risk

A Managerial Framework for Reducing the Impact of Disruptions to the Supply Chain

Observations from multiple executives

Supply Chain Disruption Issues: Common Themes

 

There are three interrelated important attributes that arise from this research that companies should consider in managing supply chain disruptions:

  1. Supply Chain Knowledge—An effective system for disruption discovery and recovery requires a thorough understanding of the “as is” condition of the supply chain being examined, as well as the general status of external global, market, and environmental influences (e.g., political, cultural, etc.). This also includes knowledge of the organizations disruption plans and capabilities. 
  2. System-wide Disruption Awareness/Capabilities— Real-time supply chain intelligence gathering, information sharing, and coordinated response. Risk and disruption handling cannot and should not be handled by a single department and/or one company.  All players in the supply chain need to be involved in disruption planning and preparation. While disruption mitigation may be executed by a key logistics provider, all supply chain stakeholders need to be involved and regularly apprised of disruption management activities.  Certainly, disruption planning may be initiated and deployed by key companies in the supply chain with the resources to do so, but all of the key nodes in the supply chain need to be involved at some level.
  3. Supply Chain Visibility—Visibility, defined as knowing how much inventory is available, where it is located in the chain, and the level of demand in the supply chain, is likely the most important aspect of a successful system for dealing with disruptions.  As one executive stated, “visibility is the battleground relative to supply chain competitiveness.” Unfortunately there is not a “silver bullet” technology that will handle all aspects of supply chain visibility.  Visibility is enabled via a combination of technology and continuous communication.  

In terms of actions, firms in the early stages of risk management should consider the following approach to begin to assess and develop systems for managing supply chain risk.

  1. Develop a detailed and integrated value stream map on a pilot basis for a critical branch of global sourcing operations, highlighting not only material flow, but information flow, inventory levels, decision points, mechanisms and triggers.
  2. Evaluate contingency plans on this pilot product for risk reduction effectiveness, and identify key thresholds when mitigation decisions would be executed.
  3.  Establish a greater understanding of the external factors affecting the supply chain, through development of a node by node risk enumeration and identification plan, utilizing predictive risk analysis techniques
  4. Establish additional insights into where and how much inventory is located throughout the supply chain, and how to rapidly access and reposition the inventory during a supply chain disruption.
  5. Develop a detailed report documenting the factors that cause or amplify disruptions. A preliminary list has been identified in this research. In addition, conducting “post mortems” of major past disruptions to identify contributing factors can help to identify weaknesses in current supply chain design, or product sourcing decisions that exacerbate supply chain risk exposure.

As discussed in this research, the foundation for a solid supply chain risk management program includes improved knowledge of where the disruptions may occur, and the training to know when and how to respond.  The level of awareness of the potential for disruptions, and the capability to respond, is the single greatest preventive action that organizations can take to prevent the effects of a major disruption from disrupting global operations.  Finally, the study of improved visibility of events is an on-going challenge, and there is a need to identify the current set of solution providers that can assist in developing these capabilities.

References:

Handfield, R. and Nichols, E. (2002).  Supply Chain Redesign, Upper Saddle River, NJ:  Prentice Hall, 2002.

Hendricks, K. and Singhal, V. (2003). The Effect of Supply Chain Glitches on Shareholder Wealth. Journal of Operations Management, 21, 501 – 522.

Jiang, B, (2003). What Pulled Sony out of China?, Supply Chain Management Review, Jan/Feb 2003, pp. 23-27,

Knight, R. and  Pretty, D., (1996). The impact of catastrophes on shareholder value. The Oxford Executive Research Briefings, Templeton College, University of Oxford, Oxford, England, 22 pages

Mitroff, I. and Alpasan, M. (2003), Preparing for Evil, Harvard Business Review, April 2003, 109 – 115.

 

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