Two ingredients are needed to create supply chain resilience (Wieland & Wallenburg, 2013): robustness, which is proactive, and agility, which is reactive. Robustness builds on anticipation “to gain knowledge about potential changes that might occur in the future” and preparedness “to maintain a stable situation”. Agility builds on visibility “to gain knowledge about actual changes that are currently occurring” and speed “to get back to a stable situation”.
Wieland, A., & Wallenburg, C.M. (2013). The Influence of Relational Competencies on Supply Chain Resilience: A Relational View. International Journal of Physical Distribution & Logistics Management, 43 (4), 300-320 https://doi.org/10.1108/IJPDLM-08-2012-0243
That does a supply chain risk researcher’s heart good: MIT Sloan Management Review has recently published two interesting case studies about the interface between risk and supply chain management. First, in the magazine’s spring issue, Chopra and Sodhi call attention to a dilemma faced by most managers: “Solutions to reduce risk mean little unless they are evaluated against their impact on cost efficiency”. To protect supply chains from disruptions anyway, the authors suggest two strategies: (1) segmenting the supply chain and (2) regionalizing the supply chain. Second, in the summer issue, Sáenz and Revilla present a five-step process started by Cisco shortly after a major risk event: (1) identify strategic priorities, (2) map the vulnerabilities of the supply chain design, (3) integrate risk awareness into the product and the value chain, (4) monitor resiliency, and (5) watch for events. Both articles complement each other very well and give a quick entry into the area of supply chain risk and resilience.
Chopra, S., & Sodhi, M.S. (2014). Reducing the Risk of Supply Chain Disruptions. MIT Sloan Management Review (spring 2014)
Sáenz, M.J., & Revilla, E. (2014). Creating More Resilient Supply Chains. MIT Sloan Management Review (summer 2014)
In his recent Nature article, Climate Economics: Make Supply Chains Climate-smart, Anders Levermann argues that supply chains need to adapt to extreme weather. He discusses this topic in the following guest post.
Extreme weather events are likely to intensify the more greenhouse-gases we emit – and these extremes are more than just a local risk. Links in global economic chains and world markets mean that flooding or heat-waves in one place can have repercussions elsewhere. Extreme rainfall and typhoon Yasi paralyzed the world’s fourth largest coal exploration site in Australia in 2010/11. Coking coal prices went up by 25% in 2011. In order to estimate the impact of climate change on our society we need to understand both future weather extremes and our global economic network. In Potsdam we recently set up a website to collect and analyze this data. Everyone can register and contribute expertise. In a similar fashion as Wikipedia we hope to gradually generate a global community that creates a system of checks and balances to obtain an up-to-date database of high quality and detail to induce a global adaptation of our supply chains. For news follow @ZEEANit on Twitter or register at zeean.net.
Anders Levermann is a physics professor for the dynamics of the climate system and co-chair of the research domain Sustainable Solutions at the Potsdam Institute for Climate Impact Research.
Levermann, A. (2014). Climate Economics: Make Supply Chains Climate-smart. Nature, 506, 27-29 DOI: 10.1038/506027a
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 Munich court is currently hearing a case that involves several members of a supply chain: (1) Alfred Ritter, a manufacturer of chocolate (“Ritter Sport”), (2) Symrise, Ritter’s supplier of piperonal, an aromatic compound, (3) Stiftung Warentest, an influential consumer organization, whose verdicts frequently lead to an increase or decrease in sales in Germany, and (4) the end consumers. Stiftung Warentest conducted tests on Ritter’s hazelnut chocolate. They argue that piperonal, a vanilla flavoring, cannot be gained in a natural way and is, thus, falsely labelled by Ritter as a “natural flavor”. According to Symrise, “[t]he piperonal contained in this flavor is not ‘chemically’ manufactured, contrary to the statements made by Stiftung Warentest”. The court’s decision will be announced on January 13th. The case has confused consumers and influenced their shopping behaviors in the important winter season. It demonstrates that reputation is a strategic asset and reputational dependencies exist in the supply chain.
Update (2014-01-13): Alfred Ritter won the dispute against Stiftung Warentest.
We all know that economic, ecological, social, and ethical aspects need to be considered when managing global supply chains. This includes topics such as resource scarcity, climate change, and labor conditions. So far, however, I did not associate bioinvasion with our field. This has changed now: An article by Seebens et al. (2013), recently published in Ecology Letters, discusses the risk of marine bioinvasion caused by global shipping. The authors argue that “the rate of biological invasions has strongly increased during the last decades, mostly due to the accelerated spread of species by increasing global trade and transport”. They demonstrate that forecasting of bioinvasions needs to take into account information about ballast water transport, biogeographic distribution, and environmental heterogeneity. Particularly, they identify “high-risk invasion routes, hot spots of bioinvasion and major source regions from which bioinvasion is likely to occur”. In sum, their model reveals a new aspect of ecological responsibility in supply chains.
Seebens, H., Gastner, M.T., & Blasius, B. (2013). The Risk of Marine Bioinvasion Caused by Global Shipping. Ecology Letters, 16 (6), 782-790 DOI: 10.1111/ele.12111
In the face of disruptions and volatility, supply chain managers are concerned about resilience, which can be broadly defined as “the ability of a supply chain to cope with change” (Wieland & Wallenburg, 2013). Two recent publications present ways to implement supply chain resilience. First, the Business Continuity Institute has published a report that summarizes the key outcomes of its 4th Annual Supply Chain Resilience Survey. It discusses causes and consequences of disruptions, presents techniques to identify key supply chains, and offers approaches and solutions to achieve resilience. Second, the World Economic Forum, in collaboration with Accenture, offers a “blueprint for resilient supply chains based on four core components: partnerships, policy, strategy and information technology”, which is discussed in a report, Building Resilience in Supply Chains, developed as part of the Forum’s Supply Chain Risk Initiative. I believe that these publications will, indeed, help supply chain managers to cope with change.
This time, I want to share with you an interesting interview with ManMohan Sodhi, Professor of Operations and Supply Chain Management at Cass Business School, City University, London.
Recently, Oxford Metrica, an analytics and advisory firm which has been “studying the relationship between reputation and value for nearly two decades”, has issued its Reputation Review 2012, which was sponsored by Aon Corporation. Herein, the major reputation events in 2011 are reviewed and the lessons learned are extracted. Most importantly for us, the report contains some interesting examples of reputation risk in the supply chain. Particularly, the authors examine the 2011 earthquake in Japan and “pursue the earthquake theme through the knock-on reputation effects as the disruption of the earthquake reverberated through the global supply chain in Japan, Korea and further afield”. The report highlights that loss of a key customer or disruption at a key supplier can cause reputation challenges at one’s own firm. I believe that reputation risk inherent in the supply chain, as discussed in the report, is an often overlooked aspect of supply chain risk management.