Building resilience into the supply chain: interview with Yossi Sheffi
In his new book, The Power of Resilience, MIT professor Yossi Sheffi looks at how businesses can anticipate, prepare for, and respond to disruptive events.
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
How vulnerable is your supply chain? What can you do to protect it from disruptions, especially those you cannot anticipate? These questions take on more and more urgency in an age of complex global supply chains, where events in one region can disrupt the operations of businesses and their customers on the other side of the world.
In his new book, The Power of Resilience: How the Best Companies Manage the Unexpected, Yossi Sheffi examines what many companies have done—and are doing—to anticipate, prepare for, and respond to disruptions that can range from earthquakes to hurricanes to cyberattacks to issues with sourcing that could harm business reputations.
The book is Sheffi's second on the topic of resilience. His first, The Resilient Enterprise, was published in 2005 in response to the 9/11 attacks. In the intervening decade, much has changed in both the landscape of supply chain risks and the implementation of corporate resiliency programs, Sheffi says. The new book looks at what companies have learned since that time and at new threats that have arisen.
Sheffi, a professor at the Massachusetts Institute of Technology (MIT) and director of the MIT Center for Transportation and Logistics, discussed the new book and supply chain resilience with DCV Editorial Director Peter Bradley. This is an edited and condensed version of the interview.
Q: What led you to decide it was time for a second book on the topic of resilience?
A: The first book was motivated by 9/11, looking at what companies were doing to prepare for disruption. When I started work on that book, I figured I'd begin by seeing what had already been written about this topic and I found nothing on logistics, supply chain, and transportation—in academic writing, at least. Since I didn't have any literature to draw from, I did research. I talked to well over a hundred companies. That research, which took four years and involved 30 people, led to the first book.
Then, when I was out talking to companies a few years back, more and more people were telling me, "Look, it's time for a new book because the threats are becoming more serious and more frequent, but we're also becoming a lot better at a number of new activities and processes, and (business continuity planning) has been taken to a higher level in corporations." So I put together a team and starting working on the new book.
Q: You write in the preface that we shouldn't look at this book as a sequel or a new edition of the original, that it really is something different. Tell me how.
A: It looks at a whole new set of threats that I didn't cover very much in the first book. For example, think about cybersecurity problems. Ten years ago, we were just starting to hear about cybersecurity problems. Today, "cyber" is a weapon. Many physical systems are being run by digital means and can be attacked.
It also became very important to talk about social and environmental responsibility: (the factory fires) in Bangladesh; the conflict mineral issues, which forced Intel and Apple to go to this very deep level—10 to 12 tiers deep—in the supply chain to find out where these minerals were coming from. This became a real corporate reputational risk. And, of course, there have been things like the Japanese earthquake and tsunami that changed a lot of companies' views on risk and their own vulnerability to disruption.
In the new book, I also emphasize a point that I did not make and should have made last time that people always look at the top right corner [in a quadrant chart of possible disruptions and estimations of their likelihood and impact] where the probability (of an event) is high and the consequences are high, but that is the wrong place to look. Companies prepare for these events, and as a result, although the impacts could be severe, they are not that high because companies are ready for them. I point out the really worrisome quadrant is the high-consequence/very-low-probability corner because this is the "black swan." This is the 2008 financial meltdown. This is 9/11. This is Chernobyl. These are the things that nobody expected and nobody knew how to deal with. And the question is, how do you prepare for things that you cannot even imagine, things that you don't even know that you don't know. A lot of the issues in the book have to do with general preparation or general resilience for what you can't even imagine because it never happened to you, to your competitors, or to other people in the industry.
Another change that is introduced to this framework is what I call "detectability"—the time from when you know something is going to happen to the first impact. Think of the classic example, a hurricane. You know three days before we see the storm.
But you (also) have to prepare for something that you only find out about after the fact. Think about some sabotage, some people stealing trade secrets, some cyberbug in your system.
There are a lot of new software applications that didn't exist 10 years ago that are designed to alert you as soon as something happens and tell you what the implications are, what the value risk is, which customers and products will be affected, and what problems you're going to have. I cover some of these new software applications in the book.
Q: You talked a few minutes ago about how while the risks are higher today, we have also learned a lot. What have we learned over the last 10 years that we've been able to put to work to help mitigate risks?
A: In terms of things that you can point to, such as an earthquake in an area that's prone to quakes or floods, you have to prepare for things that have happened before and can happen again. What is the communication plan? How should you notify whoever it is: the customers, Wall Street, suppliers, whatever? Who should be notified? Who should be involved in making up the plan? How do you respond?
The other side is the completely unexpected situation where you don't know what to do beyond general resilience measures. For this, you first of all have to have an emergency response operation and you have to have all the communications lines. The number one thing is what I said: You have to know who to call. Who should be the people to man these emergency operations? In a manufacturing company, it should be basically two functions, supply chain management and engineering.
Supply chain management should focus on inventory—looking at how to acquire more supplies where needed and seeking alternative suppliers. Engineering should look for damage solutions. Can we replace a component with another part? How do we qualify another part and so forth?
In general, the response should be two-pronged and involve two separate teams. One team should deal with the people. What is the impact on people? How do we find everybody? How do we deal with our suppliers? The other team should deal with business continuity issues. Because otherwise, depending on the nature of the team, they pay too much attention to one or the other.
Q: Let me go back to risk assessment for a moment. You talked about Intel and how deeply it had to dig to find out where its minerals come from. How does a company find out the risk deep in its supply chain, in its tier three, four, or five?
A: Oh, there was talk about a tier 12 or something. Anyway, Intel learned that four metals used in electronic products might be "conflict minerals," metals that have been mined under conditions of coercion and violence, and mobilized a team to ensure that its operations were "conflict free." The first question was, "Are we using conflict minerals?" But nobody knew. So the company started going backward in the supply chain, and it realized that it had to go back to about level five or six. Beyond this, you cannot tell where a material is coming from because the supplier gets it from multiple sources and just mixes it all together.
Intel decided to focus on the smelters and make sure the smelters' brokers only bought from approved mines. The thought was the company was not going to buy anything from mines in the Democratic Republic of Congo, but that would just throw hundreds of thousands of people out of work in a very poor country. So it couldn't do that.
So then it went to the smelters and tried to convince them to do it, but the problem is, as big as Intel is, it is not a very big customer of the smelter. And the smelter says, "I am not selling to you. I'm selling to some broker who then sells to another customer, who sells it to some other company." So Intel put together an industry consortium [the Electronic Industry Citizenship Coalition]. And it paid the smelters to qualify certain mines so it knew where minerals were coming from. It took Intel years, by the way.
Q: One of the arguments you make in the book is that by looking at your risk, by preparing for risk, you actually strengthen the entire enterprise. Expand on that a bit.
A: For an example, there is Intel. It had to map its entire supply chain. Knowing who the people upstream are, you not only get risk protection—the sense that if something happened to one of them, you know what the implications are—but you also learn more about what's going on in the supply chain. You start understanding your own supply chain a lot better, which always brings good things.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”