Risk and resilience

Supply chains fail in ways that are hard to predict but easy to imagine: a factory fire, a flood, a strike at a port, a ship stuck in a canal, a supplier going bust, a sudden trade restriction. Since 2020 most companies have learned this the hard way.

Just in time (JIT) means getting materials only as they're needed, so very little stock sits around. It's efficient and cheap, and it shows up problems quickly. But it has no cushion: if one delivery is late, the line stops. Just in case means keeping extra stock of the things that would hurt most to run out of. Most companies now mix the two: lean on everyday items, a buffer on critical ones.

Where you buy matters as much as how much you keep. A sole source is the only supplier in the world for something. A single source is when you choose to use one supplier even though others exist. Both are risky. Dual sourcing (two suppliers, often in different regions) costs a bit more but means one fire doesn't stop you.

Resilience is how quickly a chain gets back to normal after a shock. It comes from visibility (knowing your suppliers' suppliers, so you hear about a flood before your parts stop), flexibility (other suppliers, routes or factories you can switch to), and buffers (stock or spare capacity).

A simple way to rank risks is likelihood times impact. A supplier that's likely to have problems but is easy to replace is a smaller worry than one that rarely has problems but would stop your factory for months. Companies spend most on protecting against the second kind.