Tag Archive | Supply Chain Risk Management

Supply Chain Resilience 2013

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.

Bringing Together Risk, Finance, and Supply Chain Operations

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.

Reputation Risk in the Supply Chain

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.

Real Options in Supply Chain Management

A real option is “a right – without an obligation – to invest resources (e.g., labor, money, time) toward a course of action at a future point in time” (McCarter et al., 2011). SCM applications of real options are scarce. In their illustrating HBR article, It may be cheaper to manufacture at home, de Treville and Trigeorgis (2010) argue that supply chain managers “typically rely on the discounted cash flow (DCF) model to help them value the alternatives”. However, this model undervalues flexibility and, thus, supply chain managers “may end up with supply chains that are lean and low cost under normal circumstances – but extremely expensive if the unexpected occurs”. The authors demonstrate that it is better to rely on the real options model. Applying this model enables supply chain managers “to put dollar figures on flexibility in the supply chain and on the ability to manage production problems directly rather than from afar”.

de Treville, S. & Trigeorgis, L. (2010). It may be cheaper to manufacture at home. Harvard Business Review, 88 (10), 84-87

Supply Chain Resilience 2011

Volatility, demand swings, and supply uncertainty are SCM trends (I recently reported). One of my primary research interests is in the area of supply chain resilience and I was particularly curious when I got the report Supply Chain Resilience 2011 into my hands. It reveals that 85% of the organizations surveyed experienced at least one supply chain disruption in the last twelve months. Among the major sources of disruption are adverse weather, unplanned outage of IT or telecommunication systems, transport network disruption, failure in service provision by an outsourcer, and, not surprisingly, earthquake and/or tsunami. It is also found that the main consequences of disruption are loss of productivity, increased cost of working, loss of revenue, customer complaints, and impaired service outcome. Most importantly, the report reminds us that many disruptions originate below the immediate tier one supplier. Again, a supply chain is not a triad, but a complex and dynamic network and must be managed as such.

Can We Learn from the Tōhoku Earthquake?

Which strategies should be pursued to manage supply risks? Answers can be found when analyzing the Tōhoku earthquake.

  • An obvious strategy is the use of multiple suppliers. But what happens, if all of them are located in Japan? It can be learnt that redundant suppliers should be geographically distributed.
  • But if really no supplier is available any more? Companies must always be prepared to search for new suppliers. They must know alternatives and be able to rapidly link them to the supply chain.
  • Production halts, if an important part is missing. However, in some cases production can go on and the missing part can be added afterwards. Products must be designed for this strategy.
  • Companies must be able to slow down production to a certain level in order to avoid running out of stock. This strategy can be used to bridge the gap until components are available again.
  • After the earthquake, some companies rushed to announce that they don’t have critical 1st-tier suppliers from Japan. But are they safe, if they don’t know their 2nd-tier suppliers? Visibility is a key!
eral Motors Co. on Thursday became the first U.S. auto maker to close a factory because of the crisis in Japan.