Five supply chain flows

Luk N van Wassenhove of  the renown INSEAD is not a newcomer on this blog. The first time he appeared, two years ago (I can’t believe I’ve been blogging about supply chain risk for that long…), I was discussing his book chapter on managing risk in global supply chains, which was the first time I encountered the three flows of a supply chain, namely boxes, bytes and bucks: Material flows, Information flows and Financial flows. Here, this has been expanded to five flows, adding People flows and Knowledge and Skill flows. People and skills are two flows any supply chain most certainly cannot do without.

Wassenhove and Tomasini then combine this notion with Lee’s Triple-A supply chain. contending that a humanitarian supply chain in particular needs to be agile, adaptable and aligned.

Triple-A instead or Fire-fighting?

The reason for using Lee’s Triple-A, so they say, is to move away from what is so typical for emergency response or humanitarian supply chains: fire-fighting here and now. In this sense, humanitarian supply chains have a lot in common with remote supply chains.

Logistics needs to be integrated into humanitarian supply chains from the very beginning, not come as an add-on in how to deal with the crisis at hand.

Ramp-up – Ramp down

Tomasini and Wassenhove make a very good argument that full coordination is needed throughout the relief effort, and that this coordination needs to change according to the stages that an emergency response goes through. Such coordination is only possible by apply the right (i.e. Triple-A) supply chain thinking.

If you look back at Pettit’s and Beresford’s Emergency Recovery Model, you will see a striking resemblance to the figure above.

Critique

Humanitarian supply chains appear to be the rising star within supply chain management, and rightly so, which is why I do applaud this development. One reason why it may be so popular is that it takes focus away from the profit-maximization and cost-minimization that underpins so much of the supply chain literature elsewhere, thus making humanitarian logistics a humane and perhaps fashionable research strand that is politically correct in every sense. That, on the other hand, may also be its downfall, when doing good becomes more important than doing it right (in a logistical manner). This book, however, matches humanitarian logistics with corporate social responsibility, and that is not only doing good but doing the good rightly.

Reference

Tomasini, R and Wassenhove, van L (2009) Humanitarian Logistics, New York: Palgrave Macmillan

Author links

• Ronaldo Tomasini
• insead.edu: Luk van Wassenhove

amazon

• Buy this book: Humanitarian Logistics

Related

• husdal.com: Emergency Logistics and Risk Mitigation
• husdal.com: Remote Logistics

Ten years in the making

Ten years of responding to major disasters led the International Federation of Red Cross  and Red Crescent Societies (IFRC) to design and implement decentralized supply chains  for emergency response, through the establishment of three advanced Regional Logistics Units (RLUs) for spearheading  relief operations. The article by Gatignon et al.  (2010) reports on the lessons learned and experiences gained from this process.

When I was there

Interestingly, at the time of the Yogyakarta earthquake I was actually in Jakarta, some 400 kilometres away, on holiday, and when watching the news, the city looked utterly devastated.  But was it? When I later visited Yogyakarta in 2009 there was little that reminded me of a city that supposedly lay in ruins 3 years earlier. There was little evidence of the substantial damage that had struck the city in 2006. It was almost as if the earthquake never happened.

That said, I wasn’t sure I was gong to survive upon landing at Yogayakarta – I’ve never in my life experienced a runway more bumpy than this one. At first I thought it to be a lack of piloting skills, but I realized the runway was indeed a  really buckling piece of airstrip. Besides that, the only visible signs were some reconstruction work at the Prambanan temple and some minor damages at Borobudur. Alright, for the record, there were signs throughout the city, but you had to look close to actually see them.

The decentralized supply chain

In the IFRC’s traditional centralized supply chain, relief items were typically transported in large batches through transcontinental flights. This is not only expensive, it also leads to logistical bottlenecks in receiving and storing the goods at local airports. or other nearby warehouses.  The new decentralized supply chain with its prepositioned stocks and supplies allows for a quicker regional operation by air during the emergency phase. In this way, a faster response is possible during the crucial ramp-up phase of operations, as seen in Beresford and Pettit (2009).

The IFRC selected three locations for RLUs on the basis of their strategic positioning in terms of the IFRC’s global supply chain and operations:

• Dubai was chosen to cover Europe, the Middle East, and Africa,
• Kuala Lumpur was chosen to cover Asia and Australia,
• Panama was chosen to cover America

The Yogyakarta relief operations demonstrated that the IFRC’s decentralized supply chain works:

1. Faster service, fully operational in three days.
2. Better service to the disaster victims over a longer period of time.
3. Much cheaper than previous interventions.

One reason why it worked so well is because the RLU is closer to the field of operations than headquarters in Geneva, Switzerlandand thus able to communicate more easily with donors in the same time zone and limit the number of unsolicited donations by advising donors as to which needs were still unmet.

A prestigeous award

It should be mentioned that the IFRC received the ‘European Supply Chain Excellence Award’ in 2006, winning recognition from external analysts and industry leaders within supply chain management.

For scale, responsiveness and performance, (the IFRC) are outstanding: all the more so when you realize that they exist to operate in precisely the places where normal supply chains have broken down; that they have only moral rather than legal charges over their sources of supply and funding; and that despite being a global brand with relatively little direct control over its local operations, it has successfully transformed its supply chain to meet even better the demands that the world places on it.

I find it quite amazing that an organization that is not originally designed to be a professional logistics operator has won such an award.

Faster, cheaper, better

As the Yogyakarta operation demonstrated, the successful implementation of the IFRC’s new model rested on a certain number of supply chain principles, which in combination created a better, faster, cheaper supply chain:

• Standardized items and processes (bucks and boxes)
• Traceability through adapted information systems (bytes)
• People skills (the three I’s)

What the IFRC did was to adopt Lee’s three A’s of supply chain management: agility, adaptability and alignment, where he latter element was only made possible by respecting the three I’s of supply chain management: identity, information processes, and incentive systems.

Conclusion

While the decentralized supply chain is a big step forward, fully implementing the decentralized supply chain remains a huge challenge, as the establishing of the RLUs shifted the IFRC’s power center towards the local level and away from headquarters, perhaps jeopardizing the standardization and coordination efforts that had made the RLUs possible in the first place. However, the decentralized supply chain case reveals the validity of the triple A supply chain in conjunction with the three Bs (bucks, bytes and boxes) and three I’s (identity, incentives and information) of supply chain management.

Something else

If you would like a harrowing hands-on account of relief efforts, the De-Risk blog has two excellent posts on where risk management is a matter of life and death part 1 and part 2, reporting from Oxfam’s work on risk managent in relief projects in Kenya and Sudan.

Reference

Gatignon, A., Van Wassenhove, L., & Charles, A. (2010). The Yogyakarta earthquake: Humanitarian relief through IFRC’s decentralized supply chain International Journal of Production Economics DOI: 10.1016/j.ijpe.2010.01.003

Author links

• insead.edu: Aline Gatignon
• insead.edu: Luk van Wassenhove
• univ-toulouse.fr: Aurelie Charles

Related

• husdal.com: Humanitarian and Military supply chains in Indonesia
• husdal.com: Emergency Logistics
• husdal.com: Pyramidal thoughts

The article starts off with a brief recap of the development of supply chain management, and why supply chain risk management has become increasingly important. A supply chain is essentially a network consisting of suppliers, manufacturers, distributors, retailers and customers. The network supports three flows, requiring careful design and close coordination, if risk is to be avoided:

• Material flows
• Information flows
• Financial flows

These flows are sometimes referred to as the “3Bs” of supply chain management:

• Boxes
• Bytes
• Bucks

Traditionally, the boxes have received the most attention, but all three flows are equally important, since disruptions can occur in any of them, thus halting the supply chain.

The flows, in turn, are supported by three pillars:

• Processes
• Organizational structure
• Technologies

Supply chain risk management must address both the flows and the pillars the floes rest on.In essence, the article differs between two types of risk:

• Supply-demand coordination risk
• Disruption risk

In battling these risks companies normally draw upon three approaches:

• Supply chain design
• Contracting
• Risk management systems

Supply-demand coordination risks can be addressed using

• Three dimensional concurrent engineering
• Dynamic supply-demand balancing
• Closed loop supply chains
• B2B exchanges

In terms of managing disruption risk, the article looks at

• Purposeful triggers
• Accidental triggers

So far so good, but this is where the article suddenly drops in usefulness. Whereas supply-demand coordination is dealt with in detail, disruption risk only receive a cursory review. Terrorist attacks or changes in regulations are seen as examples of purposeful triggers, and accidental triggers are near misses or on-site accidents like fires or chemical spills. Admittedly, these risk should be of major concern to any company, however, I fail to to see their significance as disruption risks. On the other hand, the article does suggest multi-level exercises at each link in the supply chain as a method to uncover vulnerabilities and to find ways to mitigate or respond to these vulnerabilities. In addition, the article also makes a point in underscoring that supply chain design decisions should not be done purely on the basis of cost and revenue determinants.

In conclusion, and this is where I agree with the authors, the basic challenge is finding the right balance between the leanness and the robustness of supply chains, and thus increasing the overall returns in global supply chains.

Reference

Kleindorfer, P. R. and van Wassenhove, L.N. (2004) Managing Risk in Global Supply Chains. In: The INSEAD-Wharton Alliance on Globalizing – Strategies for Building Sucessful Global Businesses. Eds. Gatignon, H. and Kimberly, J.R., pp. 288-305. Cambridge University Press.

Author links

• upenn.edu: Paul Kleindorfer
• insead.edu: Luk van Wassenhove

Link

• upenn.edu: Managing Risk in Global Supply Chains (read the article in full)

Related

• husdal.com: What’s so special about Paul Kleindorfer?
• husdal.com: Global Supply Chain Risk Management Strategies
• husdal.com: Global Supply Chain Risk Management
• husdal.com: Book Review: Handbook of Global Supply Chain Management
• husdal.com: Strategies for managing risk in multinational corporations