Resilience services draw supply chains out of their catch 22 situation



Simon Dalmolen, Wico Mulder

TNO data ecosystems



The current market conditions demand a lot from organizations in terms of their flexibility. While still recovering from the COVID-19 pandemic, uncertainties in today’s financial market, e.g. due to the Ukraine war, severely challenge organisations on their level of flexibility and adaptivity. Under disruptive market conditions, their smoothly running business networks may suddenly turn into rigid frameworks.


In an attempt to address these challenges, organisations in the logistic domain form collaborative business networks, commonly known as supply chain networks. Under normal market circumstances such forms of collaboration increase the levels of flexibility and adaptivity.


However, in turbulent market situations it appears that these networks are not always that effective, and in some situations even counterproductive.


This is where organisations get into a catch 22 [1] situation: On the one hand an organisation wants to be part of an ecosystem to increase its flexibility in the current market, on the other hand the same network may rigidizes this ecosystem, as it relies on collaboration. Uncertainty in the messages and the lack of information can disturb the communication, trust and thereby the ability to absorb unexpected demand fluctuations. Collaboration comes with dependencies, which might lead to situations in which organizations become benumb in surprising contexts and market uncertainties.


During the pandemic it became painfully evident that there were many scenarios concerning shortages of raw materials, end products, and personnel. This had a profound impact on trust levels and price fluctuations. And since we can expect more types of global surprises, e.g. effects of climate change, it is not a question of whether but when the bull-whip effects will occur. Small fluctuations in customer demand have a significant impact on the costs and time-to-market of manufacturing companies. Note that it is not always a disruption that causes such effects, take e.g. companies that shut down due to chip shortages. While propagating through the supply chain, the price fluctuations had a significantly increasing impact on the cost and time-to-market of the end products. And the ordering behaviour of customers is stacking up and resulting in more shortage and price increases.


Back to the dilemma. Supply chains today rely on methods such as Lean Six Sigma and Overall Equipment Effectiveness tooling. Although these methods have been proven to strengthen organizations in their daily business, they are still vulnerable to external shocks. Supply chains are designed for efficiency, cost and proximity to markets, but not necessarily for resilience. The formation of business ecosystems does strengthen organisations in their daily business, but they still seem vulnerable to external shocks.


For example, in the domain of logistics the fast-moving consumer goods market organizations have started cross-docking, a concept that relies on chain collaboration for smart reloading of goods in order to serve sustainability goals. Truckloads are repacked in order to reduce the number of half-loaded trucks. The concept of cross-docking also reduces lead-times and stock sizes. One the one hand, this results on the reduction of costs, but on the other hand, in times of uncertainty and communication hiccups with delivery information, it may result in the opposite effects: rigidness.


Another example is the delivery of components in manufacturing networks. Due to the increasing complexity of products and the increasingly innovative customer demands, today’s manufacturing companies have become highly specialized. This specialization brings with it the need for strong collaboration in the form of manufacturing networks: A single company cannot manufacture a complete product. Under normal conditions manufacturing organisations know exactly from which supplier they can expect just-in-time delivery of materials. The systems in the network are designed for smooth distributed planning and the trust relationships are firmly based between the partners in the neighbouring tiers. But in times of uncertainty, when the delivery of goods suddenly fails, promises and expectations sometimes get out of balance and the lean network production optimization falls short.


Both examples show that logistic and manufacturing networks are designed for efficiency, cost and proximity to market, but not for dealing with disruptions. Smoothness may suddenly turn into rigidness.


Climbing out

The million dollar question is: How can organizations climb out of this catch 22 situation?


Let's have a look at two of the core collaboration mechanisms that allow organisation networks to operate successfully under normal conditions.


First communication: Today’s business networks are supported by a strong digital backbone for the exchange of data in the form of messages. In daily operation, these messages contain information from purchase to payment: e.g. order information, status of delivery, etc. Currently this is successfully implemented in the Digital Innovation Hub Smart Connected Supplier Network (SCSN), where 300 manufacturing companies exchange purchase to pay information with their customers and suppliers.


Second trust: In old-boys networks this is strong between direct neighbours in the network but in larger networks it leans on expectation and validation of the facts stated in the messages such as the expected delivery date. When the market becomes less predictable and things start to fail, it not the lack of messages, but the lack of trust that leaves members in the dark.


Given both mechanisms it seems that ropes are already hanging to climb out of the catch 22 situation. They serve the needs in the case of ordinary, sunny market circumstances. But as reasoned further below, these same core mechanisms may also be of help in times of unbalanced market situations.


However, the solution requires more than simply increasing the frequency of communication. In times of uncertainty, the emphasis on the purpose of those messages shifts from serving operational status information towards a stronger need for more insight and understanding. It is this shift in purpose that plays a key role in changing the level of communication. In our approach we translate this into a temporary need for more transparency.


An example is an increasing need for marketplace information. In times of uncertainty about the delivery of materials, production capacities or availability of services, organizations want information about possible alternatives. Different routes through the network might lead to a different, but still satisfying solution.


Another example of services that allow the network organization better dealing with shocks is creating, sharing and using of trust models. Based on the data that flows through the network models that provide insights into e.g. the actual delivery may increase the transparency on the level of trust beyond the direct neighbouring levels. The need and positive impact could be temporary. It could be that this information is only appreciated in the moments when the network is in its survival modus.


The increased need for supply chain visibility and the trust model supporting services are just two examples of so-called resilience services. The pandemic and Ukraine war are examples of the need for an increased attention for resiliency both at an individual level as well as on a network level.


Our organisation works on the development of modularized services to manage momentum and necessity of transparency information in the network [2].

The key pre-requirements for the required agile business networks have been identified as follows (Hillegersberg, Moonen, and Dalmolen):

  1. Modularization of services, products and processes

  2. Coordination and collaboration

  3. Quick connect

  4. Relationship management


With our resilience services we target networks that can better deal with negative surprises. Strong networks must be able to absorb disruptive events whilst maintaining their business performance within expected levels of service.


Together with European partners, TNO supports network organzations in their digital transformation. TNO provides solutions for trusted and controllable forms of data sharing and trustworthy AI systems with the aim to increase the strength the competitiveness of SME networks in Europe.


TNO was founded under Dutch law in 1932 to enable business and government to apply knowledge. As an organisation regulated by public law, we are independent: not part of any government, university or company. TNO connects people and knowledge to create innovations that boost the sustainable competitive strength of industry and well-being of society. This is our mission and it is what drives us, the 3,400 professionals at TNO, in our work every day.

 

[1] A catch-22 is a dilemma or difficult circumstance in which there is no escape due to mutually conflicting or dependent conditions. These situations are characterized by dealing with a paradoxical rule or implication that paralyzes the person making the choice.


[2] We acknowledge the EUR3KA project to learn more about resiliency and transparency in manufacturing supply chains. In EUHubs4Data– we collaborate to build a European federation of Data Innovation Hubs based on existing key players – In DIH4AI – We join efforts to realize an AI on-demand platform for regional interoperable Digital Innovation Hubs Network