Quality Management 2.0 Blog

Resilience and Risk Management - An Automotive Story

Posted by IBS America on Aug 27, 2012 @ 10:07 AM

Andrew Zolli, coauthor of the book "Resilience: Why Things Bounce Back," in a recent Harvard Supply Chain ManagementBusiness Review interview relates a story from the auto industry that illustrates the importance of resilience to an organization. He also discusses the strategies for improving the resilience of an organization. 

He defines two aspects of resilience: i.) the ability to maintain a core purpose or ii.) the ability to restore core purpose in the face of a disruption. CIO's have implicitly understood the importance of both kinds of resilience and routinely assess and to improve the resiliency of their IT infrastructure. It is common for IT service level agreements (SLA) to describe the capabilities (where appropriate) of service continuity in terms of  automatically provided "fail-over", or redundant, systems. These agreements also describe the "disaster recovery" systems, processes, and procedures that have been put in place and which can kick in to provide service when fail-over efforts have themselves failed. Efforts to improve an organizations resilience, whether for IT services or for other business processes, come at a cost. The cost may be a direct one (such as the cost of a backup server) or indirect such as when an effort to improve resilience reduces "efficiency". For this reason organizations need to take the time to consider their resilience, identify, where possible, their potential for suffering costly events, determine their ability to avoid or mitigate these events, and to plan the steps they need and can afford to take to improve their resilience. Another name for this kind of effort is "risk management." Although it is not the only approach for improving an organization's resiliency, risk management methodologies are invaluable. (We can also point interested readers to Ian Mitroff's related video on crisis management on our website.)

Zolli contrasts the experience of Toyota and GM to a supply chain problem that came about from the tsunami that hit Fukushima, Japan.

Toyota's supply chain was supremely efficient. Their just-in-time, and sole, chip supplier, Renesas, could deliver computer chips to Toyota within six minutes. These chips are the most expensive component of a car, costing more than a car's steel. But when the only Renesas factory was decimated, Toyota had no alternative source. All manufacturing for Toyota shut down around the world. 

GM's was able to weather the disaster because it was able to radically reconfigure its global supply chain network. That had enough redundancy in the network that they were able to continue the manufacture of their most profitable vehicles. So, for two quarters GM was able to maintain their earnings, whereas Toyota lost their position as the world's largest auto maker. The ability to be more flexible, in this situation, was more important than having highest efficiency.

Topics: Automotive Quality Management, Process Control, Manufacturing Software, Supply Chain Management, Enterprise Quality Management, Process Management Software, Enterprise Risk Management, Risk Management Software, Risk Management, Manufacturing Productivity, Enterprise Manufacturing Software, Crisis Management, Resilience, Andrew Zolli

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