Chapter Summaries

This book takes a supply chain perspective on corporate preparedness and response to high-impact/low-probability disruptions. The focus of the book is not only on security, but primarily on resilience?creating the ability to bounce back from such disruptions. In particular, it demonstrates how resilience investments can be turned into a competitive advantage.

Part I introduces the notions of vulnerability and resilience.

Chapter 1 looks at a unique case study: the reaction of two large competitors in the same industry, Nokia and Ericsson, to a disruption in the supply of chips from Philips Electronics. One was resilient and rose to the challenge; the other had to exit the market.

Chapter 2 introduces a framework for understanding vulnerability to any given disruption. It is defined as the combination of disruption likelihood and the resilience of the company to such disruption?whether it can recover and how quickly. This framework can be used to prioritize all the disruption risks a company faces and thus prioritize the response.

Chapters 3 and 4 focus on the causes and nature of high-impact disruptions. Chapter 3 demonstrates that, typically, accidental and security failures are rooted in multiple causes. It describes an analytical framework?taken from "dangerous" industries such as aviation and chemicals?of analyzing "near misses" to avoid the "big one." Chapter 4 then characterizes several aspects of low-probability/high-impact disruptions?such as the compounding effects of public fear and governments? overreaction, which businesses should take into account in their preparations and assessment of what can go wrong. 

Part II offers a basic primer on supply chain management and the challenges associated with managing multi-participant supply chains.

Chapter 5 explains how demand signals propagate and amplify, creating internal variability of orders and inventory levels throughout global supply chains.

Chapter 6 then focuses on the perils of forecasting, exploring how certain principles of supply chain design can help reduce a firm?s susceptibility to uncertain demand and to the inherent limitations of forecasting methods. Such methods can also increase the resilience of the supply chain. 

Part III looks at basic vulnerability-reduction measures?security, fast detection and redundancy.

Chapter 7 focuses on security?reducing the likelihood of disruptions. While security is not the focus of the book, it should be part of any resilience plan. This chapter gives outlines the principles of security planning, explaining the thinking behind layered prevention and the elements of a security culture.

Chapter 8 looks at the value of collaboration: both cross-industry and public-private partnerships. It pays particular attention to "adaptive," intentional threats?those threats that, unlike severe weather or an earthquake, change in response to defensive measures.

Chapter 9 focuses on company processes that can lead to fast detection of disruptions, enabling it not only to respond quickly to disruptions but also respond quickly to day-to-day changes in the marketplace.  The "nightmare scenario" among security professionals is not a nuclear holocaust or a dirty bomb. Instead, it is an attack in which the target does not realize it is under attack until it is too late. Fast detection of such an ongoing disruption is a key to resilience. In fact, one of the main differences between Nokia?s and Ericsson?s response to the Philips fire, chronicled in the first part of this book, is the speed with which Nokia detected the problem and internalized its consequences, and thus sprung into action. Part IV outlines the major thrust of this book?building in flexibility.

Chapter 10 examines the various forms of redundancy, the first line of defense in case of a disruption or change in customer orders, suggesting ways to manage extra inventory while minimizing the cost impact of such inventory.  Safety stock of parts and finished goods, spare capacity and multiple suppliers, all provide a cushion to absorb some impact.

Chapter 11 explores the flexibility inherent in standardizing operations, parts, and processes. Such standardization allows for interchangeability and thus moving resources from where they are to where they are needed in case of a disruption.

Chapter 12 then expands on these ideas and builds on the foundations of the basic structure of supply chains (chapter 5) and on understanding the limitations of forecasting (chapter 6) to develop the framework of late customization and "build-to-order" strategies. It shows why such supply chain designs are inherently more resilient in addition to providing every-day flexibility.

Chapters 13 and 14 look at the inbound and outbound faces of supply chain operations. On the inbound side, the book demonstrates the perils of relying on a single supplier and how the right relationships with suppliers can help companies recover quickly from serious disruptions. It does not recommend, however, multiple suppliers instead of single sourcing. In fact, it argues that the question of single vs. multiple is irrelevant. Instead, it demonstrates that what is important is alignment of the sourcing strategy with the partnership strategy. In fact, a company can use different approaches for different parts in its procurement portfolio.

Chapter 14 is focused on the customer-facing part of the firm, including distribution, sales, and public relations?how flexibility can be built into the outbound side of the supply chain so it can respond to a disruption through pricing and distribution strategies and how it should effectively communicate during a disruption. It also demonstrates how strong customer relationships can lead to customers helping in a crisis.

Chapter 15 looks at building a culture of flexibility. It involves certain human resources expectations and job definitions as well as cross training. It also involves distributed knowledge, empowerment, and action-orientation that leading companies have developed.

Part VI, which includes chapter 16, summarizes the main lessons of the book and the call for action. It outlines organizational recommendations and action items, drawing the business case for security and flexibility. It looks at both the necessary security actions and the collateral benefits that can be achieved with better security. It then summarizes the value of flexibility as resilience strategy and its contribution to the competitiveness of the company.