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Supply Chain Vulnerability, Risk, Robustness & Resilience. Helen Peck, Cranfield University In Mangan , Lalwani & Butcher, Global Logistics and Supply Chain Management John Wiley & Sons [2008]. Definitions. Risk :

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supply chain vulnerability risk robustness resilience

Supply Chain Vulnerability, Risk, Robustness & Resilience

Helen Peck, Cranfield University

In Mangan, Lalwani & Butcher, Global Logistics and Supply Chain Management

John Wiley & Sons [2008]

Finland 2010

definitions
Definitions
  • Risk:
    • Decision theory – range of possible outcomes & their values, upside gains & downside losses
    • Hazard or threat (technological risk; political risk)
    • Safety & Engineering: Downside consequences of rational decision (worst case scenario)
  • Supply Chain Vulnerability:
    • What has disrupted operations in the past?
    • What known weaknesses do we have?
    • What ‘near misses’ have we experienced?
    • What would be the effect of a key material shortage?
    • What would be the effect of the loss of a distribution site?
    • What would be the effect of the loss of a key supplier or customer?
  • Robust Strategy:
    • Firm able to manage regular demand fluctions regardless of disruption
  • Resilience
    • Ability of the system to return to its original (or desired) state after disturbance

Finland 2010

donald rumsfeld
Donald Rumsfeld
  • What hasn’t happened is interesting
    • There are known knowns
      • Things we know we know
    • There are known unknowns
      • We know that we don’t know
      • Y2K
    • There are unknown unknowns
      • We don’t know we don’t know
      • 9/11
      • THESE ARE USUALLY THE DIFFICULT MATTERS

Finland 2010

creeping crises
Creeping Crises
  • Systematic supply chain disruptions
    • Post-9/11 security concerns
    • Hurricane Katrina
    • Inadequate managerial controls
      • Enron (WorldCom; Dutch retailer Royal Ahold; Italian dairy conglomerate ParmalatFinanziara)
      • Barings Bank
    • Mitigating legislation
        • Need Business Continuity Management, due diligence
      • Sarbanes-Oxley
      • Basel Accords in International Banking

Finland 2010

supply chain wicked problems
Supply Chain wicked problems
  • Level 1: Value stream/product/processes
    • Flow of work, material, information, money
  • Level 2: Asset & infrastructure dependencies
    • Fixed & mobile assets
  • Level 3: Organizations & inter-organizational network power dependencies
    • Commercial wellbeing, contractual & stakeholder relationships
  • Level 4: Social & natural environment
    • Society, economy & natural environment

Finland 2010

level 1 process engineering inventory management
Level 1: Process Engineering & Inventory Management
  • Flows within and between organizations
    • Underlies lean manufacturing
    • End-to-end perspective of agile manufacturing
  • RISK MANAGEMENT
    • Improved visibility of demand, inventory
    • Velocity (reduce likelihood of obsolescence)
    • Tight monitoring and control (TQM, 6 Sigma)
  • Mastery of process control facilitates identification, management and elimination of risk
    • But need to consider rest of system

Finland 2010

level 2 asset infrastructure dependencies
Level 2: Asset & Infrastructure dependencies
  • Nodes (facilities) & links (roads, trucks, etc.)
  • Asset-based RISK MANAGEMENT
      • Catastrophes
      • IT, supply chain system disruption
      • Loss of key skills
    • Probability x severity
    • Impact on operations of loss of links or nodes through network modeling
    • Mitigating impacts through business continuity planning

Finland 2010

level 3 organization inter organizational networks
Level 3: Organization & Inter-Organizational Networks
  • Financial consequences of events or decisions
      • Loss of sole supplier or customer
    • Impact on budget or shareholders
    • Strategic management
    • Conflicts of interest
  • RISK MANAGEMENT
    • Partnering
    • Dual sourcing
    • Outsourcing
    • Contractual obligations
  • UPSIDE
    • Look for competitive advantage in core competencies

Finland 2010

level 4 macro environment
Level 4: Macro-Environment
  • Political
    • Green movement
    • Wars
  • Economic
  • Social
  • Technological
  • RISK MANAGEMENT
    • Risk avoidance
    • Contingency planning

Finland 2010

slide11

Supply Chain risk management processP. Chapman, M. Cristopher, U. Juttner, H. Peck, R. Wilding, Logistics and Transportation Focus 4:4 [2002] 59-64

  • Risk Identification
    • Uncertainties: demand, supply, cost {quantitative}
    • Disruption: disasters, economic crises {qualitative}
  • Risk Assessment
    • Political
    • Product availability
    • Capacity, demand fluctuation
    • Technology, labor
    • Financial instability, management turnover
  • Risk Avoidance
    • Insurance
    • Inventory buffers
    • Supply chain alliances, e-procurement
  • Risk Mitigation
    • Product pricing, other demand control
    • Product variety
    • VMI, CPFR

Finland 2010

risk reduction strategies c s tang journal of logistics research and applications 9 1 2006 33 45
Risk Reduction StrategiesC.S. TangJournal of Logistics: Research and Applications 9:1 [2006] 33-45
  • Identify different types of risk
  • Estimate likelihood of each event
  • Assess potential loss from major disruption
  • Identify strategies to reduce risk

Finland 2010

robust strategies tang 2006 khan burnes 2007 wagner bode 2008 manoj mentzer 2008
Robust StrategiesTang [2006]; Khan & Burnes [2007]; Wagner & Bode [2008]; Manoj & Mentzer [2008]

Finland 2010

risk context
Risk Context
  • SUPPLY
    • Political risk (acts of God, acts of man)
  • DEMAND
    • Changes in demand from
      • Loss of reputation for quality
      • Loss of technological or design competitive edghe
      • Unpredictable customer preferences
      • Economic recession
  • CONTEXTUAL RISKS
    • Cultural differences
    • Environmental risk
    • Regulations risk
    • Exchange rate risk

Finland 2010

samsung electronics erm

Samsung Electronics ERM

MS Sodhi, S Lee

Journal of the Operational Research Society 58 [2007] 1430-1439

Finland 2010

samsung risk management
Samsung Risk Management
  • Supply chain risks mitigated by
    • Keeping inventories low
    • Keeping capacity flexible
    • Redundant suppliers for non-core components
    • Use of information technology

Finland 2010

slide20
Rolls Royce Early Supplier InvolvementG.A. Zsidisin, M.E. Smith, The Journal of Supply Chain Management [Fall 2005] 44-56
  • Aerospace Division
    • Industry driven by cost, reliability
    • Extensive R&D
      • Rolls Royce typically 3-4 years for new product
      • Industry averaged 10 to 20 years
    • Supplier-provided components 65-80%

Finland 2010

rolls royce esi process
Rolls Royce ESI process
  • Establish customer need
  • Identify EDI project
  • Develop component target costs
  • Prepare ESI project & milestones
  • Inform business units
  • Determine commodity breakdown
  • Develop potential supplier list
  • Develop business objective
  • Supplier workshops
  • Review expectations with suppliers
  • Conduct ESI workshop
  • Value engineering, evaluate prices & technical
  • Evaluate & score suppliers
  • Make recommendations
  • Inform suppliers
  • Develop working agreements & implement

Finland 2010

esi benefits
ESI Benefits
  • Reduced threat of excessive costs
  • Reduced legal liabilities
  • Improved quality
  • Relaxed supplier capacity constraints
  • Reduced product development time
  • Better able to handle product design changes
  • Better control over supplier leadership issues

Finland 2010

slide23

Risk of DisintermediationJ.F. Mills & V. Camek, International Journal of Physical distribution & Logistics Management 34:9 [2004] 714-727

  • Motokov UK Ltd
    • British importer/distributer in tractors, tires
    • TRACTORS
      • Landini – Italian agricultural machinery manufacturer
      • Initially marketed through Edwards Ltd tractor dealership
      • Replaced with exclusive dealership (Motokov) for 3.5 years
      • Replaced with newly formed Landini UK distribution
    • Landini had damage settlement expenses when terminated with disintermediated firms
    • Felt they obtained better control, worth expense

Finland 2010

tires
Tires
  • Motokov dealt with Matador Tyres
    • Exclusive UK distributors
    • Tires frangible, low margin
  • Matador disintermediatedMotokov in early 1990s
  • 1994 Motokov rebuilt business around Barum tires (Czech)
  • Barum acquired by Continental, who reconfigured their supply chain
  • 1995 Motokov dropped Barum, returned to Matador
    • No longer sole importer
  • 2002 Matador acquired large customers wanting reduced costs
    • Source producer dealt directly with customers
    • Motokov too small, disintermediated

Finland 2010

tractors
Tractors
  • Zetor a Czech tractor producer, founded 1946
  • 1960s supplied UK through Motokov
  • Late 1990s Zetor had financial problems
    • Full capacity, but no profit
    • 1998 to 2000 halted production
  • Before 1998 Motokov sold about 600 Zetor tractors per year
    • 2000 down to 200
    • Zetor would benefit from buying out Motkov, reduce costs

Finland 2010