Research on supply chain risk and resilience has focused a lot on accidental disruptions, caused for example by an earthquake or the fire at a supplier’s plant. A sometimes overlooked element of supply chain risk management are disruptions that are caused by malicious intent, for example fraud. Indeed, due to their complexity, modern supply chain systems have become vulnerable to deliberate harm. A recently published report by Zurich Insurance Group and SICPA, titled Supply Chain Integrity: Protecting Companies’ Blind Spots, is focused on such types of risk. The authors argue that “companies can increase their ability to safeguard against deliberate supply-chain ‘infiltration,’ such as that caused by counterfeit or tampered products”. In their study, they “offer numerous recommendations and examples gathered in interviews with government and industry experts, enforcement specialists, risk managers and executives at large corporations”. I believe this report makes an important contribution to widen our understanding of supply chain risk and resilience.
Strategies and practices to achieve supply chain resilience have been at the heart of supply chain management practice and research for almost a decade. However, such efforts have often focused on ways to make supply chains more reactive to turbulence and disruptions. In our recent article, Antecedents and Dimensions of Supply Chain Robustness, my co-authors, Christian F. Durach and José A.D. Machuca, and me build a theoretical framework that depicts antecedents and dimensions of a second, rather proactive construct: supply chain robustness. We define supply chain robustness as the ability of a supply chain to resist or avoid change. Some of my previous research has shown that this construct is even more positively related with business performance than supply chain agility. Through reviewing 94 articles, and a Q-sorting exercise, we identify four (i.e. leadership commitment, human capital, relationship magnitude, and risk management orientation) important intra-organizational robustness antecedents and four (i.e. node centrality, bargaining power, visibility, and network complexity) inter-organizational robustness antecedents.
Durach, C., Wieland, A., & Machuca, J. (2015). Antecedents and Dimensions of Supply Chain Robustness: A Systematic Literature Review. International Journal of Physical Distribution & Logistics Management, 45 (1/2), 118-137 https://doi.org/10.1108/IJPDLM-05-2013-0133
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
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