The Resilient Enterprise
Overcoming Vulnerability for Competitive Advantage
Yossi Sheffi
Professor of Engineering, MIT
Director, MIT Center for Transportation & Logistics
2007 LAI Annual Conference
Cambridge, MD
April 18, 2007
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What Can Go Wrong?
† March 2000; Philips fire
† December 2001; UPF
Thompson bankruptcy
† February 1997; Aisin fire
† September 1999; Taiwan
earthquake
† August 2001; dialysis filter
deaths
† February 2001; FMD
† 9/11; Terrorism
© Yossi Sheffi, MIT
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Classification:
† Categorize outcome
„ How likely?
„ How bad?
Disruption Probability
High
Low
Light
Consequences
© Yossi Sheffi, MIT
Severe
3
Classification:
† Categorize outcome
„ How likely?
„ How bad?
† Characteristics:
„
„
„
„
Public fear
Government “over-reaction”
Unexpected connections and consequences
Not very unlikely
© Yossi Sheffi, MIT
4
New or Foreign
Competitors
Public Boycott
Shareholder
& Condemnation
Activism
Offensive
Negative Media
Advertising
Coverage
Adverse
Interest Rate
Changes in
Timing of Business Foreign Market
Fluctuations
Industry
Decisions & Moves Protectionism
Fuel Prices
Regulations
Corporate
Market Share Battles
Culture
Currency & Foreign
Pricing & Incentive Wars
Exchange Rate
Loss of Intel.
Fluctuations
Attacks on Brand Loyalty
Liquidity / Cash
Property
Customer Relations
Product-Market Alignment
Financial
Asset Valuation
“Gotta Have Products”
Supplier
Dealer
Markets
Relations
Program
Launch Mergers & Industry
Relations
Instability
Uncompetitive
Consolidation
Cost
Structure
Accounting/Tax Law
Customer Demand
Inadequate
Changes
Seasonality
&
Variability
Revenue
Economic
Mgmt. Oversight
Management
Recession
Technology Decisions
Ineffective
Ethics
Planning
Joint
Venture / Alliance Relations
Violations
Adverse Changes
Debt & Credit
Budget Overruns or
in Environmental
Rating
Perceived Quality
Unplanned Expenses
Regulations
Health
Care
&
Product
Development Process
Currency
Union Relations, Labor
Pension Costs
Inconvertibility
Disagreements &
Contract Frustrations Product Design & Engineering
HR Risks – Key Skill Shortage, Personnel Turnovers
Asbestos Exposure
Product Liability
3rd Party Liability
Harassment
&
Warranty/Product
Vandalism
Mold Exposure
Discrimination
General Liability
Recall Campaigns
Directors
&
Cargo Losses
Arson
Loss of Key
Officers Liability
Property Damage
Restriction of
Embezzlement Equipment
Geopolitical Risks
Kidnapping Access / Egress
Bldg. or
Loss of Key Theft Info. Mgmt. Problems Extortion
Severe Hot/
Workers
Equip. Fire
Dealer Distribution
Facility
Cold Weather
Accounting or Internal
Compensation
Network Failures
Loss of Key
Controls Failures
Boiler
or
Machinery
Explosion
Personnel
Earthquake
Building Collapse
IT System Failures (Hardware, Logistics Provider
Health &
Failures
Flooding
Deductible
Software, LAN, WAN)
Safety
Limits
Logistics
Route
Violations
Computer
Virus
/
Denial
Terrorism/Sabotage
Building Subsidence
or Mode Disruptions
of Service Attacks
& Sinkholes
Land, Water,
Wildfire
Gov’t Inquiries
Service Provider
Lightning
Atmospheric
Workplace Violence
Failures
Strikes
Disease/Epidemic
Pollution
Tier
1,
2,
3,
…n
Tornados
Wind Damage
Operator Errors/
Supplier Problems:
Accidental
Financial Trouble, Quality
Tsunami
Animal / Insect Infestation
Damage
“Spills”, Failure to
Blizzard / Ice Storms
Deliver Materials, etc.
Loss of Key
Volcano Eruption
Supplier
Hail Damage
Supplier Bus.
Interruption
Utilities
Failures
Hurricane/
Communications,
Typhoon
Heavy Rain/
Electricity, Water,
Thunderstorms
Power, etc.
Financial
Vulnerability
Credit Default
Strategic
Vulnerability
Enterprise
Vulnerability
Hazard
Vulnerability
Operations
Vulnerability
© Yossi Sheffi, MIT
5
Reducing the Likelihood
† Detection
„ Baxter, 2001; The Spanish influenza
„ SPC
„ When do organizations “know”?
† Security
„
„
„
„
„
„
Layering
Balancing
Profiling
Collaboration
Culture
Drilling
© Yossi Sheffi, MIT
6
Resilience through Redundancy
† System-wide (USPS and Anthrax)
† Inventory for redundancy (J&J, SOR)
† Redundant capacity (Boston Scientific, Intel)
† Redundant IT systems (Merrill Lynch)
© Yossi Sheffi, MIT
7
Resilience through Flexibility
† Interchangeability
„ Plants
„ Part/product standardization
„ Pliable people
† Speed
„ Concurrent processes
† Postponement
„ Late customization
„ Surge Response
„ Built to order
© Yossi Sheffi, MIT
8
Suppliers and Customers
„ Sell what you have
„ Customers can help
„ Triage
Deep
Shallow
† Customer-Facing
Supplier Relationships
† Procurement
Single
Several
Number of Suppliers
© Yossi Sheffi, MIT
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Flexibility DNA
† Culture
„ Continuous communications (informed employees,
environment, status)
„ Distributed power (Toyota, US Navy, Zara, World, US
Coast Guard)
„ Passion for work and the mission
„ Deference to expertise (Marines, FAA, Chemical plants)
„ Conditioning for disruptions
† Culture change
„ Safety
„ Quality
„ Many others (smoking, drinking-and-driving…)
© Yossi Sheffi, MIT
10
Making Lemonade from Lemons
How to:
† Use security measures for
process tightening
† Take advantage of flexibility to
increase competitiveness
† Utilize opportunities to increase
market share
© Yossi Sheffi, MIT
11
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Questions?
Yossi Sheffi
sheffi@mit.edu
http://www.TheResilientEnterprise.com
© Yossi Sheffi, MIT
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