The European Modeling & Simulation Symposium Campora S. Giovanni, Italy September 17 – 19, 2008 SUPPLY CHAIN VULNERABILITY AND RESILIENCE: A STATE OF THE ART OVERVIEW F. Longo MSC-LES, M&SNet Center at Dept. of Mechanical Engineering University of Calabria – Italy T. Ören Founding Director of M&SNet M&SNet Site University of Ottawa Canada
Outline • Introduction • Resilience applied to supply chain • Supply chain risks and vulnerabilities • Research fields combination for supply chain resilience in SMEs • Conclusions
Introduction During the last years enterprises aimed to production efficiency increase neglecting the innovation work (analyses and studies for new business opportunities) • The authors are actively involved in a study related to the resilience in the Supply Chain. • An accurate initial analysis of the state of the art and of the integration of different research fields for studying supply chain resilience for SMEs • The industrial production trend has been characterized by wider networks enterprises, global sourcing, by global market able to guarantee easy resources and knowledge migration. • The enterprises approach toward global supply chains can be considered as business opportunity but it introduces supply chain risks and vulnerabilities as well.
Definitions of Resilience • According to the on-line American Heritagedictionary,resilience is the (i) “ability to recover quickly from illness, change, or misfortune”; (ii) “the property of a material that enables it to resume its original shape or position after being bent, stretched, or compressed”. • According to the on-line Merriam-Webster the resilience is the (i) “an ability to recover from or adjust easily to misfortune or change”; (ii) “capability of a strained body to recover its size and shape after deformation caused especially by compressive stress”. • The on-line Compact Oxford Dictionary defines resilience as the (i) “ability to withstand or recover quickly from difficult conditions (of a person)”; (ii) “the ability to recoil or spring back into shape after bending, stretching, or being compressed”.
Resilience applied to supply chain • The concept of resilience applied to a logistic chain, intended as the capability of a system to come back to its equilibrium position (or to shift to a different and more desirable position of equilibrium) after a disturbing action, recalls the ideas of agility, flexibility, velocity and visibility. • Some supply chain risks and vulnerabilities: • Terrorist attacks, wars, politic problems, natural disaster (external risks) • Demand/Supply problems, manufacturing problems, problems related to goods, information finances flows (internal risks) • RISKS & INTERRUPTION OF THE SUPPLY VULNERABILITIES CHAIN CONTINUITY
Resilience applied to supply chain The Agility is the company capability to quickly respond to unforeseen and unpredictable demand/supply markets changes. Christopher and Rutherford (2004). The Flexibility helps companies to rightly answer to markets variability (concurrent processes, final goods completing postponement inside the supply chain, strategies sharing with suppliers), Sheffi (2006) The Velocity can be interpreted as time required for goods moving along the supply chain (reduction of the number of activities of each processes as well as decreasing lead times). Sheffi (2006) The Visibility that is the capability to establish end-to end supply chain relationships, (Stenger et al., 2000).
Some research works on supply chain vulnerability Before 2001 Choi and Hartley (1996), Christopher (1998), Braithwaite and Hall (1999). The first work presents and compares different methodologies for suppliers base selection; the second research work focalizes on strategic approaches for reducing costs within the supply chain; finally the last research work faces the problem of critical decisions (in terms of business risks) in supply chain management.
Some research works on supply chain vulnerability • Peck and Juttner 2002 propose a survey on the main supply chain risks also considering the companies reactions for reducing/eliminating risks. • Pai et al. (2003) present some methods for risks analysis based on Bayesian Networks, Fuzzy Logic and a combined approach of both. • A number of research studies introduce the concept of supply chain resilience. Such studies propose a map of supply chain vulnerabilities and classify supply chain risks in different phenomena (i.e. Hurricanes, Earthquakes), incidents (i.e. Exxon Valdese, Chernobyl), terrorist attacks (9/11 USA, 3/11 Spain), market globalization (i.e. strikes, new security procedures, insolvency).
Some research works on supply chain vulnerability • Concerning risk analysis and categorization, Wu et al. (2006) propose a risk analysis in the inbound supply chain identifying, evaluating and validating supply chain risks. Finally Gaonkar and Viswanadham (2004) present a model of a conceptual framework for supply chain risk categorization at strategic level. • Longo and Mirabelli (2008) focalize on the effects of demand/supply variability by using a supply chain management tool based on Modelling & Simulation (the aim is to understand the impact of such factors on each supply chain stage, i.e. distribution centers, stores, etc.). Still on demand/supply variability De Sensi et al. (2007) present and compare different inventory control policies considering market demand and lead times constraints. Nagurney and Matsypura (2005) propose a model of a three stages supply chain able to monitor network nodes competitiveness. • The scientific researches carried out by Sun and Yu (2005) and Deleris and Elkins (2004) respectively regard the impact of catastrophic events on supply chain contracts and probability distribution of losses caused by such events. • Further studies on supply chain vulnerability reduction regard the information sharing. In particular Sheffi (2005-a) and Suo and Jin (2004) states that one of the critical problems of the information sharing is the Bullwhip effect that is the amplification of the demand uncertainty moving back along the supply chain. Concerning the Bullwhip effect further information can be found in Lee et al. (1997).
Some research works on supply chain vulnerability • Different Sectors • Hopper and Beck (2004) propose a study on supply chain risks in the automotive sector, • Agrell et al. (2004) in the telecommunication sector. • Marine security levels analysis in marine terminals (Barnes and Oloruntoba, 2005; Longo and Bruzzone, 2005; Longo et al. 2005, Bruzzone et al. 2005), costs evaluation for disruptive events in railways networks (Bruzzone et al. 2007), innovative tools for risk management in the aeronautical sector (Haywood and Peck, 2003) and the introduction of strategies for minimizing and contrasting the effects of the new products from foreign markets/countries in the textile sector (Chandra, 1999).
Supply Chains disruption: some real case studies Many cases in literature report that supply chain vulnerability impact to Large Enterprises too. We can recall as samples cases as Nokia, Ericsson and Land Rover. Correct strategy • Nokia: • new collaborations • phones changes External risk (2000) Millions of components for Nokia and Ericcson mobile phones destroyed Disruption of a Philips Electronics plant • Ericcson: • no new collaborations • no phones changes Wrong strategy Internal risk (2001) Wrong strategy VPF Thomson stops the supplies to Land Rover Land-Rover was able to afford production stop but the economic impact was unexpected Land Rover had no other supplier
BSE Epidemy UK, 1996. Commonly known as mad cow disease, In the UK, 179,000 cattle were infected and 4.4 million killed. estimated damages between 0.1% and 0.2% of UK national income. Supply Chains disruption: some real case studies Colgate First july 2007, FDA found some samples of colgate thoothpaste contain up to 13.7 per cent diethylene glycol (DEG), used in antifreeze and as a solvent.
Acquabomber November 2003, Italy. Several bottles of mineral water poisoned with bleach selled in retail stores, 27 peoples intoxicated, Damages estimated in 17% reduction of sales Lead Contamined Toys August 2007. excess of lead found in certain Mattel’s toys. 23 millions of toys where retired from market. economical estimations of damages around 4 billions dollar’s Supply Chains disruption: some real case studies
Supply chain risks and vulnerabilities for SMEs Risks characterize a global supply chain and take effect on Large Enterprises, but higher impacts strike SMEs, due to their lower decisional power and poorer management tools. The consequent main idea is to create decisional models (opportunely integrated in development tools) that could allow SMEs to react in an agile, lean and flexible way to the events that characterize the evolution of competitive and international markets (both internal or external to the supply chain, controllable or not, unexpected, destructive or catastrophic). These tools has to grant a correct and adequate process management, as well for controls, infrastructures and business strategies (as for example demand forecasting, stock management, supply chain configuration, information management) to increase the resilience of the system.
Identification of the research fields involved • The development of the research defines the integration of the following research fields: • Supply chain vulnerability, security and resilience management for SMEs. • Methods for demand forecasting and risk analysis for SMEs in supply chain. • Information management and visibility methodologies in supply chains. • Modeling & Simulation integration.
Supply chain vulnerability, security and resilience management for SMEs. • The increase of security and resilience in supply chains can not leave out consideration the analysis and classification of risks, uncertainty and vulnerability. Processes of change management will be studied in SMEs to evaluate the effects in supply chains. • In particular, the attention should be pointed on the identification of cause-effect relations that connect strategic business choices of SMEs (operating in different sectors) to elements of vulnerability, security and resilience of supply chains.
Methods for demand forecasting and risk analysis for SMEs in supply chain • It’s also well known how, among the most important risks, a great importance is to put in supply/demand that’s to say the market variability and uncertainty that companies bear upstream and downstream (demand analysis). • In this sense demand forecasting models together with inventory management models has to be studied and analyzed, to prevent risks and improve supply chain resilience.
Information management and visibility methodologies in supply chains • A correct management and information sharing becomes one of the key elements to increase visibility in supply chains and reduce vulnerability. Information management is a process of “knowledge data discovery”, highly interactive and iterative, that consists of identifying valid, new, potentially useful and understandable relations among data. • This states a set of activities that involves the preparation of data, the research of relations, the evaluation and refinement of the extracted knowledge
Simulation & Modeling integration • In the end, the decisional models require to be integrated in Modeling & Simulation tools: a simulator able to combine the different models studied in the research and to operate as a complete and process integrated decisional tool, is the final step. • In this way, it is possible to build dedicated decisional models to evaluate and increase supply chain resilience for SMEs
Conclusions • The study proposed is based on the co-operation among University of Calabria, University of Ottawa and University of Genoa. • The research is still in the start up phase, actually, they are focused on the critical components that characterize the presented issues. • The most challenging aspects involve the development of different activities; for instance it is critical to perform a preliminary, but exhaustive, analysis concerning the State-of–the-art in order to be able to identify how many model can be reused. • The authors are currently involved also in some of the next steps such as the development of operative simulation tools. • After this phase the authors plan to concentrate their activities on the validation of the decision models, including the integration with other simulation models in relation to real case studies.