Supply chain

resilience
for an era
of turbulence

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 Supply Chain Resilience for an Era of Turbulence 1

About this report

Supply Chain Resilience for an era of Turbulence is an Economist Intelligence Unit report, commissioned by the
Association for Supply Chain Management (ASCM). This report is based on a series of in-depth interviews with
leading subject matter experts on supply chain resilience, sustainability, and circularity from around the world.
The purpose of this report is to highlight how, given the current era of increased risk, more focus is needed on
how companies and industries can take effective steps to build resilience into their supply chains.
The project has benefitted from counsel provided at various stages by a panel of experts consisting of prominent
authorities on supply chain resilience, sustainability, and circularity. The EIU is extremely grateful for the
expertise and advice these individuals generously shared with this project. These experts include:

Bob Ferrari Suman Sarkar

Vice President and Managing Director, The Ferrari Partner, Three S Consulting
Consulting and Research Group Joseph Sarkis
Joseph Fiksel Professor, Worchester Polytechnic University
Professor Emeritus, The Ohio State University Bindiya Vakil
Sam Israelit Chief Executive Officer, Resilinc Corporation
Partner, Bain & Company Deirdre White
Steven Melnyk Chief Executive Officer, Pyxera Global
Professor, Michigan State University Prashant Yadav
Senior Fellow, Center for Global Development

The project was also informed by interviews with other leading experts and practitioners in the field of supply
chain. The EIU is very thankful for the time and expertise they contributed to this project:

Jamie Barsimantov Sophie Ogilvy

Chief Operating Officer and Co-Founder, SupplyShift Business Integrity Program Director, Transparency
Didier Bergeret International UK
Director of Social Sustainability and the Sustainable Rocio Paniagua
Supply Chain Initiative, The Consumer Goods Forum Business Integrity Senior Program Manager,
Peter Burrows Transparency International UK
Chief Executive Officer, Fair Factories Clearinghouse Timothy Pettit
Martin Caddick Associate Professor, National University
Partner, MERC & CO LLP Jenette Ramos
Samantha Duncan Senior Vice President, Manufacturing Supply Chain &
Founder & Chief Executive Officer, Net Purpose Operations, Boeing Corporation
Matt Elkington Adam Schafer
Managing Partner, MERC & CO LLP Director of Supply Chain Sustainability, Intel
Corporation
Thibault Gravier
Director and Head of the Supply Chain Sustainability Cory Searcy
Practice, BSR Professor and Associate Dean, Ryerson University
Linda Greer Bharat Sharma
Senior Global Fellow, Institute for Public and Vice President of North America Procurement, The EIU bears sole
Environmental Affairs Beijing Mauser Packaging Solutions responsibility for this
Katy Shaw report’s contents. The
Natalie Flournoy Grillon
Chief Operating Officer, Open Apparel Registry findings, analyses and
Executive Director, Open Apparel Registry
recommendations
Dinah Koehler Chae-Ung Um
Senior Vice President of Global Procurement Strategy included in the report
Co-Founder & Head of Research, Net Purpose reflect the EIU’s views
and General Procurement, LG Electronics
Kristin Komvies and not necessarily
Director of Impacts, ISEAL Alliance Felicitas Weber
those of the subject
KnowTheChain Project Lead, Business & Human
Peter McAllister matter experts who
Rights Resource Centre
Executive Director, Ethical Trading Initiative were consulted.

© The Economist Intelligence Unit Limited 2020

 Supply Chain Resilience for an Era of Turbulence 2

Briefing: Modern Supply Chain Resilience

25 August 2020 and pandemics, to resource depletion and
the impacts of climate change: more frequent
The risks facing supply chains have
and severe natural disasters, rising sea levels,
intensified over several years, signaling
and gradual changes to weather patterns and
that we have entered an era of turbulence
water availability. The second-order social
in which the impacts of geopolitical
effects, such as unrest, conflicts and mass
shifts, cyberthreats, resource depletion,
migration, pose additional problems for supply
and climate change will be with us every
chains; as do the regulatory regimes which
day. Covid-19 has brought the reality of
could emerge to tackle climate change, such
doing business in a high-risk world into
as carbon taxes.
sharper focus, with businesses, the public
and investors all gaining unprecedented Through the ongoing covid-19 crisis, companies
awareness of supply chain disruptions. have focused on the topic of supply chain
Those companies that recover from the resilience. According to Dr. Joseph Fiksel of
pandemic should seek to build their supply the Risk Institute at the Ohio State University,
chain resilience, not only improving their “classic risk management can’t protect
ability to recover from disruptions, but also companies against today’s turbulent change
their ability to adapt to a new normal. and more frequent disruptions.” In the midst of
the pandemic, companies can begin fostering
more modern, resilient supply chains by
The changing landscape of strengthening their tactical capabilities to
supply chain risk prepare for and respond to disruptions. But they
must go much further, embracing supply chain
As economies around the globe grapple with
sustainability and circularity, and recalibrating
the impact of covid-19, there has never been
long, global, supply chains to reduce fragility
such heightened awareness of supply chains
and manage critical dependencies.
among businesses, the public and investors.
HSBC, Europe’s largest bank, has observed
that going forward, investors keen to de-
risk will be closely watching how companies
strengthen resilience in their supply chains.1
This is not solely a result of the pandemic; but
the pandemic has brought into sharper focus Classic risk management can’t
the reality of doing business in a high-risk protect companies against
world — firms will need to adapt to survive, let today’s turbulent change and
alone thrive.
more frequent disruptions.
We have entered an era of turbulence, and
Dr. Joseph Fiksel of the Risk Institute at
the risks faced by firms worldwide are set
the Ohio State University.
to intensify.2 They range from trade and
geopolitical tensions, through cyber threats

1 The Sustainability Consortium and HSBC. 18 Jun 2020. Supply chain resilience and climate change. https://www.sustainablefinance.hsbc.com/
sustainable-infrastructure/supply-chain-resilience-and-climate-change
2 Fiksel, J., Polyviou, M., Croxton, K. L., & Pettit, T. J. 2015. From risk to resilience: Learning to deal with disruption. MIT Sloan Management Review, 56(2),
79-86.

© The Economist Intelligence Unit Limited 2020


With the bulk of environmental impacts and
exposures that companies face arising from
their supply chains, there is an increasing
convergence between supply chain resilience
and supply chain sustainability. A combined
US$1 trillion at risk in the supply chains
of 125 large corporate buyers is linked to
environmental issues, reported the Carbon
Disclosure Project, a non-profit clearinghouse
of sustainability data. There is also an
emerging body of evidence that sustainable
businesses not only perform better in general,
but have been more resilient in the face of
covid-19.3 This is not surprising, given areas
of overlap in sustainable and resilient supply
chain management, including the need
to understand, monitor and engage with
suppliers.
Faced with more frequent and severe
supply chain disruptions, some companies
are reconsidering the balance they take
between efficiency and resilience. 4 “A focus on
maximum efficiency is the enemy of resilience,
creating vulnerabilities in long, complex supply
chains that are more frequently exposed
in today’s era of increased risk,” says Fiksel.
Companies may increase redundant inventory
and multi-source critical inputs, as many have
done since the onset of the covid-19 crisis. But
these choices come with increased financial
and environmental costs and hard questions
about who will bear them. In some sectors,
such as electronics, questions of how to
reduce dependencies on foreign suppliers are
even more difficult to answer.
3 Tavares, R. 14 May 2020. “Sustainable finance is performing well in the pandemic—but why?” Quartz at Work. https://qz.com/work/1856470/why-
sustainable-finance-performs-well-in-the-pandemic/
4 See Melnyk, S., Knowles, S. Jun 2020. Is today’s supply chain model dead? Have you got its replacement ready? Maine Point & Michigan State University.
https://www.mainepointe.com/practical-insights/is-todays-supply-chain-model-dead, and Sarkis, J., Cohen, M., Dewick, P., Schröder, P. A brave new
world: Lessons from the COVID-19 pandemic for transitioning to sustainable supply and production. 17 Apr, 2020. Resources, Conservation and Recycling,
159.
Supply Chain Resilience for an Era of Turbulence 3
As covid-19 has revealed, the ways in which
organizations manage global supply chains
and the risks embedded in them can provide
tremendous opportunities to build resilience.
Technology can enable increased visibility and
agility for a variety of firms, although some
advanced solutions cater more to a vanguard
of companies. A wider range of companies
will be able to take steps to improve data and
analytics, process automation, and system
integration across their supply chains. But
technological solutions work best when
they build upon mature supply chain risk
management practices and not replace them.
Understanding your supply chain still requires
manual work and often significantly so.
Our research, including interviews with supply
chain professionals and experts carried out in
the first half of 2020, suggests that corporate
leaders and supply chain managers would
benefit from adopting a more forward-looking
approach to supply chain resilience, developing
the capabilities that will enable them not
just to bounce back from disruptions, but to
position their supply chains for success in an
era of turbulence. How to do so is the subject
of a new research program by The Economist
Intelligence Unit (The EIU), commissioned by
the Association for Supply Chain Management
(ASCM). As part of the program, The EIU is
developing a framework to assess supply chain
resilience in publicly-listed US companies. It
will compare performance across sectors and
company sizes, identifying opportunities for
firms to invest in supply chain resilience for a
robust future.
© The Economist Intelligence Unit Limited 2020
 Supply Chain Resilience for an Era of Turbulence 4

Defining and measuring supply chain

resilience: moving with the times
Companies responding to the ‘warning shot’ of this pandemic by improving their supply chain
resilience can do so by bolstering capabilities that fall into two equally important domains.

The supply chain’s Real-Time Strategic The supply chain’s

ability to bounce back Supply Supply ability to bounce forward
and recover to a normal Chain Chain and adapt to a
state of affairs Resilience Resilience new normal

Real-time supply chain resilience is Strategic supply chain resilience is an

concerned with a company’s tactical capability emerging concept that focuses on how
to avoid, withstand, and bounce back companies adapt to a changed environment.5
from supply chain disruptions and recover Today, companies must adapt their supply
to a ‘normal’ state of affairs. To shore up chains to a ‘new normal’ characterized by
potential trouble spots where there could more frequent and severe disruptions they
be delays or interruptions, companies must now face. Companies must first understand
first understand their supply chains, their their vulnerabilities across an expanded risk
dependencies, and their vulnerabilities, taking horizon, and adapt their supply chains by
steps to proactively mitigate them. But that building strong relationships across the value
won’t be enough – surviving large-scale chain, recalibrating long, global supply chains
disruptions like covid-19 requires them to where necessary, and by adopting sustainable
respond with flexibility and agility. and circular practices.

Understanding who your critical first tier suppliers are should be

the absolute bare minimum, and that starts with defining objective
criteria to evaluate what makes a supplier critical in the first place…
Matt Elkington, Managing Partner of MERC & CO LLP,
a risk and strategic consultancy.

5 Fiksel, J. Resilient by Design: Creating Businesses That Adapt and Flourish in a Changing World. (Island Press, Oct 2015); and Baskin, K. 11 Feb, 2020.
Supply chain resilience in the era of climate change. Ideas Made to Matter | MIT Sloan. https://mitsloan.mit.edu/ideas-made-to-matter/supply-chain-
resilience-era-climate-change.

© The Economist Intelligence Unit Limited 2020

 Supply Chain Resilience for an Era of Turbulence 5

Strengthen your capabilities to chain is arguably one of the most effective

bounce back and recover
Real-time resilience begins with preparation by
first identifying and mitigating vulnerabilities
in the supply chain. A firm with strong risk
management capabilities is more likely to
anticipate a crisis as it develops, receiving
an early warning from which it can shape its
response and activate plans to adjust its supply
chain—even as others scramble to respond.
Further steps rest upon an acceptance that it
is impossible to identify all risks in advance. To
be prepared to fight the next war, not the last,
firms need risk-agnostic systems in place.
The cornerstone for building resilience is
understanding your supply chain. “Visibility of
key dependencies across all tiers of the supply
ways in which firms can turn the dial on supply
chain resilience, but very few organizations
currently have this,” says Matt Elkington,
Managing Partner of MERC & CO LLP, a risk
and resilience consultancy. “Understanding
who your critical first tier suppliers are should
be the absolute bare minimum, and that starts
with defining objective criteria to evaluate
what makes a supplier critical in the first place,
and this is often not determined by how much
you spend with them.”
While the precise balance to be struck
between efficiency and resilience is one to
be decided at a firm level, there are a number
of risk-agnostic approaches that should be
considered by all supply chain managers. (See
table 1).

Table 1 Approaches that Build Real-Time Supply Chain Resilience

Supply Chain Mapping suppliers will help both in identifying vulnerabilities and in mounting a quick
Mapping response to disruptions. To maintain a competitive edge, supply chain leaders need
to leverage emerging technologies, beginning with the use of analytics to enhance
anticipation and response.

Develop Agility Even the best planning may not be enough once a crisis strikes. Responding to rapidly
changing market conditions and needs during a disruption will require agility in planning, on
factory floors, in product innovation, and in customer service. Companies that can quickly
pivot into adjacent or wholly different industries will have a competitive advantage.

Collaborate with A company’s resilience often depends on the resilience of its suppliers. Larger firms can
Suppliers help suppliers collaborate over joint stress tests and contingency planning. They can
also help suppliers, some of whom may be small or medium enterprises, to stay solvent
in a crisis by honoring contracts and helping suppliers maintain liquidity with tools like
reverse factoring. Buyers who are supportive partners to their suppliers typically benefit
from enhanced visibility of upstream supply chains, early warning of potential risks, and
preferential treatment during a disruption.

Build supply chain A commitment to resilience needs to be integrated into supply chain management, with
risk management buy-in from corporate leaders and a risk-aware culture. Mature organizations prepare
maturity for disruptions, updating business continuity plans and conducting regular scenario
analysis to create greater understanding of vulnerabilities and hidden risks in their
supply chain as well as to enable more rapid decision-making in the face of disruption.

Shore up financial A fundamental aspect of resilience is the ability of company finances to absorb a shock,
resilience a point made clear by covid-19. Facing looming demand uncertainty with economies
locked down around the world, many companies are building up their reserves to
weather the storm. Larger firms may have the clout to increase their financial resilience
at the expense of smaller suppliers, but they will need those suppliers to be healthy
when demand returns.6

6 Swink, M. Building Resilient Supply Chains: What Past Experiences Taught Us About Gaining Advantage in the Current Recession. Association for Supply
Chain Management, 2019.

© The Economist Intelligence Unit Limited 2020

 Supply Chain Resilience for an Era of Turbulence 6

Bounce forward and adapt to a principles of a circular economy to reduce

new normal
Strategic supply chain resilience is a less
well-understood concept, but one with
which business leaders need to familiarize
themselves as a matter of urgency. Supply
chain decision-makers should be mapping out
their exposure to these risks, and weighing
up responses—which could range from
redesigning or recalibrating supply chains, to
forging stronger relationships across the value
chain to build resilience; for more forward-
thinking firms, responses could include
re-organizing production according to the
dependence on finite raw materials, and
reducing the supply chain’s environmental
footprint.
As well as taking action to ensure that the
supply chain is able to weather the slow-onset
risks listed above, firms will be expected—by
investors and customers alike—to reduce
their own role in driving up these risks.
“Customers are the biggest disruptors, and
their perception of whether or not a firm
prioritizes sustainability is almost certain to
affect the firm’s supply chain,” says Suman
Sarkar, a management consultant and
author of “Customer-Driven Disruption: Five

Table 2 Approaches that Build Strategic Supply Chain Resilience

Learning Firms must learn from the supply chain disruptions which they and their peers
face and apply the lessons to strengthen their tactical and strategic capabilities.
After recovering from a disruption, it may be tempting to return to business as
usual. Although conducting a root cause analysis, adapting existing processes, and
implementing changes require resources and bandwidth, they can be important
investments in resilience to be recouped over time.

Commit to mitigating Companies should expand their risk horizons and develop awareness of their strategic
and tackling long- vulnerabilities and exposures. They might use methods including trend analysis or
term risks scenario forecasting to anticipate how macroeconomic shifts or a transition to a low
carbon economy might impact them. Companies can set targets for their supply
chains with regard to waste recovery, recycling, greenhouse gas reduction, or other
key indicators of their environmental and social impact. Goal-setting is not enough
– companies should collect and report the data they need to regularly assess their
progress towards their goals, including scope 3 carbon emissions.

Manage dependence This starts with assessing the dependence of key suppliers on natural systems and
on ecosystem resources, such as forests or groundwater, and understanding their exposure to
services risks associated with environmental degradation. Steps can then be taken to reduce
dependence or ensure sustainability.

Build long-term Strong relationships with supply chain partners are key to remaining competitive, as
supply chain businesses work to adapt to strategic risks. In addition to joint innovation and supplier
partnerships development programs, this can involve supplier collaboration for circularity, and
support for suppliers to access finance and expertise in order to invest for resilience—
whether by adapting or moving physical infrastructure, or decarbonizing to minimize
reputational damage and future carbon costs.

Collaborate Addressing strategic risks affecting supplier communities often requires multi-
externally stakeholder collaboration, including pre-competitive collaboration to raise standards
and lobby governments for better regulation or enforcement. The transition to
circular business models, which include making use of waste streams as inputs and
reverse logistics to enable product takeback, relies on productive partnerships within
and across sectors as well as educating users about their role in building circularity,
sustainability, and resilience.

© The Economist Intelligence Unit Limited 2020

 Supply Chain Resilience for an Era of Turbulence 7

In the wake of covid-19 and global social movements sparked

by the killing of George Floyd, customers care even more about
sustainability, and over an expanded range of issues that includes
workforce safety, diversity, and inclusion.
Suman Sarkar, a management consultant and author of “Customer-Driven Disruption:
Five Strategies to Stay Ahead of the Curve.”

Strategies to Stay Ahead of the Curve.” Sarkar
noted that “in the wake of covid-19 and global
social movements sparked by the killing of
George Floyd, customers care even more
about sustainability, and over an expanded
range of issues that includes workforce safety,
diversity, and inclusion.” Similarly, investors
are looking at companies’ sustainability
performance as an indicator of resilience
amidst the covid-19 crisis.7
For supply chain leaders, this means not only
reducing the negative impacts of your global
operations but also engaging with actors
beyond your own supply chain to jointly
tackle large, entrenched problems. There
are a number of steps that supply chain and
corporate leaders can take to build strategic
supply chain resilience (See table 2).

7 The Economist Applied. 23 Jun 2020. Sustainability in the time of covid-19. https://applied.economist.com/articles/sustainability-in-the-time-of-covid-19

© The Economist Intelligence Unit Limited 2020


Prepare for disruption
By now, we are all keenly aware of the severity
of the disruption covid-19 has caused. But just
a few months ago, the potential for a pandemic
to throw global supply chains into turmoil
seemed vague and theoretical to many. “If
companies were unprepared, it was despite
scientific warnings that have been clear for
decades,” stated Fiksel, “covid should not have
been a surprise to anyone who was informed
about pandemics, although the severe global
impacts were unprecedented.” There has
been a similar complacency surrounding the
potential impacts of climate change and other
severe long-term risks, despite a growing
evidence base that warns time is running short
to mitigate these risks and build resilience.8
Amidst this herd mentality, corporate leaders
are breaking away and positioning themselves
to be winners in the turbulent times ahead.
As others weigh the value of investing in
supply chain resilience, they would do well to
remember that the ROI may one day be their
very survival.
8 See e.g., Sarkis, J., Dewick, P., Hofstetter, J., 24 Jul, 2020. Overcoming the Arrogance of Ignorance: Supply-Chain Lessons from COVID-19 for Climate
Shocks. One Earth, 3(1), 9-12.
Supply Chain Resilience for an Era of Turbulence 8
The forthcoming research program by The
EIU and ASCM will provide insights into how
supply chain managers can develop modern
supply chain resilience in their organizations.
ASCM and The EIU have consulted with
industry experts and practitioners to develop
a benchmarking framework that identifies
best practices in both real-time supply
chain resilience and strategic supply chain
resilience. Combining a survey of corporate
executives with supply chain metrics drawn
from financial disclosures, the benchmark will
cover publicly-listed companies of varying
size in three sectors: pharmaceuticals, retail,
and manufacturing. By providing evidence-
based, sector-specific analysis into best
practices and areas for improvement, it is
our hope that the benchmark will build the
case for organizations to invest in modern
supply chain resilience, giving organizations
actionable recommendations about how they
can do so.
Cover image: Shutterstock
© The Economist Intelligence Unit Limited 2020
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