Supply Chain Vulnerability Risk Robustness and Resilience

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Supply Chain Vulnerability Risk Robustness and Resilience Powered By Docstoc
					Chapter 12

             Donna 2009.5.4.

   Some working definitions
   Changing times and an uncertain world
   The shortcomings of risk management
   The need for holistic approaches
   A simple framework for a wicked problem

   Risk
   Supply chain vulnerability
   Robust SCM
   Resilience

   In decision theory: a measure of the range of
    possible outcomes from a single totally rational
    decision and their values, in terms of upside gains
    and downside losses (e.g. gambling)
   A particular type of hazard or threat e.g.
    technological risk or political risk
   The downside only consequences of a rational
    decision in terms of the resulting financial losses
    or number of casualties

   We should strive to identify vulnerabilities by
    asking questions such as:
     What has disrupted operations in the past?
     What known weaknesses do we have?
     What „near misses‟ have we experienced?
     What would be the effect of a shortage of a key material?
     What would be the effect of the loss of our distribution
     What would be the effect of the loss of a key supplier or

   “Strong in constitution, hardy, or vigorous”
   Enable a firm to manage regular fluctuations in
    demand efficiently under normal circumstances
    regardless of occurrence of a major disruption
   But does not in itself make a resilient supply

   “The ability of a system to return to its original
    [or desired] state after being disturbed”
   The core concept of resilience is:
     It encourages a whole system perspective

     It explicitly accepts that disturbances happen

     It implies adaptability to changing circumstances

   In a complex inter-organizational supply chain it
    would be difficult if not impossible for anyone to
    identify every possible hazard or point of
   „Known‟ problems are only part of the picture
     Known Unknowns, Knowable Unknowns and Unknowable
       Y2K: The Millennium Bug
       Creeping Crises (e.g. Foot and Mouth disease)
       Post 9/11 Security Matters
       Corporate Scandals, Operational Risk and Business
   Known Unknowns
     We know that there exist uncertainties, which we
      know how to solve
     „Known known‟
   Knowable Unknowns
     There are some uncertainties which we don‟t know
      how to solve, We may choose ignore or face it
   Unknowable Unknowns
     However, there are still uncertainties that we don‟t
      know that we don‟t know
   A „Known known‟ example
   In the UK, the government encourage
    businesses to take the necessary measures to
    prevent system crashes, and engage in
    business continuity planning

   As a result, nothing happened and the
    government was delighted, believing the
    planning had saved the country from disaster
   But the non-event left many managers
    skeptical as to whether the costly preventive
    measures had really necessary?

   Y2K is one of the intractable problems about
    proactive measures to improve organizational
    and supply chain resilience
     If successful, mean nothing happens, but leads to
     questions of value or cost/benefits justification
   It is very difficult to make a business case for
    proactive „just in case‟ measures to improve

   The outbreak of foot and mouth disease(FMD)
    in British livestock herds in February 2001
    resulted in damage to whole sectors of
   FMD was a known threat to livestock, albeit
    one that had not been seen in UK for a
   The impact is engaged in production and
    distribution of food
   But FMD also affected car manufacturers and
    fashion houses across Europe because of the
    shortage of high-quality leather
   All „knowable unknowns‟ events could be the
    example of „creeping crises‟
   Creeping crises show the fact that supply chains
    are more than value-adding mechanisms
    underlying competitive business models
   Supply chains link organizations, industries and
    economies, they are part of the fabric of society
   The events of 9/11 were so far out of risk
    managers‟ field of reference, that they can be
    classed as “unknowable unknowns”
   The closure of US borders and the grounding
    of transatlantic flights dislocated international
    supply chains making supply chain
    vulnerability front page new

   Post 9/11, new security measures were hurriedly
    introduced at US border posts, ports and airports,
    affecting inbound freight to USA, including:
   Container Security Initiative (CSI)
     CSI looked to new technology to pre-screen „high
     risk‟ containers before they arrived at US ports
   Customs-Trade Partnership (C-TPAT)
     C-TPAT is a „known shipper‟ programme, which
     allows cargoes from companies certified by US
     Customs to clear customs quickly
   In the world of corporate risk management
    events(e.g. 9/11) were unfolding that would
    push „operational risk‟ to the top of the
    corporate agenda
   The Enron Corporation collapsed in late 2001
     Once held up as a model of best practice corporate
      risk management
     Another three companies quickly followed

   New regulation, Sarbanes-Oxley Act(SOX) is
    noteworthy (Ch10)
   SOX requires full disclosure of all potential
    risks to corporate well-being within the
   Board members have become more interested
    in identifying „knowable unknowns‟ and have
    turned to risk management and to Business
    Continuity Management(BCM)
 Rooted in IT disaster recovery, but its remit has
  expanded greatly
 Helps to prove that management have acted with
  „due diligence‟
 Start with the preparation of a Business Continuity
 Best practice:
     An on-going programme of training, rehearsals and
      reviews of the initial plans to cope with various
     Careful consideration to the management of an after-
      the-event recovery phase                               19
   Decision Theory and Managerial Tendencies
   Objective Risk and Perceived Risk

   Concerned paid little attention to uncertainty
    surrounding positive outcomes, viewing risk in
    terms of dangers or hazards with potentially
    negative outcomes
   Managers focus on the possible losses associated
    with plausible outcomes
   Decisions involving risk are heavily influenced
    by their impact on the manager‟s own
    performance targets

   In comfortable circumstances managers are
    likely to be risk-averse, but when staring
    failure in the face, researchers show that this
    tendency reverses and they become risk-pron
   There is unlikely to be a single unified attitude
    to risk taking within a large organization

   A view of risk set out by the engineers and
    physicists of The Royal Society:
     „Objective risk‟: determined by experts applying
      quantitative scientific means
     „Perceived risk‟: the imprecise and unreliable
      perceptions of general public
     „Detriment‟: the numerical measure of harm or loss
      associated with an adverse event

   Social scientists contend that, where people
    were involved, objective and perceived risk
    become inseparable
     Risk is not a discrete or objective phenomenon
     Risk is an interactive culturally determined one
     Risk is inherently resistant to objective

 Engineering-derived „objective‟ views lead to a
  business process engineering and control
 Open interactive societal systems views offer a
  persuasive argument for perceived risk
 The global supply chain view illustrates that
  culturally determined perceptions of risk could
  vary greatly from one region to another
 Hence the forces of nature can demonstrate just
  how far removed from a controlled environment
  this all might be
   SCM is integrative and interdisciplinary
   Logistics is just one of several established
   Supply chain risk management can be
    expected to display all the characteristics of a
    „wicked problem‟

   Wicked Problems
     Societal problems are inherently different from the
      problems that scientists and some engineers tackle
     Involve multiple stakeholders
     Any solution, after being implemented, will
      generate waves of consequences
     Should be considered within „valuative‟

   A supply chain as an interactive system
                 Unfortunately!! We don‟t live in an ideal
                 world, so levels two, three and four bring in
                 a host of other factors that often intervene.
            • Socio-political factors, such as action by pressure groups can be
    • From a pure SCM perspective risk at this level is the downside
            identified by routine „horizon scanning‟ using specialist or
    financial consequences of a specific event. The loss of a sole
            general media sources, allowing measures to be put in place to
      • Focuses on what is the most obvious danger here.
    supplier or customeris being carried- work and information
            mitigate the impact.
            • The creeping crises within to between
      flows- and process designreferredandearlier in this chapter could all
      organizations. as level four disruptions, but it would be wrong to
            be regarded
        • Itthehelpful to explore the impact on operations of the loss of
             is ideal world of scientific management,
      • In regard them only as external threats to themasterychain.
                                                          supply of
        links or nodes methodologies would facilitate the
      process control in the production/distribution and infrastructure
        networks, through network modeling.
      identification, management and elimination of risk.
        • e.g. With the element of SCM and resource requirements are
        increasing, the probability that assets may be damaged, stolen or
        mislaid along the way is increasing.                                      28
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