Saturday, June 16, 2012

Creating Resiliency in Large Global Supply Chains


Inter-organizational Studies. Review of an academic article.


Article

An EmpiricallyDerived Framework of Global Supply Chain Resiliency by Jennifer Blackhurst, Kaitlin S. Dunn, and Christopher W. Craighead.

Article's Purpose

Despite the increasing size and complexity of supply chains in today’s business world, I found several sources stating that there is a "gap" in theory surrounding supply chain management. In the article, the authors state that they are attempting to help fill that gap in the development of their Framework of Supply Resiliency (Figure 1 of the article). The authors also offer an example of a Supply Resiliency Matrix that can be used by management to assess their supply chain's level of resiliency (Figure 2 of the article).

Supply Chain Resiliency and Its Importance

Supply chain resiliency in the context of the article can be thought of as the ability of a company to reduce or avoid losses from disruptions along their supply chain.  It is important to note that large global supply chains don't just experience disruptions from direct suppliers; disruptions could come from customs, 2nd and 3rd tier suppliers, freight companies, etc. - all spanning the globe. Keep in mind disruptions created anywhere within the chain can propagate throughout, and the source of disruption doesn’t have to be the fault of any one link; moreover, just a disruption in the environment in which one link operates. The bullwhip effect is an example of how disruptions can propagate throughout supply chains.

In order to convey the importance of supply resiliency, the authors of the article offer a brief example citing Erricsson's $400 million loss due to a 10 minute fire at a Phillips plant.  I will expand upon this example by referring to Amit S. Mukhurjee's article, A Fire That Changed anIndustry: A Case Study on Thriving in a Networked World. The Phillips plant supplied a substantial amount of chips to both Erricsson and Nokia for their production of cell phone handsets. As pointed out by Mukhurjee, the ten minute fire at the Phillips plant, that destroyed several trays of silicon wafers, was not initially a severe problem. Regardless, the two companies responded quite differently to the disruption; it can be seen that Nokia was far more resilient than Erricsson.  Nokia was proactive and responded on several fronts; Erricsson spent too much time waiting on Phillips. In the aftermath, Nokia increased market share substantially and reported no losses; Erricsson on the other hand, experienced both long and short term losses and a market share reduction.

These results are consistent with what the authors assessed in their article:  losses are not exclusively short term and can lead to a substantial decrease of shareholder value (Paraphrased).

Type of Research and Theoretical Background

As the authors state in the article, resiliency's importance has already been established by other scholars; the authors' focus is developing a theory on how to establish a resilient supply chain. To do so the authors build from Systems Theory and the Resource-based View.

Explanation of the Authors' Framework

The authors' framework consists of a model where supply resiliency exists between 3 groups of resiliency enhancers and 3 groups of resiliency reducers. The authors note that the resiliency enhancer groups are aligned with Resource-Based View and the groups of reducers with Systems Theory. There are varying amounts of factors determined by the authors to affect each group; in total there are 19 different factors that can either increase or decrease supply resiliency. These factors are synonymous with, and for me more easily understood through, the two theories. As noted in the article, this framework is designed for the supply side of supply chains.

Implications of the Authors' Findings

The authors offer their framework and matrix as tools that can be used by management to strategically enhance and qualify their firms supply chain resiliency. The framework shows management how to increase resiliency through enhancers, while it is noted in the article that reducers are often outside of management's control. Management can use the author’s matrix to qualify and determine their firm’s current standing on supply resiliency. Together, the framework and the matrix are strategic tools that allow management to better protect their firm from supply chain disruptions through resiliency. 

8 comments:

  1. Wow, this is an excellent blog. I have a friend at UH main that is majoring in supply chain management that I have already recommended this article and blog to. I also have a friend who is a "logistics analyst" which essentially means he is a coordinator and dispatcher for the delivery of his company's product. Just this last week they had a disruption at a production plant that lost 160,000 gallons of product, resulting in an immediate $125,000 loss. However, my friend is infuriated because he feels his company NEVER responds to disruptions as the article puts it, in an appropriate manner. He said that his company will not even alert their customers to the loss, and will only tell them if they are about to run out of product. I really enjoyed this because the entire time I was reading it, I could apply it to my life and the lives of others, which makes this theory much more real. I think this idea can also be applied to the blog I wrote earlier this week, which includes the building of satisfaction, trust, and commitment with business partners (or suppliers in this case). If all involved business partners understand how the others will respond to a crisis or disruption, they can eliminate a lot of red tape, losses, and save time in responding to these inevitable problems that arise.

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    1. Exactly, it seems as if some companies view it as being more costly to be safe than to be sorry. Surely in some cases that will hold true, maybe even most cases in the short term, but I think in the long run there is a definite viable benefit from being alert, proactive, and prepared for these situations.

      Your friend’s situation sounds similar to that of Nokia. Top management did not want to respond to the disruption. It was a key employee, drawing from experience from previously working for Phillips, who noticed the disruption BEFORE it was announced to the company, and it took several more key employees to demand that action take place. Otherwise, the company would have experienced losses along with Erricsson.

      I also agree that this does tie to the post you made earlier this week. As was stated in the article I reviewed, it takes having visibility of your business partners operations to be resilient. If you can’t trust your partners then the visibility they give you of their operations is questionable.

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    2. You really have a grip on this topic. I can't stress enough how great of a blog this is, and how stellar your commentary has been.

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  2. This is an interesting blog. I'm going to look into the supply chain management in my company and see what they do in the event of a disruption.

    For some reason, the library website wouldn't let me connect to your link. So I'm just going to respond with what I think after just being able to read your blog entry. I'm afraid it won't be as "stellar" as yours or Josh's.

    I think that companies must stay aware and alert of the potential supply chain disruption risks and must be ready to deal with any disruptions quickly. There are so many ways that a disruption can occur - terrorism, earthquake, etc. Nobody can predict these things. Other disruptions can be predicted. But managers can lessen the impact by building a deep trusting relationship with their suppliers and other parties(which sounds like it could be an "enhancer")and remaining flexible and maybe having contingency plans for disruptions. This trust factor kind of relates to the other blogs about interorganizational trust that I have read on this site. That seems to be a recurring theme among a lot of the articles I have seen.

    I'm sure that my company has probably had many of these disruptions and it has remained resilient. It will be interesting to find out what it does to stay that way.

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    1. Sorry about the link, I think I have found what the problem is and I will fix it in future posts. I've been going to the library website and just searching the article name when the links fail.

      I agree with you, there are a lot of disruption risks, natural and man-made, and many are quite unpredictable. It made me wonder: Which one's to take seriously? Would it be better in some decisions to cluster plausible disruptions by area and assign risk factors by geography? It would mostly depend on the nature of the operation and the decisions to be made I think.

      In my opinion, and generally speaking, I think to be resilient means to be agile.

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  3. Just like Ehric the library would not let me view this article.

    However, from your blog it seems like a very interesting subject. From past business classes I have come across the fact that a lot of companies that are incurring losses they are not only for a short term period. These losses can decrease shareholders value, which is the last thing you want to do in a company.

    This blog has shown me that taking action and being proactive within a company and not just waiting for results is a big hit or miss when it comes to overall productivity for the company.

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    1. I apologize for the link. I believe I have found the problem and will fix it in future posts.

      Yes, you are right. If one company, A ,is waiting around for results, another company, B ,may already be implementing a solution that will also force out A. Which is exactly what happened in the case study I referenced. By the time Erricsson took action, Nokia had already contacted all the manufacturers in the area to fill their orders from the manufacturers' available production capacity. There was now were left for Erricsson to go.

      I think it is situations like this that can take losses from the short term and spread them to the long term.

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