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Journal ArticleDOI

Building the Resilient Supply Chain

01 Jul 2004-The International Journal of Logistics Management (Emerald Group Publishing Limited)-Vol. 15, Iss: 2, pp 1-14

Abstract: In today's uncertain and turbulent markets, supply chain vulnerability has become an issue of significance for many companies. As supply chains become more complex as a result of global sourcing and the continued trend to “leaning‐down”, supply chain risk increases. The challenge to business today is to manage and mitigate that risk through creating more resilient supply chains.
Topics: Supply chain risk management (74%), Supply chain (67%), Service management (63%), Supply chain management (61%), Demand chain (59%)

Summary (3 min read)

Introduction

  • International Journal of Logistics Management, Vol. 15, No. 2, pp1-13, 2004.

Cranfield School of Management

  • In today’s uncertain and turbulent markets, supply chain vulnerability has become an issue of significance for many companies.
  • The challenge to business today is to manage and mitigate that risk through creating more resilient supply chains.
  • Better management and control of internal processes together with more open information flows within and between organisations can do much to help.
  • All are dependent on efficient and reliable transportation and communication systems, an obvious point, but one that is often overlooked [4].
  • This paper reports on some of the findings and recommendations of the second stage of that programme.

Supply Chain Resilience

  • When working effectively and efficiently modern supply chains allow goods to be produced and delivered in the right quantities, to the right places, at the right time in a cost effective manner.
  • Until recently the term ‘supply chain’ was not widely used beyond the confines of academia, specialist sectors of industry and the professional management community.
  • It amounted to a redefinition and amalgamation of established business activities, notably ‘logistics’ (integrated transport, warehousing, and distribution) and manufacturing-based ‘operations management’.
  • In defining other key terms in this paper the authors have veered away from hotly disputed academic definitions and sought where possible to align ourselves with appropriate and widely accepted dictionary definitions [8].
  • The injunction allowed Land Rover to arrange for another supplier to acquire the failing business, averting the lay-off of 1400 Land Rover workers and many more amongst the car maker’s network of suppliers.

Previous Research

  • Supply chain resilience is a new and still largely unexplored area of management research, though one that is currently in the ascendancy.
  • The work was already well underway by the time of the terrorist attacks on the USA on 11th September 2001, though these events demonstrated the timeliness and relevance of the work.
  • In the months between the commissioning of the first study, its publication and the subsequent research programme, public sector Emergency Planning received renewed impetus in the UK and elsewhere around the world.
  • During the course of this research programme it became increasingly evident that modern supply chains are probably at greater risk than many of those who manage them recognise.
  • Whilst the existence of the many disturbances to the business environment (e.g. wars, epidemics, earthquakes) are readily acknowledged as sources of risk, it is less clear that the risks from within the supply/demand network are always apparent.

Categorising Risk

  • Supply chain risks can be categorised in many different ways and from different perspectives, e.g. from a corporate governance or financial risk agenda, or even in terms of a multi-level complex system [14].
  • Internal to the firm o Process o Control External to the firm but internal to the supply chain network o Demand o Supply External to the network o Environmental 10 Figure 1 summarises the linkages between these risk categories:- Each of these five categories are briefly described below:- Processes are the sequences of value-adding and managerial activities undertaken by the firm.
  • They may be the result of sociopolitical, economic or technological events many miles or organisations removed from the focal firm’s own supply chains, but may have carry-over effects through 12 linkages to other industry networks.
  • But either failed to do so.

The Way Ahead: Creating the Resilient Supply Chain

  • Emerging from their research programme are a number of discernible general principles that underpin resilience in supply chains.
  • Most echo rather than contradict the widely accepted principles of good supply chain management.
  • In other words there are certain features that, if engineered into a supply chain, can improve its resilience.
  • The second general principle is that because by definition supply chains will normally extend across different corporate entities there will need to be a high level of collaborative working if risk is to be identified and managed.
  • The message that needs to be understood and acted upon is that the biggest risk to business continuity may well come from the wider supply chain rather than from within the 14 business.

1. Supply Chain (re) Engineering

  • 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.
  • A number of recommendations are suggested to provide the basis for the design of supply chains with risk reduction in mind.
  • Mapping tools can help in the identification of ‘pinch points’ and ‘critical paths’.
  • The strategic disposition of additional capacity and/or inventory at potential ‘pinch points’ can be extremely beneficial in the creation of resilience within the supply chain.
  • The trade-offs inevitably involve the judgemental balancing of the cost handicap involved in maintaining slack ‘just-in-case’, against the probability and likely impact of a negative event.

2. Supply Chain Collaboration

  • A high level of collaborative working across supply chains can significantly help mitigate risk.
  • There has not been a history of sharing information either with suppliers or customers.
  • The underlying principle of collaborative working in the supply chain is that the exchange of information can reduce uncertainty.
  • The type of knowledge that can aid the creation of supply chain resilience pertains to the identification of sources of risk and uncertainty at each node and link in the supply chain.
  • This type of 18 knowledge can be generated through formal ‘P.E.S.T.’ type analysis (Political, Economic, Social and Technological).

3. Agility

  • Many organisations are at risk because their response times to demand changes or supply disruption are too long.
  • These intervening inventories are usually created independently of each other as a result of decision rules, the basis of which may not be readily apparent.
  • A significant barrier to supply chain visibility is often encountered within the focal firm’s internal organization structure.
  • The second ingredient of supply chain agility is velocity.
  • Streamlined processes are simplified processes in that they have been engineered to reduce the number of stages or activities involved, they are designed to perform these activities in parallel rather than in series and they are e-based rather than paper-based.

4. Creating 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.
  • The authors would argue that this culture of risk management should extend beyond the boundaries of corporate risk and business continuity management to become ‘supply chain continuity management’.
  • Thus for example when new products are at the design stage, issues of supply chain vulnerability such as component availability and lead times should be considered.
  • 22 A supply chain risk management team should be created within the business and charged with regularly updating the supply chain risk register and to report to the main Board through the supply chain director on a least a quarterly basis.
  • The team will need to be cross-functional and to be able to audit risk using the frameworks and tools the authors have put forward in this report.

Conclusion

  • The authors research has highlighted the risks to business continuity that lie in the wider supply chain.
  • The trends towards the creation of increasingly complex networks of inter-dependent organisations – through strategies of out-sourcing and globalisation in particular – have heightened some of these risks.
  • The authors have argued that a new priority has emerged for business planning.
  • This priority has to be the search for supply chain strategies that embody a significantly higher degree of resilience.
  • Its implications extend beyond process redesign to fundamental decisions on sourcing and the establishment of more collaborative supply chain relationships based on far greater transparency of information.

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Abstract: Purpose – The authors perform a large‐scale literature review and use conceptual theory building to introduce the concept of sustainability to the field of supply chain management and demonstrate the relationships among environmental, social, and economic performance within a supply chain management context.Design/methodology/approach – Conceptual theory building is used to develop a framework and propositions representing a middle theory of sustainable supply chain management (SSCM).Findings – The authors introduce the concept of sustainability – the integration of environmental, social, and economic criteria that allow an organization to achieve long‐term economic viability – to the logistics literature, and position sustainability within the broader rubric of SSCM. They then present a framework of SSCM and develop research propositions based on resource dependence theory, transaction cost economics, population ecology, and the resource‐based view of the firm. The authors conclude by discussing manageri...

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References
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James G. March1, Zur Shapira2Institutions (2)
01 Nov 1987-Management Science
Abstract: This paper explores the relation between decision theoretic conceptions of risk and the conceptions held by executives. It considers recent studies of risk attitudes and behavior among managers against the background of conceptions of risk derived from theories of choice. We conclude that managers take risks and exhibit risk preferences, but the processes that generate those observables are somewhat removed from the classical processes of choosing from among alternative actions in terms of the mean (expected value) and variance (risk) of the probability distributions over possible outcomes. We identify three major ways in which the conceptions of risk and risk taking held by these managers lead to orientations to risk that are different from what might be expected from a decision theory perspective: Managers are quite insensitive to estimates of the probabilities of possible outcomes; their decisions are particularly affected by the way their attention is focused on critical performance targets; and they ...

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Abstract: The purpose of this article is to explore the contributions that could be made to the conceptual frame of reference for business strategy management by one of the research programmes which focuses on the organization-environment interface, and to which a network approach has been applied. We start by examining some of the assumptions underlying the current “strategy management doctrine”. The network model of the organization-environment interface is then reviewed and three central issues of the strategy management doctrine are discussed from the viewpoint of the network model: (1) organizational boundaries, (2) determinants of organizational effectiveness, and (3) the process of managing business strategy. The conclusion reached is that in all three areas changes are required in the assumptions of the business strategy model. Our arguments stem from a basic proposition about the situations described by the network model: continuous interaction with other parties constituting the context with which the organization interacts endows the organization with meaning and a role. When this proposition applies, any attempt to manage the behaviour of the organization will require a shift in focus away from the way the organization allocates and structures its internal resources and towards the way it relates its own activities and resources to those of the other parties constituting its context. Such a shift in focus entails a somewhat different view of the meaning of organizational effectiveness: what does it depend on and how can it be managed?

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Abstract: The bullwhip effect occurs when the demand order variabilities in the supply chain are amplified as they moved up the supply chain. Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies. Companies can effectively counteract the bullwhip effect by thoroughly understanding its underlying causes. Industry leaders are implementing innovative strategies that pose new challenges: 1. integrating new information systems, 2. defining new organizational relationships, and 3. implementing new incentive and measurement systems. Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies: excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, inactive transportation, and missed production schedules. How do exaggerated order swings occur? What can companies do to mitigate them? Not long ago, logistics executives at Procter & Gamble (PG it, in turn, created additional exaggerations of order swings to suppliers. In the past few years, the Efficient Consumer Response (ECR) initiative has tried to redefine how the grocery supply chain should work. One motivation for the initiative was the excessive amount of inventory in the supply chain. Various industry studies found that the total supply chain, from when 1 Copyright Sloan Management Review Association, Alfred P. Sloan School of Management Spring 1997 The Bullwhip Effect In Supply Chains 2 products leave the manufacturers' production lines to when they arrive on the retailers' shelves, has more than 100 days of inventory supply. Distorted information has led every entity in the supply chain the plant warehouse, a manufacturer's shuttle warehouse, a manufacturer's market warehouse, a distributor's central warehouse, the distributor's regional warehouses, and the retail store's storage space to stockpile because of the high degree of demand uncertainties and variabilities. It's no wonder that the ECR reports estimated a potential $30 billion opportunity from streamlining the inefficiencies of the grocery supply chain. Figure 1 Increasing Variability of Orders up the Supply Chain Other industries are in a similar position. Computer factories and manufacturers' distribution centers, the distributors' warehouses, and store warehouses along the distribution channel have inventory stockpiles. And in the pharmaceutical industry, there are duplicated inventories in a supply chain of manufacturers such as Eli Lilly or Bristol-Myers Squibb, distributors such as McKesson, and retailers such as Longs Drug Stores. Again, information distortion can cause the total inventory in this supply chain to exceed 100 days of supply. With inventories of raw materials, such as integrated circuits and printed circuit boards in the computer industry and antibodies and vial manufacturing in the pharmaceutical industry, the total chain may contain more than one year's supply. In a supply chain for a typical consumer product, even when consumer sales do not seem to vary much, there is pronounced variability in the retailers' orders to the wholesalers (see Figure 1). Orders to the manufacturer and to the manufacturers' supplier spike even more. To solve the problem of distorted information, companies need to first understand what creates the bullwhip effect so they can counteract it. Innovative companies in different industries have found that they can control the bullwhip effect and improve their supply chain performance by coordinating information and planning along the supply chain. The Bullwhip Effect In Supply Chains 3 Causes of the Bullwhip Effect Perhaps the best illustration of the bullwhip effect is the well-known "beer game." In the game, participants (students, managers, analysts, and so on) play the roles of customers, retailers, wholesalers, and suppliers of a popular brand of beer. The participants cannot communicate with each other and must make order decisions based only on orders from the next downstream player. The ordering patterns share a common, recurring theme: the variabilities of an upstream site are always greater than those of the downstream site, a simple, yet powerful illustration of the bullwhip effect. This amplified order variability may be attributed to the players' irrational decision making. Indeed, Sterman's experiments showed that human behavior, such as misconceptions about inventory and demand information, may cause the bullwhip effect. In contrast, we show that the bullwhip effect is a consequence of the players' rational behavior within the supply chain's infrastructure. This important distinction implies that companies wanting to control the bullwhip effect have to focus on modifying the chain's infrastructure and related processes rather than the decision makers' behavior. We have identified four major causes of the bullwhip effect: 1. Demand forecast updating 2. Order batching 3. Price fluctuation 4. Rationing and shortage gaming Each of the four forces in concert with the chain's infrastructure and the order managers' rational decision making create the bullwhip effect. Understanding the causes helps managers design and develop strategies to counter it. Demand Forecast Updating Every company in a supply chain usually does product forecasting for its production scheduling, capacity planning, inventory control, and material requirements planning. Forecasting is often based on the order history from the company's immediate customers. The outcomes of the beer game are the consequence of many behavioral factors, such as the players' perceptions and mistrust. An important factor is each player's thought process in projecting the demand pattern based on what he or she observes. When a downstream operation places an order, the upstream manager processes that piece of information as a signal about future product demand. Based on this signal, the upstream manager readjusts his or her demand forecasts and, in turn, the orders placed with the suppliers of the upstream operation. We contend that demand signal processing is a major contributor to the bullwhip effect. For example, if you are a manager who has to determine how much to order from a supplier, you use a simple method to do demand forecasting, such as exponential smoothing. With exponential smoothing, future demands are continuously updated as the new daily demand data become available. The order you send to the supplier reflects the amount you need to replenish the stocks to meet the requirements of future demands, as well as the necessary safety stocks. The future demands and the associated safety stocks are updated using the smoothing technique. With long lead times, it is not uncommon to have weeks of safety stocks. The result is that the fluctuations in the order quantities over time can be much greater than those in the demand data. Now, one site up the supply chain, if you are the manager of the supplier, the daily orders from the manager of the previous site constitute your demand. If you are also using exponential smoothing to update your forecasts and safety stocks, the orders that you place with your supplier will have even bigger swings. For an example of such fluctuations in demand, see Figure 2. As we can see from the figure, the orders placed by the dealer to the manufacturer have much greater variability than the The Bullwhip Effect In Supply Chains 4 consumer demands. Because the amount of safety stock contributes to the bullwhip effect, it is intuitive that, when the lead times between the resupply of the items along the supply chain are longer, the fluctuation is even more significant.

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No. of citations received by the Paper in previous years
YearCitations
20225
2021281
2020197
2019187
2018205
2017167