Jan Husdal Iflex 2008

Supply Chain Disruptions A question of structure and organization organization? ?

Researcher Jan Husdal, MSc Møreforsking Molde/Molde Research Institute [email protected]
+47 71214289

International Conference on Flexible Supply Chains in a Global Economy Molde University College 17.07.08

Summary • • • •

Why are supply chain disruptions important? Freight transport in Norway Research Questions Supply Chain Disruptions – Robustness, Flexibility and Resilience – Mitigation and Contingency actions – Resilient Organizations

• Supply Chain Characteristics vis-a-vis Disruptions • Location and Preparedness

Why are supply chain disruptions important?

Source: World Economic Forum (2008) Hyper-optimization and supply chain vulnerability: an invisible global risk? In: Global Risks 2008 – A Global Risk Network Report, REF: 090108, World Economic Forum, Switzerland.

• Even a relatively small supply chain disruption caused by a localized risk event may have consequences across the global economic system. system • Supply chains appear to disperse risk between multiple parties, but they can also aggregate risk. risk • Global supply chains, offshoring and outsourcing leads to lesser control over disruption causes. • As a result, companies are left ”only” with control over disruption consequences.

Supply chain disruptions in sparse networks • The vulnerability of the transportation network as part of the supply chain is of particular interest in countries or regions with sparse transportation networks. networks – only one mode of transportation available between population centers – only one route available between population centers – extremely vulnerable to any disruption in the transportation system or supply chain – no suitable alternative exists in a possible worstcase scenario

Norway vs. Europe

Freight Transport in Norway, 1965-2007, tonkm 18000

16000

14000

12000

10000

8000

Sea Rail Road Air

6000

4000

2000

19 65 19 70 19 75 19 80 19 85 19 90 19 95 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07

0

% National Regional Secondary roads % Motorways (above)

Road/rail Network Length (all roads) 700 70

600 60

500

50

400

Road

40

% N+R+2nd

Rail

300

%M

30

200

20

100

10 0

0 NO

IE

NL

UK

NO

DE

IE

NL

Road/rail density km/km2

UK

DE

Modal spilt %

3

120

2,5

100

2 Road

80

Rail 1,5

60

1

40

0,5

20

Road Rail

0

0 NO

IE

NL

UK

DE

NO

DE

NL

UK

IE

Research questions • Does the location reflect on typical supply chain disruptions? – What is the critical transportation mode/network/route?

• Does the location reflect on supply chain structure? – Does a sparse transportation network induce a certain sc structure?

• Does the location reflect on the companies’ preparedness for certain disruptions? – Situation awareness?

• Does the location reflect on mitigation and contingency actions? • What level of risk (supply chain disruptions/costs) exists at which locations?

Robustness, flexibility, resilience • Different supply chain characteristics will result in different ways a suply chain disruption is handled. • A resilient supply chain is impacted, but it is able to come back to a stable state, although not necessarily to where it was before the disruption. • In business setting the ability to survive (resilience) is more important than regaining stability (robustness)

A typical disruption profile

Warning?

Adapted from: Sheffi (2005) Asbjørnslett (1997) Cornish (2007)

Mitigation and contingency measures

Adapted from: Asbjørnslett, B E and Rausand, M (1997) Assess the vulnerability of your production system. ReportNTNU 97018. Norwegian University of Science and Technology NTNU, Department of Production and Quality Engineering, Trondheim Norway. Tomlin, B. (2006) On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks. Management Science, Vol. 52, No. 5, pp. 639-657 Ritchie, B. and Brindley, C. (2004) Risk Charcteristics of the Supply Chain – A Contingency Framework. In: Supply Chain Risk. Ed. Brindley, C. , Ashgate Publishing, pp. 28-42,197-202

Resilient organizations

Resilient organisations Resilient supply chains Source: Mc Manus, S. et al (2007) Resilience Management – A Framework for Assessing and Improving the Resilience of Organisations. Research Report 2007/01, Resilient Organisations, New Zealand. www.resorgs.org.nz

Supply Chains vis-a-vis Disruption Factors that can aggravate or lessen supply chains disruptions:

• Supply Chain Design – supply chain density – supply chain complexity – node criticality

• Supply Chain Mitigation Capability – adaptive capacity (recovery capability)1 – information sharing/ visibility (warning capability)1 1.

Craighead, C. W., Blackhurst, J., Rungtusanatham, M. J. & Handfield, R. B. (2007) The Severity of Supply Chain Disruptions: Design Characteristics and Mitigation Capabilities. Decision Sciences, Vol. 38, No. 1, pp. 131-156.

Risk and vulnerability in Supply Chains

Location and Preparedness

• Structure Structure: – Badly located – Well located Structure Organization

• Organization – Badly prepared – Well prepared

Conclusion In regions or countries with sparse transportation networks or few transportation mode choices the structure or design of the supply chain, along with the organization and preparedness become important factors in determining if a company has an favorable or a unfavorable location.