What specific solutions are there?, The supply chain, industrial chain, and strategy mentioned three times in the report of the 20th National Congress of the Communist Party of China

In recent years, a series of major international events have led to changes in the international political and economic environment, profound and complex changes in the domestic and international environment, and also posed a series of major challenges to China's industrial and supply chains. The report of the 20th National Congress of the Communist Party of China mentioned the issue of industrial and supply chain security three times, calling for efforts to improve the resilience and security level of industrial and supply chains.

The connotation of industrial chain and supply chain resilience

What is the resilience of industrial and supply chains? Simply put, it refers to the ability of a system to withstand shocks and recover. There are many versions of the definition of resilience in academia, one of which is a clear and highly accepted definition that decomposes resilience into three abilities: absorption ability, adaptability ability, and recovery ability.

Absorption capacity refers to the ability of a system to absorb and reject certain impacts by utilizing its own operational strategies, such as safety inventory and diversified procurement, before the impact is significant, so that the system is basically unaffected. For example, the demand, supply, and price uncertainties faced in daily operations can be effectively addressed through absorption capacity.

Adaptability refers to the negative impact caused by the disruption of normal industrial and supply chain operation mechanisms when the impact reaches a certain level, and the use of flexible measures by enterprises to interrupt these communications. For example, if a warehouse in an area is damaged by a fire and the original operating system cannot operate normally, the system can minimize or interrupt its propagation consequences by using backup warehouses or re planning the scheduling of the entire system.

Resilience refers to the system's ability to recover when absorption and adaptation capabilities are insufficient and supply chain disruptions have occurred. In 2011, the "3.11" Japanese tsunami destroyed a factory of Renesas Electronics, which produced all of Toyota's microcontrollers. The supply interruption of microcontrollers severely affected Toyota's global production capacity, and the process of returning to normal operation from this interruption reflected the system's ability to recover.

Specific strategies for enhancing the resilience of industrial and supply chains

In recent years, various "black swan" incidents have occurred frequently. Faced with an increasing number of uncertain and unpredictable external factors, how to improve the resilience of the industrial and supply chains has become a focus of attention for enterprises. From a professional perspective, supply chain network topology design, redundancy, and flexibility are several main strategies to address the risk of industrial chain supply chain interruption, which can be divided into proactive and responsive strategies.

Supply chain network topology design is a structural level strategy, and network resilience depends on its topological characteristics, such as density, complexity, and number of critical nodes. Among them, supplier or facility selection is a common decision involving network structure.

Redundancy is a widely used proactive strategy. It refers to adding buffer capacity to the supply chain to alleviate disruptions or shocks, such as inventory, multi-source procurement, backup transportation modes, etc. However, redundancy also means higher costs, so when designing redundancy, we need to balance efficiency and resilience. The biggest challenge in design is to list unforeseeable "black swan" events and estimate their probability of interference or impact.

Flexibility is another commonly used strategy to improve the resilience of supply chain networks, but its meaning varies in different situations. Generally speaking, it requires measuring the number and heterogeneity of alternative options. Unlike redundancy, flexible strategies can be applied proactively or in a responsive manner. Active flexibility includes procurement flexibility and process flexibility. When the demand for certain products surges or certain suppliers are disrupted, procurement or process flexibility enables enterprises to apply built-in flexibility to take remedial measures to absorb risks. Active procurement flexibility and process flexibility can also be decisions at the structural level, so there is a certain overlap between active flexible design and supply chain network topology design. The effectiveness of active flexibility is based on the premise that interference events are not systematic or the impact scale is not excessive. However, in practice, the demand for different products may be highly correlated, especially when the entire industry experiences shortages or supply is prohibited, proactive procurement flexibility such as multi-source procurement or dynamic emergency response cannot play a significant role. In this case, the enterprise may adopt a responsive and flexible approach.

Response flexibility refers to the ability of enterprises to take remedial measures to build temporary supply chains after being disrupted. This flexibility enables enterprises to transfer production capacity and resources to products facing surging demand, or obtain external support to resume operations. Dynamic capability plays a core role in establishing temporary supply chains to achieve agility. For unforeseeable disruptions, enterprises should be adept at linking various resources, finding intrinsic connections between existing supply chains and target supply chains, in order to achieve breakthroughs. For example, after the outbreak of the COVID-19, BYD Auto redesigned its car manufacturing process and began to produce masks. Within three months, its production capacity increased to 50 million units per day, which not only ensured a stable supply of masks, but also paved the way for the restart of production in other industries. BYD's successful establishment of responsive flexibility is rooted in the implicit connection between two seemingly unrelated supply chains. Polypropylene is a key raw material for masks and is also used in automotive manufacturing, and the sterile conditions required for mask processing can be easily met in automotive production workshops. This example indicates that in order to establish responsive flexibility, enterprises need to have good dynamic capabilities and be able to identify hidden connections in the supply chain network.

Proactive strategies such as supply chain network topology design, redundancy, and active flexibility can help avoid, delay, or mitigate the impact of external shocks on the supply chain. But when the scale of demand or supply shocks exceeds a certain threshold, they may fail. In contrast, responsive flexibility is a responsive strategy based on the state after being impacted, which is expected to guide us out of difficulties through new paths. Of course, responsive flexibility places higher demands on a company's creativity, links with other supply chain entities, and knowledge sharing between entities. Therefore, cultivating a network perspective in industrial and supply chain management and design is crucial for enterprises to identify and invoke potential responsive flexible strategies. In addition, strengthening the ability of independent technological innovation and stimulating the internal driving force of enterprises are also extremely important for improving the resilience and security level of the industrial chain and supply chain.

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