Modern business strategies that focus on lean supply chain networks and just-in-time deliveries have left corporations vulnerable to disruptive forces ranging from natural disasters to cyber-attacks, according to University of Sydney researchers.
Inspired by natural food networks, a multi-faculty study has found that complex networks that include connections to both strong and weak product and service providers allow for redundancies and are therefore more resilient than those deemed lean and cost effective.
“Recently, the primary focus of supply chain management has been on increased efficiency and reliability by means of globalisation, specialisation and lean supply chain procedures,” said Supun Perera of the Business School’s Institute of Transport and Logistics Studies (ITLS).
“While these networks may be cost effective, they are at considerable risk of disruption by natural disasters, acts of war, terrorist attacks or even labour disputes that can have global trade and economic consequences.”
In the wake of their study, the researchers have called on “corporate boardrooms to focus on the weak links in their supply networks rather than the strong ones,” said the ITLS’ Professor Michael Bell.
“They can then determine ways of avoiding these weak or less fit links while ensuring that they remain within the network in a way that provides redundancies which make the overall network more robust and less susceptible to disruption.”
The research, funded by the Australian Research Council, was prompted by food supply networks that form in the natural world.
“Foraging networks established by bees, ants and even slime moulds tend to be surprisingly complex and include higher and lower quality food sources,” said Dr Tanya Latty, a senior research fellow in the faculty of Agriculture and Environment.
“Although they prefer higher quality foods, they still maintain trails to lower quality foods in order to increase the network’s resilience and its ability to respond to a crisis,” Dr Latty said.
Drawing on their study results, the researchers have urged businesses to “build resilience into their operations by creating redundancies throughout the supply chain, but to do so in a way that avoids weak links”.
“In this research we have found that, the avoidance of weakest links, rather than the selection of strongest links, leads to the so-called scale-free networks, which are very resilient against random failures and indiscriminate attacks,” said Dr Mahendra Piraveenan of the Faculty of Engineering & Information Technologies.
The researchers point to the example of a fire in a Philips microchip factory in Albuquerque, New Mexico, which severely disrupted product supplies to key customers.
“Thanks to its robust supply chain with its complex web of redundant pathways, Nokia, a customer of the Albuquerque plant, was able to immediately switch to alternative chip suppliers across the United States and Japan,” Supun Perera said.
“In contrast, production at Ericsson, another Albuquerque customer, which had pursued a lean single-source supply policy, was disrupted for months at a cost of $400 million in lost sales.”
“Redundancy at first seems counterproductive to a company’s efforts to maintain a lean operation by driving out waste,” added Supun Perera. “In fact, redundancy is one of the best ways to ensure lean operations as they avoid the significant waste of time, effort and money involved in a system’s breakdown.”
The researchers believe that their study offers an opportunity for companies to draw up blueprints of their supply networks based on the relative “fitness” of the elements as a way of gaining insights into their “robustness to disruption”.
A research paper titled Network growth models: A behavioural basis for attachment proportional to fitness was published in the latest edition of the journal Nature Scientific Reports.