United States, and increasingly in Europe, most of the economic infrastructure, such as transportation, energy, retail, manufacturing, and finance, is in the hands of the private sector. In early 2002, a group of researchers and several corporate members of MIT’s Supply Chain Exchange program began a series of discussions to address the rising concerns about terrorist disruptions. It quickly became apparent that there are no clear management guidelines, models, or theories for corporate security and resilience. These discussions spawned a three-year research effort that culminated in this book. As the research progressed, it became clear that the study needed to expand to include different kinds of disruptions. Many