To prosper in the face of turbulent change, organizations need to improve how they deal with unexpected disruptions to complex supply chains. Companies can cultivate such resilience by understanding their vulnerabilities — and developing specific capabilities to compensate for those vulnerabilities.

In an interconnected, volatile, global economy, supply chains have become increasingly vulnerable. Disruptions — even minor shipment delays — can cause significant financial losses for companies and substantially impact shareholder value. Globalization has made anticipating disruptions and managing them when they do occur more challenging. The potential risks of disruptions are often hidden, and the potential impacts may not be understood. This often results in “black swan” events that can be understood only after the fact. As author Nassim N. Taleb has warned, “Our world is dominated by the extreme, the unknown, and the very improbable ... while we spend our time engaged in small talk, focusing on the known and the repeated.”1

Although companies originally moved production offshore to countries such as India and China to take advantage of lower labor costs, events like Iceland’s 2010 volcanic eruption and the Japanese tsunami in 2011 have shown that the vulnerabilities of extended supply chains are real and serious. For example, according to the U.S. Federal Reserve, 41% of Minnesota manufacturers said that Japan’s tsunami had affected them negatively.2 As a result, many manufacturers have reevaluated their sourcing options, and some are shifting operations back to their home markets. While these companies perceive other advantages to reshoring, including improved responsiveness and domestic job creation, reducing their exposure to risk has been an important driver.

The reality is that supply chain practices designed to keep costs low in a stable business environment can increase risk levels during disruptions. Just-in-time and lean production methods, whereby managers work closely with a small number of suppliers to keep inventories low, can make companies more vulnerable due to the lack of buffer capacity. For example, many companies that followed the lean inventory model were severely impacted by Japan’s tsunami: Within a week, General Motors Corp. temporarily shut down its Chevrolet Colorado and GMC Canyon plant in Shreveport, Louisiana, because it lacked components supplied from Japan.


1. N.N. Taleb, “The Black Swan: The Impact of the Highly Improbable,” 2nd ed. (New York: Random House Trade Paperbacks, 2010).

2. U.S. Federal Reserve Board, “The Beige Book” (April 13, 2011),

3. S. Ray and T. Black, “The Downside of Just-in-Time Inventory,” Mar. 24, 2011,

4. C. Burritt, “Walgreen Drops Cardinal Health for AmerisourceBergen Deal,” Mar. 19, 2013,

5. G. Dickinson, “Enterprise Risk Management: Its Origins and Conceptual Foundation,” The Geneva Papers on Risk and Insurance 26, no. 3 (July 2001): 360-366.

6. Committee of Sponsoring Organizations of the Treadway Commission, “Enterprise Risk Management — Integrated Framework” (September 2004).

7. B. Herbane, D. Elliott and E. Swartz, “Contingency and Continua: Achieving Excellence Through Business Continuity Planning,” Business Horizons 40, no. 6 (November-December 1997): 19-25; and B. Herbane, D. Elliott and E.M. Swartz, “Business Continuity Management: Time for a Strategic Role?,” Long Range Planning 37, no. 5 (October 2004): 435-457.

8. H. Kunreuther, “Risk and Reaction: Dealing with Interdependencies,” Harvard International Review 28, no. 3 (fall 2006): 37-42.

9. G. Hamel and Liisa Välikangas, “The Quest for Resilience,” Harvard Business Review 81, no. 9 (September 2003): 52-63.

10. J. Fiksel, “Sustainability and Resilience: Toward a Systems Approach,” Sustainability: Science, Practice, & Policy 2, no. 2 (fall 2006): 14-21.

11. Y. Sheffi and J.B. Rice, “A Supply Chain View of the Resilient Enterprise,” MIT Sloan Management Review 47, no. 1 (fall 2005): 41-48.

12. H. Peck, “Resilience — Surviving the Unthinkable,” Logistics Manager, Mar. 01, 2004, 16-18.

13. T.J. Pettit, J. Fiksel and K.L. Croxton, “Ensuring Supply Chain Resilience: Development of a Conceptual Framework,” Journal of Business Logistics 31, no. 1 (spring 2010): 1-22.

14. T.J. Pettit, K.L. Croxton and J. Fiksel, “Ensuring Supply Chain Resilience: Development and Implementation of an Assessment Tool,” Journal of Business Logistics, 34, no. 1 (March 2013): 46-76.

15. Additional information about SCRAM tools can be obtained from the Center for Resilience at the Ohio State University. See

16. J. McIntyre and S. Hemmelgarn, “How One Business Made Its Supply Chain More Resilient” (presented at the Annual Global Conference of the Council of Supply Chain Management Professionals for the 2011 Supply Chain Innovation Award, Philadelphia, Pennsylvania, Oct. 4, 2011).

17. “A High-Performance Network Even During a Crisis,” Deutsche Post DHL press release, Nov. 05, 2010,

18. J. Fiksel, “Designing Resilient, Sustainable Systems,” Environmental Science & Technology 37, no. 23 (December 1, 2003): 5330-5339.

1 Comment On: From Risk to Resilience: Learning to Deal With Disruption

  • Rabindranath Bhattacharya | May 3, 2015

    Dr. Rabindranath Bhattacharya, Visiting Professor
    Kolkata, India

    First of all I congratulate the author for bringing out such an excellent research article.
    Flexibility or capability building to take care of uncertainties is not so easy to build up as one thinks based on the exposure to risk. I feel the most dangerous area is the one with high vulnerability but low capability.

    While working with an automobile manufacturing unit in India I faced this dilemma while dealing with development of Diesel Fuel injection Pump and electrical items like starter and alternator for a new engine being developed with RICARDO, UK. We were totally dependent on one MNC located near the sea shore in south India. The second MNC (Bosch) was in south India but located far away from sea shore. There was no third company in the world who could match the spec suggested by the consultant.

    Question was should we develop the items with the second source simultaneously to mitigate the risk of disruption of supplies at a later stage from the first source owing to reasons like high price, Labour trouble, quality problems and Natural calamities? Majority of the people were in favor of the first party and did not believe in taking risk to mitigate risk in future. However few of us believed that flexibility must be increased as the risk is the highest. Non supply of the items would lead to stoppage of car line completely and closure of the factory. Although options were few but we did not have any choice. Management agreed to our proposal immediately although price was a motivating factor.
    We after a long two years were able to get supplies from Bosch and build a competitive environment between the suppliers and proved that status quo is nothing but digging your own grave. In fact the first company closed the supplies for some time but still we survived. Thanks to the team effort of my colleagues in Research and Development, we carried out the job very secretly lest the first party should upset the apple cart during this agonizing period. We save millions of dollars in the process.
    I narrated this story just to highlight the fact one should be very careful while building partnership with a company for the supply of strategic items. One must ask the question to himself/herself – ” Do I have the option to come out of the agreement and enhance the flexibility/capability, if it is so vulnerable?”. The job is to convert challenges into opportunities and that is where success lies.

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