Presented at MDP on 'Demystifying Supply Chain' organised by Management Development Center at Energy Acres, UPES Dehradun

1. Outcome Driven Supply Chain
Dr. Etinder Pal Singh
Feb 24, 2012
Presented at MDP organized by Center for Management Development & UPES Dehradun

2. A request
Keep an open mind
and
Ask lots of questions

3. REMEMBER!
• Today’s supply chain is a result of actions
taken in the past.
• Tomorrow’s supply chain will be the result
of actions that we take today.

4. Risks in supply chains?

5. Most important risks faced by
multinational firms
Aon Global Risk Management Survey 2009
(Survey among 550 multinational companies > $ 1 billion revenue)
– Economic slowdown
– Regulatory / legislative change
– Business interruption risks Supply chain risks
– Increasing competition mentioned three times
– Raw materials / commodity prices in Top 10!
– Damage to reputation
– Cash flow / liquidity risk
– Supply chain failure
– Third party liability
– Difficult to attract top talent

6. Natural disasters reported 1900-2008
Source: EM-DAT (2010)

7. Risks in the supply chain – an example
The Albuquerque accident
• March 2000
• Philips semi-conductor plant in Albuquerque, New Mexico, USA
– Sole-supplier of radio-frequency chips to Nokia and
Ericsson
• Lightning strike lead to small fire in clean rooms at Philips
plant
• Sprinkler installation activated in clean rooms
• It took 3 weeks before production was up and running again
• After 6 months, production yields were only 50%
• It took years before new equipment was delivered and
installed

8. Some developments and trends in
supply chain management
• Globalisation and global sourcing
– Longer, more complex supply chains
– Volatile markets
• Strong focus on achieving efficiency and economies of scale
– Lean, JIT-processes
– Centralised distribution and manufacturing
– Single-sourcing / reduction number of suppliers
– Shorter lead-times and delivery cycles
– Working capital optimisation
• Outsourcing and off-shoring non-core activities
– Loss of control
Source: Christopher (2005), Husdal (2009)

9. 4 constructs that we need to deconstruct
Usually, research in the field of supply chain risk consists
of 4 constructs
– Supply chain risk
– Supply chain disruption
– Supply chain vulnerability
– Supply chain risk management (and resilience)
Source: Wagner and Bode (2008)

10. Supply chain risk
• Risk is a concept with a lot of different definitions
• 2 main perspectives:
– Exposure to uncertainty (everyday usage e.g. “it is risky
to drink and drive”)
– Outcome of an event (e.g. higher total costs and longer
lead-times after a fire in a warehouse:
– Risk = Probability * Consequences)
• What can happen? (risk sources)
• How likely is it that it will happen? (probability)
• If it does happen, what are the consequences?
(consequences)
Source: Jüttner et al. (2003); Zsidisin and Ritchie (2008)

11. Analysing supply chain risks
• Firms commonly visualise
unforeseen and unwanted
events by means of a risk-
matrix
• A risk-matrix has 2
dimensions: probability and
consequences (impact)
• Problem: it relies heavily on
risk perception.
Source: Sheffi & Rice Jr. (2005)

12. Risk perception
• Depends on:
– Time/moment
– Experience/knowledge
– Place
– Risk attitude / appetite
– Position
– Possibilities to decide
– Big bang or small incidents

13. Supply chain risk sources
• Where can risks originate from?
Risks internal to the firm
Supply risk
Supply risk Processrisk
Process risk Demandrisk
Demand risk
Controlrisk
Control risk
Environmental risk
Source: Christopher & Peck (2004)

14. Supply chain risk sources
• Where can risks originate from?
Machine break-down
Employee strike
Volatile customer-demand
Wrong order-forecast
Risks internal to the firm
Supply risk
Supply risk Processrisk
Process risk Demandrisk
Demand risk
Bankruptcy of supplier
Quality problems at supplier
Transportation failure Controlrisk
Control risk
Natural disasters
Political instability Order quantity policies
Quality control
Severe weather conditions Environmental risk
Source: Christopher & Peck (2004)

15. Supply chain disruptions
• “Supply chain disruptions are unplanned and unanticipated
events that disrupt the normal flow of goods and materials within
a supply chain”
• Supply chain disruptions: the occurrence of risk
• Consist of: a trigger and the situation that emerges afterwards.
Supply
chain
disruption
Triggering event
Consequential situation
Supply chain
Time
risk
Exposure to risk Occurrence of risk
Source: Craighead et al. (2007), Wagner and Bode (2008)

16. Most frequently occurring disruptions in
2008-2009
1. Sudden drop in customer demand
3. Quality issues at the supplier
5. Poor logistics performance of suppliers (delivery
dependability)
7. Severe weather conditions
9. IT-infrastructure problems (hardware, software)
Source: TNO-onderzoek: Risico’s en Kwetsbaarheden in Logistieke Ketens (2010)

17. What are the consequences of a disruption?
Higher cost
Bad performance
Lost sales
Lower profits
Bankruptcy
Fear, danger
Damage to reputation
For whom?
The company itself
Suppliers
Customers
Society