SC Disruption

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How to handle disruptions in supply chains

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    How to Handle Disruptions in Supply Chains An Integrated

    Framework and a Review of Literature

    Behzad Behdani1, Arief Adhitya

    2, Zofia Lukszo

    1 and Rajagopalan Srinivasan

    3

    1Faculty of Technology, Policy and Management, Delft University of Technology

    P.O. Box 5015, 2600 GA Delft, the Netherlands

    2Institute of Chemical and Engineering Sciences, A*STAR (Agency for Science, Technology and

    Research)

    1 Pesek Road, Jurong Island, Singapore 627833

    3Department of Chemical and Biomolecular Engineering, National University of Singapore

    4 Engineering Drive 4, Singapore 117576

    Abstract This paper describes an integrated framework for handling disruptions in supply chains. The

    integrated framework incorporates two main perspectives on managing disruptions, namely pre- and

    post-disruption perspectives, which are usually treated as separate in the existing frameworks. Next,

    the proposed integrated framework is used to review the literature in supply chain risk/disruption

    management. The review gives an overview of the key aspects and specific methods that can be used

    for each step in the framework. Based on the review, some main observations are also discussed. The

    first is that literature has not uniformly discussed different parts of the framework; pre-disruption

    steps, such as risk identification and risk treatment, have been explored extensively while post-

    disruption steps such as disruption detection and learning have been given far less attention.

    Secondly, there is a lack of quantitative (simulation and modeling) studies for handling supply chain

    disruptions. These two gaps, therefore, represent avenues for future research on supply chain

    risk/disruption management.

    Keywords: Supply Chain Management, Risk, Disruption, Integrated Framework, Literature Review

    1 Introduction

    Supply chain management has been the subject of various business trends in the last two

    decades. Globalization of business, outsourcing internal functions and reducing the buffer levels

    across the chain by Just-In-Time philosophy are examples of such trends. Reducing the costs and

    giving companies the opportunity to better compete against other players in the market have been the

    main drivers behind these business strategies. However, as supply chains become more efficient,

    they have also become more vulnerable to different disruptions. This is, firstly, because globalization

    and the increasing length of the supply chain expose each supply chain to more risk factors. Also, the

    impact of disruption propagates faster through the network because of lower buffer stocks and single

    sourcing / supplier based reduction (Figure 1).

    Before the world of business had become globalized, some types of risk factors like currency

    exchange rate fluctuations, social instability and even natural disasters were considered as local or

    regional events. However, with increase in global trade, such issues and events are hardly local

    anymore; they can easily influence many companies located thousands of miles from the origin of

    risk. Some other significant challenges caused by globalization in managing supply chains stem from

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    communication difficulties and cultural differences. For example, cultural differences and the

    attitude towards food hygiene in China are blamed as one of the main reasons for the increasing rate

    of product recalls in recent years (Roth et al., 2008). Another challenge is longer lead-time (and

    consequently, higher uncertainty) in the extended supply chains which has resulted in a critical role

    for transportation in the global business. As a direct consequence, another important class of risk has

    become highlighted in the risk profile of global companies, i.e. transportation risk.

    Besides globalization, outsourcing has brought in several new risks. Dependency on the

    quality of material and services from the vendor and the possibility of opportunistic behavior for

    parties with different (and sometimes, conflicting) goals are examples of these new factors (Kavi

    and Tavar, 2008). Another factor is "intellectual property risk (Blackhurst et al., 2008) which

    would be a key concern as the business environment shifts towards knowledge-based economies.

    In addition to the new types of risks introduced by cost-efficiency trends in managing supply

    chains, disruption in one specific part of a global supply chain can ripple through the chain much

    faster nowadays. This fast propagation of disruption effects in supply chains is mainly due to the lack

    of buffers and extra resources across the network. Traditionally, supply chains were designed with

    redundancies in different segments. During normal operations, these are unused and therefore appear

    to be inefficiencies. Therefore, seeking to eliminate all forms of wastes, many companies adopted

    approaches like lean and JIT aimed at eliminating or significantly reducing these buffers.

    Consequently, the operating costs significantly decreased. Companies could also benefit from the

    value of money savings by less investment, for example, in the storage facilities. However, during

    disruptions, the adverse effects of any initiating event may spread quickly through the supply chain

    leaving practically no (or little) buffer time for the companies to look for alternative solutions to

    handle the abnormalities (Sheffi, 2005). Furthermore, due to outsourcing and fragmentation of

    management in the chain, the decision making process for handling disruptions may be significantly

    slower than before.

    Figure 1: Business trends and challenges for handling supply chain risk

    The increase in the risk factors in the supply chain and the rapid propagation of disruption

    have placed many companies in a challenging situation as they have to operate in a more risky

    business environment. Paradoxically, the resources needed to manage these risky situations have

    become much more limited. Firstly, by implementing the lean philosophy, very few types of

    resources including finished goods, work-in-process and raw material inventory are available to

    handle the impact of disruptive events. Secondly, by outsourcing, most of companies have lost the

    control on the resources and the visibility across their supply chain (Zsidisin et al., 2005). This loss

    of control and visibility affects the companies ability to detect disruption and limits its degrees of

    freedom to cope with abnormalities. Consequently, while the business for supply chains is more

    risky, the essential resources to handle disruptive events are also fewer and their control distributed

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    among different actors. The explicit outcome of this paradoxical situation is the growing

    vulnerability of supply chains and their higher impact on companies performance. Ensuring the

    smooth operation of supply chains and providing a reliable offering to customers seems to be more

    challenging now. To handle this challenge, two options might be considered; a passive option in

    which companies avoid the aforementioned supply chain strategies (e.g., JIT, global sourcing or

    outsourcing) as they have made supply chains increasingly vulnerable and the active option in which

    the risk of these trends is being accepted; however, at the same time, companies try to manage the

    risks imposed to supply chains in a systematic way.

    Despite many criticisms highlighting the growing vulnerability of supply chains, the value of

    global sourcing, JIT and outsourcing in the daily business of companies especially in a stable

    environment and normal conditions- is so significant that for most supply chain managers, the active

    option is the final and probably, the only choice. A relevant question, then, would be: how can

    companies systematically manage disruptions in their supply chains? This paper aims to answer this

    question. Specifically, it describes an integrated framework to tackle disruptions in supply chains.

    The rest of the paper is structured as follows. Section 2 starts by discussing two common

    perspectives on handling supply chain disruptions. Section 3 overviews the frameworks presented in

    literature for managing disruptions. Section 4 presents an integrated framework to handle supply

    chain disruptions. This integrated framework is used as a classification scheme in Section 5 to

    comprehensively review the supply chain risk/disruption management literature. Section 6 concludes

    with observations related to the existing literature on supply chain risk/disruption management.

    2 Handling disruptions in supply chains - two common perspectives and the need for an integrated framework

    Handling disruptions in each supply chain might take different forms and include different

    types of activities. From a "time perspective", all activities can be classified into two major

    categories: "Pre-Disruption" and "Post-Disruption" (Figure 2), also called "Prevention" vs.

    "Response" (Dinis, 2010; Thun and Hoenig, 2009). Some activities and measures are taken by

    companies beforehand to minimize the exposure to potential disruptions. However and despite all

    efforts, disruptive events might happen and their influence on supply chain operations must be

    managed to restore the system to normality. Another classification used approximately for a similar

    purpose is "Proac