Editor’s Note: The SCM thesis Risk Mitigation to Increase Time to Survive was authored by Gabriel Szuma and Szuya Huang and supervised by Tim Russell (trussell@mit.edu). For more information on the research, please contact the thesis supervisor.
Navigating the modern supply chain landscape
In the global supply chain environment, disruptions have become the rule rather than the exception. Challenges are multifaceted, from geopolitical tensions such as the U.S.-China technological trade disputes, to unforeseen events like the Suez Canal blockage by the cargo ship Ever Given. When we embarked on our project with Tempur Sealy International Inc., a key player in the mattress and bedding industry, we recognized their intricate challenges, especially given their deep reliance on a supply chain subject to the geographical availability of polyurethane chemicals. Our objective was clear: to try to enhance resilience in the face of disruptions without compromising cost efficiency.
Initial observations and the need for a holistic approach
Tempur Sealy had already implemented several risk-mitigation measures, including dual- and multi-sourcing chemicals and increasing inventory levels. However, as we delved deeper, it became evident that while these measures addressed immediate concerns, they were predominantly ad hoc and often catered to specific chemicals or events. Tempur Sealy needed a comprehensive solution. The primary challenge was ensuring the uninterrupted availability of all components for their extensive product portfolio. However, there was also a pressing need to quantify the tangible financial benefits resulting from risk mitigation investments, especially when these risk mitigation measures successfully averted disruptions and, thus, no damages materialized.
Our comprehensive approach: Merging resilience analysis with procurement
To address these challenges, we introduced an innovative methodology that combined time-to-survive (TTS) analysis with procurement optimization. This approach involved not only identifying vulnerabilities within the existing supply chain, but also quantifying the costs and benefits of resilience measures. This quantification became instrumental in decision-making processes, especially concerning investments in storage capacity, inventory planning, and refining procurement strategy.
Our findings proved to be very useful. On the one hand, we identified opportunities to reduce the number of suppliers, consolidate procurement volumes and thus reduce costs without significantly reducing resilience. In accordance with our outlined scenario, Tempur Sealy would realize a total cost reduction of 5.5% and a 6% decrease in chemical purchase price while upholding resilience. On the other hand, our methodology pinpointed chemicals with the highest risk of disruption due to low inventory levels and single sourcing. This insight offers the company a valuable guideline for effectively allocating resources to enhance supply chain resilience.
The tools we developed allow the company to easily spot critical vulnerabilities in its supply chain and identify opportunities for cost savings. Furthermore, the organization can employ this tool as a simulation instrument to assess both the financial and operational impacts of various business decisions.
Conclusion and recommendations
A comprehensive and strategic approach is paramount as global supply chain dynamics evolve. Our work with Tempur Sealy not only provided valuable insights for the company but also set a blueprint that could be useful for various other industries. The combination of measuring supply chain resilience using time-to-survive analysis and procurement optimization can be very useful in ensuring resilience and cost-effectiveness in today’s intricate supply chain landscape. This approach enables businesses to justify investments into risk mitigation measures, providing a clear, quantifiable value to these often overlooked yet crucially important efforts.
Supply Chain Management Review
Every year, approximately 80 students in the MIT Center for Transportation & Logistics’s (MIT CTL) Master of Supply Chain Management (SCM) program complete approximately 45 one-year research projects.
These students are early-career business professionals from multiple countries, with two to 10 years of experience in the industry. Most of the research projects are chosen, sponsored by, and carried out in collaboration with multinational corporations. Joint teams that include MIT SCM students and MIT CTL faculty work on real-world problems. In this series, they summarize a selection of the latest SCM research.