How can companies and countries prepare for a crisis?
First of all, resilience has to be based on acceptance and the right culture. This applies not only to companies but also countries, because resilience cannot be acquired without additional expenditure and resources. This is the key conflict facing every organization that wishes to make itself crisis-proof: the balance between efficiency and resilience. In normal times, companies and societies alike tend to reduce, for reasons of cost, unnecessary capacity and resources – for example, ICU beds or stocks of personal protective equipment. But what might seem a luxury in normal times may well save lives in a state of emergency. Prevention is always cheaper than being caught unawares – that’s the lesson of the chronically underfunded and broken health systems in Italy, the UK or the USA, and of crashed supply chains almost everywhere we look. “The best way of achieving this balancing act,” Stolz explains, “is to have a metric that shows you how much resilience you can attain by investing a certain amount. Resilience must be measurable.” Resilience engineering provides such a tool: “By plotting a company’s performance over time, you can calculate the drop in performance that will arise under certain conditions or when certain measures are implemented during a crisis. A comparison of the results then shows which of the options is more resilient.”
To find out what works best, alongside a classic analysis of strengths and weaknesses, companies also need to ask themselves the following questions: To what degree do we need to remain functional during an emergency and what is the minimum commitment required for this? This might mean equipping all employees with a laptop for teleworking, for example, or stockpiling important products. Companies should also be thinking: Which suppliers do we rely on, and do we have alternatives? What resources can we tap, and where might we create redundancies? Which processes do we need to monitor in a crisis? And do we have enough authorized signatories in the event that some of the workforce is missing? Here, it is less a question of making the system 100 percent fail-safe than of being prepared to do the right thing at the right time. “It is often the case that a small investment in the right preparation brings big savings and cuts losses in a crisis,” says Stolz. Ideally, this results in a catalog of measures that organizations can then use to monitor key processes in the event of a problem and respond accordingly.
Scenarios play a crucial role in preparation. For companies and organizations, a key part of planning for a crisis is to think about what would happen if certain events were to occur. In recent years, Germany and other countries in Europe have produced a number of scenarios and contingency plans designed to guide action in the event of a pandemic. It remains to be seen just how helpful these ultimately were in the present crisis. Innovation and resilience researcher Florian Roth from the Fraunhofer Institute for Systems and Innovation Research ISI warns against confusing the scenario with the risk itself: “By focusing too much on a scenario, it’s easy to believe that you’re well prepared for the potential threat. But that’s a fallacy: a certain degree of abstraction is much more important.” For example, companies should prepare for the possibility that 50 percent of the workforce are unable to work on-site. Here, it is immaterial whether this is owing to a pandemic, a major weather event or a system crash. “When you run through a lot of scenarios, you often encounter the same issues,” Stolz explains. He also recommends that everyone think through various scenarios, so that we know what precautionary measures to take in preparation for an emergency: “People should be asking themselves how well prepared they are for an outage in the power or water supply over a couple of days. Or whether they can support themselves over a two-week quarantine period.”
How can we strengthen our industry and supply chains? The pandemic has shown just how much we rely on the supply of key goods. This not only applies to medicinal drugs and face masks but also impacts almost every sector of industry. In 2019, 27 percent of electrical imports to Germany were manufactured in China. Almost all the raw materials for antibiotics are produced in China. According to a survey conducted by the Mechanical Engineering Industry Association (VDMA) in May, almost 50 percent of companies were experiencing serious problems with supply chains. Alongside factory closures imposed by the authorities, there were also workforce shortages owing to illness, quarantine and border closures. And, within a couple of days of lockdown, kilometer-long lines of border traffic were causing major disruptions for just-in-time manufacturing.
Supply chain resilience is the research field of Prof. Julia Arlinghaus, director of the Fraunhofer Institute for Factory Operation and Automation IFF in Magdeburg. Back in 2017, the manufacturing expert carried out a survey of 200 com - panies. Almost 57 percent said that within the past five years they had experienced massive disruptions to their supply chains that were serious enough to threaten their commercial existence. In other words, companies would have been receptive to a warning of this kind. Modern supply chains are highly complex. While this can lead to problems, there are also good reasons for this complexity: it enables companies to focus on their own operations, avoid expensive inventory in favor of cheap transport costs, and outsource certain tasks to suppliers. Innovation and resilience researcher Arlinghaus does not believe that the current crisis heralds the oft proclaimed end to just-in-time manufacturing. Instead, it will only increase the requirement to improve efficiency. “We’re not going to see a reshoring in the manufacturing sector unless the state requires and incentivizes it, and unless customers are prepared to pay more in return for higher availability, since this always involves a loss in efficiency,” she explains. “I strongly believe that over the medium to long term, factors like climate change will have a much greater impact on industry supply chains than the current pandemic. As soon as we start to factor in environmental costs, this will increase transport costs, and supply chains will change drastically.”
In the short term, however, companies will invest more in making the flow of materials more transparent and in the tools to do this job – namely, digitalization. As things stand, companies often know little more about their suppliers than their current billing address. Greater transparency will not only tell them exactly where their goods are procured but also help improve their ability to evaluate risk. The study also revealed another way in which supply chains can be made more resilient: greater cooperation. The more a company collaborates with its suppliers to share resources such as know-how, personnel or machinery, the less vulnerable it is to disruption. “This is based on the idea of the self-healing network,” Arlinghaus explains. “In tight situations, it can even make sense to cooperate with commercial rivals in order to protect an entire supply chain.” The advantages of such cooperation are clear. Yet the study shows that very few companies actually make proper use of it. “It’s often down to a simple lack of trust or to an uncertainty about who is responsible for coordination should the situation worsen,” says Arlinghaus.
The fragile balance between cost and resilience is also a field of study at the Fraunhofer Institute for Industrial Mathematics ITWM in Kaiserslautern. Here, researchers are focusing on the question of how to minimize any possible shortfalls in supply at only a minimal increase in cost. Using algorithms, researchers can identify the best balance between cost reduction and risk limitation in the supply chain. This calculation includes factors such as the risk of a breakdown in the supply of specific raw materials, a shift to alternative materials and a stockpiling of key products. Time and again, it turns out that even a minor investment can substantially reduce the level of risk.
Challenging enough for a company, this becomes a mammoth task when implemented on a national level: determining where delivery problems may arise as a result of whole regions or even countries being cordoned off. Individual companies monitor the flow of goods and warehouse stock levels, but there is no centralized, unified source of data that would enable national governments to assess the overall situation and identify impending shortfalls in supply. Fraunhofer Austria is now working to change this. On behalf of the Austrian government, researchers are currently assisting the state department responsible for coordinating national crisis management and disaster management. The project initially involved the standardization of key logistics data from cooperation partners and processing it for analysis. Researchers are now collating this data in a uniform data pool and creating a dashboard to visualize trading relations. In parallel, research partners are working on mathematical models designed to optimize the flow of goods and warehousing. In the future, this should enable an earlier identification of critical links in the food supply chain and the implementation of appropriate measures.