Complicated?

A very interesting figure from the article shows the individual steps and impacts leading up to increased resilience in supply chains:

The basic idea reflects the steps mentioned in the supply chain resilience report that I reviewed last week:

• Re-engineer your supply chain to address supply chain risk
• Engage in supply chain collaboration
• Ensure your supply chain agility
• Nurture a supply chain risk management culture

Re-engineer your supply chain

Conventionally supply chains have often been designed to optimise for cost and/or customer service, rarely was resilience the ‘objective function’ for the optimisation process, but supply chains can be re-engineered to address risk and resilience:

• Supply chain understanding
  • Map and analyze critical paths
  • Establish a supply chain risk register
• Supply chain design principles
  • Real options
  • Efficiency versus redundancy
• Supply base strategy
  • Supplier development
  • Sourcing decisions and criteria

Engage in supply chain collaboration

It will be apparent that since supply chain vulnerability is by definition a networkwide concept, the management of risk has to be network-wide too. A high level of collaborative working across supply chains can significantly help mitigate risk.

• Supply chain collaboration
  • Share information on operations and limitations
• Supply chain intelligence
  • Exchange of information on trends and strategies

Ensure your supply chain agility

Supply chain agility can be defined as the ability to respond rapidly to unpredictable changes in demand or supply. Two key ingredients are visibility and velocity.

• Supply chain visibility
  • End-to-end collaborative planning in the supply chain
• Supply chain velocity
  • Streamlining and acceleration of processes and reduction of lead time

Create and nurture a supply chain risk management culture

In the same way that many organizations recognized that the only way to make Total Quality Management (TQM) a reality was to engender a culture that made quality the concern of everyone, so too today is there a requirement to create a risk management culture within the business.

• Supply chain continuity team
  • Make it cross-functional
• Board level responsibility
  • Regular reports to the board
• Decision-making
  • Always evaluate risk first, then decide

Conclusion

This is an excellent article that highlights the importance of integrating supply chain risk thinking into supply chains. In particular, the various types of supply chain risk,  how supply chains should be re-engineered, why supply chain collaboration is important and how supply chain agility can be achieved are well covered. What is perhaps a bit cursory treated is the section on supply chain risk management culture. The paper also introduces a new term, “supply chain velocity”. although I haven’t seen much of it in later papers. Have you?

Reference

Christopher, M., & Peck, H. (2004). Building the Resilient Supply Chain The International Journal of Logistics Management, 15 (2), 1-14 DOI: 10.1108/09574090410700275

Author links

• martin-christopher.info: Martin Christopher
• cranfield.ac.uk: Helen Peck

Download/read online

• cranfield.ac.uk: Building the resilient supply chain (link may be slow)

Related posts

• husdal.com: Supply Chain Resilience Report

Supply Chain Turbulence

“Turbulence” seems to be a new and coming buzzword in supply chain (risk) management, and many of my readers may remember some of my earlier posts on this topic. It first appeared in my review of Peter Trkman’s article on supply chain risk in turbulent environments, and later, in an article on supply chain confidence by Martin Christopher and Hau Lee. Turbulence is volatility is uncertainty and something that supply chains have always had to deal with. The difference is that with global supply chains, any volatility, even if far away, can cascade through the supply chain in no time and translate into a severe disturbance and loss of profit, if not acted upon. Moreover, volatility will make your shareholders uneasy, as Hendricks and Singhal wrote in their 2003 article.

Similar, but not really?

Reading through the article and looking at the figure above, the concept of structural versus dynamic flexibility bears a striking resemblance to the lean-agile-leagile discussion some years ago. It is also similar to flexibility versus agility,  where agility is unplanned and unscheduled adaptation to unforeseen and unexpected external circumstances, and where flexibility is scheduled or planned adaptation to unforeseen yet expected external circumstances. This would make agility a case for dynamic flexibility, whereas flexibility comes closer to structural flexibility, or maybe structural flexibility is the marriage of agility and flexibility?

Supply Chain 1.0 versus 2.0

Traditionally, supply chains have responded  to variability and uncertainty by adding measures of control and stability. This has promoted a plethora of operational practices such as Lean, Six Sigma, push-based production, vendor-managed inventory and many more successful an less successful attempts. Although seemingly effective, these are very specific strategies geared towards certain industries and/or certain products, and although many companies have managed to build dynamic flexibility into their supply chains by being able to quickly reacting to changes, these are more like contingency plans than actual structural changes to the supply chain.

Structural flexibility defined

What exactly is structural flexibility? Well, according to Christopher and Holweg it refers to the ability of the supply chain to adapt to fundamental changes in the business environment. This, so they say, is done by first and foremost designing the supply chain for flexibility, not for efficiency, which is the case with most supply chains today, where flexibility is a sort of added option. In a structurally flexible supply chain, flexibility takes center stage, and efficiency becomes the second violin. I find that an interesting thought.

Structural flexibility implies the use of the following strategies:

• Dual sourcing
• Asset sharing with other companies, including competitors
• Separating base demand from surge demand
• Postponement of final product assembly
• Flexible labor arrangements
• Rapid manufacturing of small batches
• Outsourcing and contract manufacturing

In the efficient supply chain, the focus is on control and the aim is to reduce too much variability. In the adaptable supply chain the focus is on volatility and the aim is to develop a superior ability to adapt. The former sees turbulence as bad for business. The latter sees it as inevitable and thus creates adaptable structures to accommodate it. While the efficient supply chain tries to eradicate turbulence, the adaptable supply chain embraces it and works with it.

Conclusion

I am not sure that “Supply Chain 2.0″ is what most appropriately describes structural flexibility, besides being a “catchy” title, and I do like papers with catchy titles, but I think Christopher and Holweg are on the right track here. We should not fight volatility, we should perhaps not welcome it either, but we should not view it as an enemy.

Reference

Christopher, M., & Holweg, M. (2011). “Supply Chain 2.0”: managing supply chains in the era of turbulence International Journal of Physical Distribution & Logistics Management, 41 (1), 63-82 DOI: 10.1108/09600031111101439

Author links

• martin-christopher.info: Martin Christopher
• cam.ac.uk: Matthias Holweg

Related

• husdal.com: Supply chain resilience and confidence
• husdal.com: Supply chain risk in turbulent environments

Original or not?

According to the date on the front page, the white paper, boldly titled Supply Chain Confidence: The Key to Effective Supply Chains Through Improved Visibility and Reliability,  was  published in 2001 and bears the logo of Vastera, a provider of global trade management solutions (Sidenote: Vastera was acquired by JP Morgan Chase in 2005).

In 2004, the same paper appeared in the International Journal of Physical Distribution & Logistics Management under a more toned down and perhaps academically more profound title: Mitigating supply chain risk through improved confidence. A few sentences are reworked here and there, and some sales pitch like phrases are omitted, but essentially, it is word-by-word the exact same paper.

Which is the original? Is perhaps the date on the white paper wrong? Usually white papers come after or based on journal articles. I first thought so, since the journal articles references articles published in 2002 and 2003, which could not be the case if the white paper really was written in November 2001, as the front page states.  However, if I am to believe the date stamp on the pdf-version of the white paper on the Stanford website, it was indeed created in April 2002, which only makes sense if it was written prior to that date.

Click image for larger version

The proof is in the pudding, that is the Internet itself. According to archive.org the white paper does appear on the April 2002 version of the Stanford Global Supply Chain Management Forum website. While I see nothing wrong with re-writing a white paper into a journal article, I’m just baffled as to why it is not mentioned in the references for the journal article. But anyway, let’s take a closer look at the paper itself, because it is quite interesting.

Sources of risk

Traditionally, papers on supply chain risk use the “classic” supply-demand-internal-external scheme for classifying supply supply chain risk sources. Christopher and Lee do not. They see risk as primarily related to uncertainty, volatility and turbulence, similar to the notion of supply chain risk in turbulent environments that I found in Trkman and McCormack (2009),  which I reviewed back in October.

Christopher and Lee relate supply chain risk to

• financial risks
  • inventory overstocking
  • markdowns
  • stock-outs
  • obsolescence
• chaos risks
  • overreactions
  • unnecessary interventions
  • second guessing
  • mistrust
  • distorted information
• decision risks
  • uncertainty of making the right decisions
  • uncertainty of making the wrong decisions
• market risks
  • changes in global/local trends
  • changes in customer preferences
  • existing and new market opportunities missed

The list is not meant to be exhaustive, but only meant to be examples of risks that contribute negatively towards supply chain confidence.

Lack of confidence

The key issue is that beyond the physical and tangible risks are many more (and worse) intangible risks, represented by the attitudes and perceptions of the users and members of the supply chain:

The intangible lack of confidence in a supply chain leads to actions and interventions by supply chain members, which collectively, could increase the risk exposure.

Bottom line: the higher the uncertainty, the lower the confidence. Typical issues are no confidence in:

• Order cycle time
• Order current status
• Demand forecasts given
• Suppliers’ capability to deliver
• Manufacturing capacity
• Quality of the products
• Services delivered

This lack of confidence is what drives a risk spiral, where globalization and outsourcing lead to long pipelines, pipelines that more often than not lack the necessary visibility and control, which leads to an excessive reliance on inventory buffers, creating perhaps even longer pipelines, since the resources have already been stretched for working on the first inventory buffer.

Click image for larger version

The article lists a number of issues that can occur when lack of visibility and lack of control lead to a lack of confidence:

Click image for larger version

In order to restore supply chain confidence, the two basic elements of supply chain confidence must be addressed: control and visibility.

Total end-to-end visibility will enable supply chains to be transparent, and the right information would be available to the right member of the supply chain at the right time.

Both visibility and control are critical for restoring supply chain confidence. Which one that is needed most, control or visibility, that depends on the on-time performance and lead time of the supply chain:

Click image for larger version

The paper mentions three key levers for breaking the risk spiral:

Information Accuracy, Visibility and Accessibility

Throughout the supply chain, key operational metrics and status  must be accessible by key members of the supply chain.

Alerts for Out of Control Conditions

Any time when deviations from the plan have occurred, the appropriate parties of the supply chain have to be alerted.

Responsive Corrective Actions

All members of the supply chain need to have contingency plans  and tools to make corrective actions when out of control conditions have been detected.

With all this place, the ground is prepared for what Christopher and Lee call the synchronous supply chain, where all activities are (as the name implies) fully synchronized. This is what makes a supply chain agile.

Synchronous supply requires transparency of demand and pipeline inventory in as close to real time as possible. The ability to match supply more closely with demand we call agility and the key to agility is speed.

That is a definition of agility that is different from the one I adhere to, where I see agility, flexibility, robustness and resilience as separate and different terms.

Conclusion

Supply Chain Confidence is an interesting concept. In this paper confidence is based on visibility and control. The framework makes sense, and is supported by real-life (albeit anecdotal) examples. However, I haven’t come across any later and notable research on supply chain confidence. Only one comes to my mind, Diana Esparza, a student at the University of Ottawa, who according to a blog post on Procurement Insights wrote her Master’s thesis on the topic of Supply Chain Confidence. I wonder how that went…

Reference

Christopher, M., & Lee, H. (2004). Mitigating supply chain risk through improved confidence International Journal of Physical Distribution & Logistics Management, 34 (5), 388-396 DOI: 10.1108/09600030410545436

Read online

• martin-christopher.info: Supply Chain Confidence

Author Links

• martin-christopher.info: Martin Christopher
• stanford.edu: Hau Lee

Related

• husdal.com: Supply chain risk in turbulent environments
• husdal.com: The IBM Supply Chain of the Future
• husdal.com: Business Intelligence and Supply Chain Risk

Omera Khan

A month ago I wrote a post referencing an article by Christopher, Burnes & Khan (2007) Risk and Supply Chain Management – Creating a Research Agenda, that prompted a comment by Omera Khan herself, offering to send me more details on her related research. Today’s post is a result of our brief e-mail exchange, and I plan to feature more articles by Omera Khan in the near future.

Short life cycles – increased supply chain risk

While previously it was the fashion and clothing industry that set the trends (often well ahead of the upcoming season), now, more often than not, the consumers set the trends (and thus the life cycle length of  a clothing item), not the industry. In consequence, the industry needs to develop a certain agility and responsiveness towards what is hot and in demand.

The co-ordination of activities along the supply chain has extensively been focused on the efficiency along the value chain, but surprisingly, a major issue, the design of the product and how it is co-ordinated, managed and its impact to the supply chain has largely been ignored. With customers increasingly demanding greater variety in products at lower costs, design has become an important means by which companies can gain a competitive advantage in their supply chains. For example, the design of products has a huge impact not only on market success, but also on the sourcing of components, production, distribution and even on how final products will be displayed to customers in retail.

The long lead times that come from outsourcing production (and often design as well) are often counterproductive to taking the lead in a highly competitive market. What is hot is hot now, not in two months when your item may be available, and what may be hot in two months (when you plan your supply chain), may not be so hot after all, two months from now.

Outsourcing – increased supply chain risk

In the clothing and fashion industry, trend cycles (and product cycles) are short, so matching demand with supply is essential, and both supply-side risk and demand-side risks are important elements in managing supply chain risk.  The UK clothing retailer Marks & Spencer (M&S) learned its lesson the hard way,  but has bounced back after it realized how crucial product design is in supply chain risk:

Designing product ranges in-house as opposed to using external designers and consultants enables M&S’s product development team to influence the supply chain both upstream and downstream as sales information and feedback from customers is received. It also minimises the risk of outsourcing design to external designers who may design products that are incongruent with product ranges designed by in-house designers. By designing in-house, designers from different clothing segments can communicate ideas and compare the trends for the collections much more quickly and can identify if products across all segments will sit together as a complete collection in stores

It is obvious that in industries such as clothing, textile and fashion, design cannot be not an isolated function but is in fact a critical process that impacts the total supply chain.  Design, however, is not everything.

Agility and design

Pairing design with agility is one way (if not THE way) to reduce supply chain risk. This means making the right decisions early at the design stage, thus allowing later design changes or adaptations, resulting in products with maximum flexibility for insertion into changing markets. Design is then the platform on which the effectiveness of the total supply chain rests.

Therefore, a key challenge facing organisations in which design is a critical function, such as the textile and clothing industries, is to integrate design and supply chain management in order to effectively meet customer needs and manage supply chain risk. Failure to do so could create problems at the manufacturing or logistics stages in the supply chain and thus, increase the risk of supply chain disruption.

It follows then that if design, not cost, should take the lead in working with suppliers.

Marks & Spencer

Using Marks & Spencer (M&S) in their case study, Khan, Christopher and Burnes  examine the role that design can play in managing risk in the clothing and textile industries in an increasingly global supply chain. Using a traditional risk matrix, 17 risks were identified and plotted for improvement.

What M&S  learned is that design needs to be kept in-house as a core competence, and that the product development process needs to be more agile, particularly through increased communication and collaboration in the supply chain.

Conclusion

The paper does make a strong argument  for viewing design decisions  as highly important supply chain decisions. As they put it, “the supply chain begins on the drawing board”. It couldn’t be more true than that. After the drawing board it is too late, well, not really, but it certainly takes a lot more effort.

How product personalization affects supply network design

On a side note, on Daniel Stengel’s SCRMBlog I found a review of Poulin et al. (2006) and their view on the various types of personalization of products and how that affects supply network design.

Reference

Khan, O., Christopher, M., & Burnes, B. (2008). The impact of product design on supply chain risk: a case study International Journal of Physical Distribution & Logistics Management, 38 (5), 412-432 DOI: 10.1108/09600030810882834

Links

• martin-christopher.info: Martin Christopher’s home page
• manchester.ac.uk: Bernard Burnes‘ homepage
• linkedin.com: Omera Khan

Related

• husdal.com: Lean + Agile = LeAgile: A happy marriage?
• husdal.com: Risk and Supply Chain Management – Creating a Research Agenda

What is risk?

There are many many many definitions of risk in the literature, and will not attempt to list them all. Suffice it to say that I define risk as follows:

Risk is the exposure to circumstances with potentially damaging effects arising from an event that is not handled appropriately.

Risk management needs to address both sides of an accidental event, the sources leading up to it and the consequences arising from it. In figurative terms, “barriers” are put in place on both sides aimed at stopping a circumstance from evolving into an event, or aimed at stopping an event from developing disastrous consequences. Example: In  a production facility running machinery that can overheat, a fire would be the accidental event, a heat detector would be a source barrier, while a fire sprinkler would be a consequence barrier.

The missing link

The idea for this post came while looking at Jütner, U., Peck, H., & Christopher, M. (2003) Supply Chain Risk Management: Outlining an Agenda for Future Research, where the authors look at risk sources, risk drivers and risk consequences. Here, risk mitigation is backward looking at sources and drivers, that is correct, but the contingent actions addressing the consequences are not fully embedded into their model. In the figure below I have attempted to illustrate how this can be done in a better way.

Risk sources need risk drivers to create risk impacts. Risk impacts are addressed by using mitigative strategies aimed towards eliminating the source or the driver, or contingent strategies, aimed towards eliminating the impacts. A similar notion, separating the cause and effect of risks, can be seen in the figures Holger Köhler uses in his PhD on Supply Chain Risks in Low Cost Country Sourcing.

Money matters

In On the value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks (Tomlin, 2006) there is a distinct difference between contingent and mitigative actions. Contingency action are actions taken in the event of a disruption, mitigation actions are actions taken in advance of a disruption. While the latter will incur a cost regardless of disruption, contingent actions will incur costs mainly in their preparation stage, and the again of course, if, but only if, they need to be taken.

Barriers, barrier, barriers

In Assessing the vulnerability of your production system (Asbjørnslett,1997), and later in Assessing the Vulnerability of Supply Chains (Asbjørnslett, 2008) there is a figure that excellently illustrates the difference between mitigation and contingency.

The figure above is my extension of the figure used in A.bjørnslett (1997) and Asbjørnslett (2008), capturing both contingent strategies and mitigative strategies. Here it is clearly seen that risk management needs to address both sides of the risk: what lies behind the risk (source) and what lies in front of it (consequences).

Conclusion

Hopefully this little discourse has clarified the difference between mitigative and contingent strategies. To understand concepts I find it most helpful to draw what I read, as I have with the two papers cited today. Well, actually, I did not draw everything entirely, I just expanded already existing figures. This (above) is how I view risk management, as an effort not just to reduce risk sources, but also as an effort to reduce risk impacts.

Reference

Bjørn Egil Asbjørnslett (2008). Assessing the Vulnerability of Supply Chains In G. A. Zsidisin & B. Ritchie (Eds.), Supply Chain Risk: A Handbook of Assessment, Management and Performance. New York, NY: Springer. DOI: 10.1007/978-0-387-79934-6_2

Asbjørnslett, B. E., & Rausand, M. (1997). Assess the vulnerability of your production system (Report No. 97018): Norwegian University of Science and Technology, Trondheim, Norway.

Jüttner, U., Peck, H., & Christopher, M. (2003). Supply chain risk management: outlining an agenda for future research International Journal of Logistics, 6 (4), 197-210 DOI: 10.1080/13675560310001627016

Tomlin, B. (2006). On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks Management Science, 52 (5), 639-657 DOI: 10.1287/mnsc.1060.0515

Author links

• hslu.ch: Uta Jüttner
• martin-christopher.info: Martin Christopher
• cranfield.ac.uk: Helen Peck
• ntnu.no: Bjørn Egil Asbjørnslett
• ntnu.no: Marvin Rausand
• dartmouth.edu: Brian Tomlin

Related

• Assess the vulnerability of your production system
• A Future research Agenda for Supply Chain Risk Management
• Ericsson versus Nokia – the now classic case of supply chain disruption

Where did leagile come from?

Christopher, Peck and Towill are not the first to use the term “leagile” . In fact, “leagile” has has been around for quite some time. Already in 1999, Naylor et al. published Leagility: Interfacing the Lean and Agile Manufacturing Paradigm in the Total Supply Chain, and since then, several authors have picked up on the subject. Legile comes from a synthesis of  Lean manufacturing, which has a long history, and Agile manufacturing, which is considerably younger.

What does leagile mean?

Copyright note: The figure above is taken from the article.

Leagile has emerged as an answer to the problem of reconciling long lead times with unpredictable demand. In a certain (predictable) world, going lean is fine, it is  a cost-saver. However, when demand is uncertain, a company must retain its responsiveness vis-a-vis its customers. This is only possible if the supply chain is agile. But what if demand is unpredictable, while lead times are long, as they typically are in today’s global outsourcing? That is were leagile has a mission.

What does leagile have to do with supply chain risk?

Lean is often seen as one of the reasons why supply chains have become increasingly vulnerable, but that is only part of the story. Agility, on the other hand, is seen as a way to deal with, or rather, prepare for, supply chain disruptions. Agility is often mistaken for flexibility, but it is not. As I wrote in my post on robustness, resilience, flexibility and agility, using the definition in Goranson (1992) The Agile Virtual Enterprise:

flexibility is

scheduled or planned adaption to unforeseen yet expected external circumstances. 

agility is

unplanned or unscheduled adaption to unforeseen and unexpected external circumstances.

So, is a lean supply chain more exposed to supply chain risk than an agile supply chain? I don’t think so, as I explained in my post Lean logistics = risky logistics?

Reference

Christopher, M., Peck, H., & Towill, D. (2006). A taxonomy for selecting global supply chain strategies The International Journal of Logistics Management, 17 (2), 277-287 DOI: 10.1108/09574090610689998

Christopher, M., & R.Towill, D. (2002). Developing Market Specific Supply Chain Strategies The International Journal of Logistics Management, 13 (1), 1-14 DOI: 10.1108/09574090210806324

Mason-Jones, R., Naylor, B., & Towill, D. (2000). Engineering the leagile supply chain International Journal of Agile Management Systems, 2 (1), 54-61 DOI: 10.1108/14654650010312606

Ben Naylor, J. (1999). Leagility: Integrating the lean and agile manufacturing paradigms in the total supply chain International Journal of Production Economics, 62 (1-2), 107-118 DOI: 10.1016/S0925-5273(98)00223-0

Author links

• cardiff.ac.uk: Professor Dennis Towill
• cranfield.ac.uk: Dr Helen Peck
• cranfield.ac.uk: Professor Emeritus Martin Christopher
• glam.ac.uk: Dr Rachel Mason-Jones

Related

• husdal.com: The Definition of Agility
• husdal.com: Book Review: Dynamic Supply Chain Management
• husdal.com: Lean logistics = Risky logistics?

A good starting point

The authors themselves state that the article is a literature review, and indeed, their reference list boasts 95 references, articles and books, spanning anything from supply chain risk to risk and supply chain management.The article is thus a good starting point for anyone researching supply chain risk.

Key questions

The key questions the article seeks to answer are:

1. What is risk and risk management?
2. Is risk and important issue in supply chain management?
3. What approaches are available for managing supply chain risk?

Putting together many different views and perspectives, the article highlights that risk and supply chain risk is a highly debated and not easily unified concept, since it involves both quantitative and qualitative approaches.

The need for a research agenda

What the authors find in their review is that while the study of risk and risk management have a long history, and while organizational and financial risk are topics that are well researched and understood, supply chain risk management is still in its infancy. Two shortcomings stand out in particular:

The literature on purchasing and risk, and supply chain management and risk, fails to draw on or locate itself within the wider theory of risk and the practice of risk mangement.

Though the general literature on risk offers a wide range of tools and techniques for managing risk, these do not appear to have been adapted for use in managing supply chain risk. Rather, what appears to be on offer is a range of general prescriptions on how to reduce risk.

In essence, much of the supply chain risk literature does not connect itself to the risk literature, which offers  a wide range empirically founded research.

Consequently, the authors suggest that if supply chain is to be studied beyond generalizations, a three-fold research agenda is needed:

1. There is a need to ground research into supply supply risk within the broader study of risk in general.
   a) How can other research on risk help the understanding of risk in the supply chain?
   b) How can other key concepts of risk and risk management be incorporated into the supply chain?
   c) How can the debate regarding the subjective-objective nature of risk help in the development of tools and frameworks for supply chain risk management?
2. There is a need for broad and in-depth empirical research into how risk is managed in supply chains.
   a) How do companies manage supply chain risk?
   b) What processes and techniques do companies use to identify and analyze risk in their supply chains?
   c) How do companies benchmark their supply chain risk against that of their competitors’?
   d) How do companies evaluate their supply chain risk profile and develop risk contingencies?
3. There is a need to devise a robust and well-grounded models of supply chain risk management, which incorporate risk management tools and techniques from other disciplines of research.

Conclusion

I haven’t seen any follow-up articles on this topic, neither by these authors, nor by other authors…yet, but I could be wrong. Given that this article is fairly recent, any follow-ups would most likely still be in press or still be in writing. Personally, I do believe that supply chain risk is an under-researched area that needs further exploration and linkages to other fields of research. It will be interesting to see if others think the same.

Reference

Khan, O., & Burnes, B. (2007). Risk and supply chain management: creating a research agenda The International Journal of Logistics Management, 18 (2), 197-216 DOI: 10.1108/09574090710816931

Links

• martin-christopher.info: Martin Christopher‘s home page
• manchester.ac.uk: Bernard Burnes‘ homepage
• linkedin.com: Omera Khan

Supply Chain Risk explained

Risk reflects both the range of possible outcomes and the probabilities for each of the outcomes. Christopher advocates establishing a supply chain risk profile, with the purpose to establish where the greatest vulnerabilities lie and where the “greatest” risks are, based on the view that risk is the product of probability and impact.

He distinguishes between 3 risk perspectives and 5 risk types, namely 1) Internal to the focal firm: a) Process risk and b) Control risk, 2) External to the focal firm: c) Supply risk and d) Demand risk, and 3) External to the supply chain: e) Environmental risks. Process risks relate to operations and manufacturing, while control risks relate to rules and systems governing the organization. Supply risks relate to the upstream flow of incoming supplies, while demand risks relate to downstream disruptions in outgoing product flows or incoming financial flows. Environmental risks relate to the outside world, regulatory or political changes, natural hazards or other disasters. Actually, there is another,  fourth, perspective, where both firm-internal and firm-external risks are contained: Internal to the supply chain (Process, Control, Supply and Demand).

Supply Chain Vulnerability

Christopher defines vulnerability as “an exposure to serious disturbance”, arising from internal as well as external risk, caused by current trends in supply chain mangement:

• The trend towards just in time and lean practices
  >>> efficiency rather than effectiveness
• The trend towards reducing costs
  >>> globalization, more complex and longer supply chains
• The trend towards economies of scale
  >>> centralized distribution and manufacturing
  >>> lower costs, but also less flexibility
• The trend towards outsourcing of non-core business activities
  >>> loss of control when it is most needed
• The trend towards consolidation of suppliers
  >>> increased potential for wider impacts of disruptions

Strategies for mitigation

Citing from an article in Harvard Business Review, he lists six steps for mapping the risk profile and developing strategies:

• Prioritize earnings drivers
• Identify critical infrastructure that affect the earnings drivers
• Locate vulnerabilities in the critical infrastructure
• Model scenarios for the vulnerabilities
• Develop responses to the scenarios
• Monitor, detect and respond to potential disruptions as soon as possible

He then suggests a very simple and straightforward framework for managing supply chain risk

• Understand the supply chain
  • view it from end to end, from supplier to end customer.
• Improve the supply chain
  • can you simplify and reduce complexity and variability?
• Identify critical paths
  • what are the bottlenecks and key nodes/links?
• Manage the critical paths
  • make contingency plans.
• Establish a supply chain continuity team
  • make it cross-functional
• Allow network visibility
  • don’t be afraid to share information.
• Work with suppliers and customers
  • are your suppliers and customers aware of their own vulnerabilities?
  • are your suppliers and customers aware of your own vulnerabilities?

I think that particularly the last two bullet points may raise some eyebrows with supply chain risk managers, who would rather like to keep this information privy to the company, and not share it with the outside world. The benfits of doing this though, outweigh the disadvantages, as i see it

SCOR

On a side note, it is noteworthy that the Supply Chain Council (SCC)  now has implemented supply chain risk into their SCOR model The SCOR reference model is a widely accepted framework for evaluating and comparing supply chain activities and their performance, and uses the same four perspectives : 1) Internal-facing, 2) Customer-facing and 3) Supply-facing and 4) Environment-facing. To me, this proves the validity of Christopher’s approach.

Reference

Christopher, M. (2005). Managing risk in the supply chain. In Logistics and Supply Chain Management (3rd ed., pp. 231-258). Harlow: Prentice Hall.

Author Link

• martin-christopher.info: Martin Christopher

amazon.com

• Buy this book: Logistics and Supply Chain Management

Related

• husdal.com: Book Review: Logistics and Supply Chain Management

Supply Chain Risk Management – a basic construct

In defining supply chain risk management, Jüttner et al. use four basic contructs: 1) Sources of risk, which lead to 2) Adverse Consequences of risk, instigated by 3) Drivers of risk and possibly offset by 4) Mitigation strategies.

Supply Chain Risk Management - from Jüttner, Peck and Christopher (2003)

These four constructs are used throughout the article and seen as sequential steps in the managerial process of addressing supply chain risk. It is a simplification, yet, at the same time, it opens up many new avenues that all converge towards the starting point, rather than diverge from it. In addressing the risk, they identify four separate risk mitigating strategies: 1) Avoidance, 2) Control, 3) Co-Operation and 4) Flexibility.

Supply Chain Risk Management – risk sources

In a similarly simple manner like the above figure, in a second figure the sources of risk are broadly categorized along 3 different levels: 1) Organizational risk, 2) Network (or Supply Chain)-related risk, and 3) Environmental risk.

Supply Chain Risk Sources - from Jüttner, Peck and Christopher (2003)

In my opinion this figure perfectly manages to sum up the three different levels of supply chain risk. However, I haven’t yet seen any later paper that picks up along these lines.

Reference

Jüttner, U., Peck, H., & Christopher, M. (2003). Supply chain risk management: outlining an agenda for future research International Journal of Logistics, 6 (4), 197-210 DOI: 10.1080/13675560310001627016

Author links

• hslu.ch: Prof Dr Uta Jüttner
• cranfield.ac.uk: Dr Uta Jüttner
• cranfield.ac.uk: Professor Emeritus Martin Christopher
• cranfield.ac.uk: Dr Helen Peck

Related

• husdal.com: Risk Management: Contingent versus Mitigative

Logistics & Supply Chain Management

Reasons for increased supply chain vulnerability

• The trend towards just-in-time and lean practices have led to a focus on efficiency rather than effectiveness.
• The trend towards reducing costs (at almost any cost) has led to a globalization of supply chains, more complex and hence more vulnerable.
• The trend towards economies of scale has led to centralized distribution and manufacturing, which has lowered costs but at the same time also made the supply chain less flexible.
• The trend towards outsourcing non-core business activities in order to gain market competitiveness has led to loss of control of the supply chain when it may be most needed.
• The trend towards consolidation of suppliers, not necessarily brought on by the customer company itself, but by incidental mergers and acquisitions has led to an increased risk of supply failure.

Supply chain risk management is closely linked to “business continuity” planning, since the biggest risk to business continuity may in fact be in the wider network (or supply chain) the individual business is just a part of. This means that one’s own continuity may be very much dependent on someone else’s continuity, and mapping an individual company’s risk profile involves identifying risk sources across the network.

Sources of supply chain risk

• Supply risk – disruptions in supply
• Demand risk – volatile demand and the bullwhip effect
• Process risk – operational constraints and limitations
• Control risk – decision rules hampering own production
• Environmental risk – external forces, natural hazards, politics

Suply chain risk profile

It is important for any business to understand that its own risk profile is directly and indirectly impacted by the strategic decisions that are made. A business’ vulnerability should always be examined in relation to the 5 sources of risk as described above.

Mapping the risk profile is a six step process that involves

• Prioritize earnings drivers
• Identify critical infrastructure that affect the earnings drivers
• Locate vulnerabilities in the critical infrastructure
• Model scenarios for the vulnerabilities
• Develop responses to the scenarios
• Monitor and detect potential disruptions as soon as possible

Managing supply chain risk

• Understand the supply chain
  - view it from end to end, from supplier to end customer.
• Improve the supply chain
  - can you simplify and reduce complexity and variability?
• Identify critical paths
  - what are the bottlenecks and key nodes/links?
• Manage the critical paths
  - make contingency plans.
• Improve network visibility
  - don’t be afraid to share information.
• Establish a supply chain continuity team
  - make it cross-functional
• Work with suppliers and customers
  - are your suppliers and customers aware of their own vulnerabilities?

Achieving supply chain resilience

Supply chain resilience requires a recognition that all strategic decisions have an impact on the supply chain and the supply chain risk profile. Hence, it may be necessary to re-engineer the supply chain. How this process works can be seen in the figure below.

In conclusion, the chapter on supply chain risk in in Logistics & Supply Chain Management by Christopher Martin provides a comprehensive and thorough perspective for anyone interested in the subject matter. As I said before, this chapter alone makes the book worth reading.

Reference:
Christopher, M. (2005) Managing risk in the supply chain. In: Logistics and Supply Chain Management, 3rd ed, Prentice Hall, pp. 233-258

Related posts

• husdal.com: Book Review – Logistics and Supply Chain Management
• husdal.com: Supply Chain Risk – the forgotten subject?