More Complexity = More Disruptions?
Trends in management towards a concentration on core competencies and outsourcing of non-core activities have created complex networks, i.e., global supply chains. At the same time, it has been discussed that this increased complexity has also made companies more vulnerable. An interesting paper, Structural Drivers of Upstream Supply Chain Complexity and the Frequency of Supply Chain Disruptions, co-authored by Bode and Wagner, is currently forthcoming in the Journal of Operations Management. Herein, the authors distinguish between three drivers of upstream supply chain complexity: (1) horizontal complexity (= the number of direct suppliers in a firm’s supply base), (2) vertical complexity (= the number of tiers in the supply chain), and (3) spatial complexity (= the geographical spread of the supply base). Based on survey data, the authors find that all of these three drivers increase the frequency of supply chain disruptions. It is further found that these three variables even amplify each other’s effects in a synergistic fashion.
Bode, C., & Wagner, S. (2015). Structural Drivers of Upstream Supply Chain Complexity and the Frequency of Supply Chain Disruptions. Journal of Operations Management, 36, 215–228 https://doi.org/10.1016/j.jom.2014.12.004
The Story of a Fair Mouse
If you believe that today’s post is about little rodents that behave equitably, then you have most probably not heard about NagerIT’s project to build fair computer mice. (Although the German term “nager” translates literally as “rodent”.) NagerIT took supply chain transparency to an extreme, disclosing the entire supply chain of their Fair Mouse (pdf) on their website, thereby highlighting suppliers with unknown details on working conditions. The Fair Mouse project reveals how difficult it can be to produce a product that is 100% fair: NagerIT admit that they stay with “the problem of the mining of the metals (except solder tin) and the assembly of the remaining components, which [they] still can not obtain from alternative (fair) suppliers”. However, a good start has already been made. The story of the Fair Mouse is, of course, a little like the story of the Fairphone, recently presented here by its founder.
The Rise of Interconnected Risks
Risks related to business interruption and supply chains are the principal risks faced by global companies, the new Allianz Risk Barometer 2014 finds. According to the report, losses related to business interruption and supply chains “account for around 50-70% of all insured property losses, as much as $26bn a year for the insurance industry based on 2013 data”. Paul Carter, Global Head of Risk Consulting, Allianz Global Corporate & Specialty (AGCS), asks: “There is a need to examine beyond the identification of so-called ‘critical’ suppliers. How do these companies manage their own supply chain exposures?” Other top global business risks are natural catastrophes, fire/explosion, changes in legislation/regulation, and market stagnation or decline, the research finds. The survey “was conducted among risk consultants, underwriters, senior managers and claims experts in the corporate insurance segment of both [AGCS] and local Allianz entities”. Download the full report: Allianz Risk Barometer 2014 (PDF).
A Moral Revision of Electronic Supply Chains (Guest Post by Bas van Abel, Fairphone)
To make the supply chain more transparent, Fairphone opens up the entire system to understand what shapes our economy. I am happy to share the following guest post by Bas van Abel, CEO and founder of Fairphone. Thank you for contributing to my blog.
Business practices in the supply chains of the electronics industry are in urgent need of moral revision. What do we know about the production of complex electronic devices and the people who make them? By making a phone, Fairphone wants to uncover and expose each link in the supply chain and step-by-step make interventions to improve the way things are made. Instead of hiding behind the complexity of the supply chain, Fairphone wants to unveil the problems associated with the smartphone production like poor labor conditions, the use of conflict minerals and the rise in electronic waste. To do so, we are searching for solutions by engaging in partnerships to come with alternatives to current models. In the first Fairphone that will be released in December 2013, conflict-free tin and tantalum from the Democratic Republic of the Congo has been integrated in the manufacturing of the phone, but that’s only a first step. By growing a movement of people who can share best practices and by creating a platform for discussion, Fairphone aims to raise the bar for the industry meanwhile giving people a choice for fairer electronics.
Bas has a background in interaction design and is an active member of the Maker Movement. He supports open design principles. He has set up projects such as the Waag Society’s Fablab and the Instructables restaurant (an open source restaurant). He is co-editor of the book “Open Design Now”.
Toward a Theory of Supply Chain Management
We have to admit that there is still no such thing as a “theory of supply chain management”. A new article by Mena et al. (2013), titled Toward a Theory of Multi-Tier Supply Chain Management, might bring us one step closer to such a theory by taking into account that supply chains have become more complex, more fragmented and longer. This piece of research, which is based on an inductive case study research design, hands theory-testing researchers interesting propositions on a silver platter: First, depending on the supply chain position, the members of the supply chain draw power from different sources. Second, the buyer needs to connect directly with the supplier’s supplier (“closed supply chain”) to influence product characteristics. Third, with a growing degree of such a direct connection, power is increasingly replaced by trust. Finally, closed supply chains are more stable, but require more management resources.
Mena, C., Humphries, A., & Choi, T.Y. (2013). Toward a Theory of Multi-Tier Supply Chain Management. Journal of Supply Chain Management, 49 (2), 58-77 DOI: 10.1111/jscm.12003
Trends and Strategies in Logistics and Supply Chain Management
I am excited to announce that our new study titled Trends and Strategies in Logistics and Supply Chain Management (pdf) has now been published on behalf of BVL International. It is co-authored by Robert Handfield, Frank Straube, Hans-Christian Pfohl and me. The general observation taken from 62 interviews and 1757 international survey responses is that logistics complexity in the form of fragmented channels, increased product variations, and consumer demands for customized solutions has increased. Several trends demonstrate that a number of major challenges lie ahead, as the world becomes a more complex place. We found that the major trends that will increasingly impact organizations in 5 years are network forces such as (1) customer expectations, (2) networked economy and (3) cost pressure, and external forces such as (4) globalization, (5) talent shortfalls and (6) volatility.
Handfield, R., Straube, F., Pfohl, H.-Chr. & Wieland, A. (2013). Trends and Strategies in Logistics and Supply Chain Management – Embracing Global Logistics Complexity to Drive Market Advantage. ISBN 9783871544811
Horsemeat Supply Chains
Food supply chains are affected by supply chain trends such as globalization, consolidation, and commoditization. Supply chain managers have eagerly sought to apply textbook knowledge to these supply chains. Consequently, companies have concentrated on core competencies like processing or marketing to meet customer requirements. However, the horsemeat scandal is just another example to reveal that food supply chains got out of control. The more complex supply chain systems become, the less controllable they seem to be. Based on a series of incidents in food supply chains, Roth and her co-authors (2008) have developed a conceptual framework for quality management in food supply chains. The framework contains six Ts, which are identified as critical factors associated with food (or more generally: product) quality: (1) traceability, (2) transparency, (3) testability, (4) time, (5) trust, and (6) training. I believe that this framework can help improving food supply chains, but customers should also stop focusing solely on food price rather than food quality.
Roth, A., Tsay, A., Pullman, M., & Gray, J. (2008). Unraveling the food supply chain: Strategic insights from China and the 2007 recalls The Journal of Supply Chain Management, 44 (1), 22-39 DOI: 10.1111/j.1745-493X.2008.00043.x
