Ways to develop a robust supply chain

Jens Schumacher FHV

Content }  Statement of problem & motivation }  Definitions }  Risk management for supply chains }  Stabilization on the different management levels }  Conclusion

Statement of problem & motivation

Statement of problem }  Increasing number of natural disasters

}  2011:Tsunami Japan, Flood Thailand, Drought East Africa, Typhoon Philippines, Storms USA

}  They lead to disruptions in production & trade }  Flood Thailand 2011- Example: Sony

}  Flooded the factories for (external) hard disk drives away }  Worldwide increase of prices & delivery delays of hard disks }  Product introductions had to be postponed (components have

not been available) }  Loss of 25 billion Yen (233 million €) due to flood and weak Yen }  And still not recovered

}  Disruptions become of greater impact }  For a single company

}  For its supply chain }  For its market & consumers

How and in which manner can a SC be stabilized? And how is intelligent cargo

influencing on this positively?

}  Find holistic approach }  On strategic, tactical,

operational level }  Interaction of each

management level }  Outline reasons and

ways how intelligent cargo can lead to … }  Stabilization }  General and competitive

advantages }  Optimization }  Sustainability

Motivation

Stabilized SC

SC controlling

SC risk management

Methods on management

levels

Definitions

The supply chain Stabilization

Robust, reliable, resilient

The Supply Chain }  Linkages

}  Supplier }  Manufacturer }  Consumer }  Transport in-between

}  Environment }  International }  Information exchange }  Dynamic & changing }  Complex

Supplier Manufacturer Consumer Transport Transport

}  Stabilization }  Stability = The absence of strong fluctuations (as

opposed to foreign influences)1 à minimize influences; strengthen again influences; measure fluctuations and act when necessary

}  Against internal, micro and macro risks influencing the SC }  Make the supply chain robust, reliable and resilient!

1 DWDS-Projekt, Berlin-Brandenburgische Akademie der Wissenschaften. (2011). Digitales Wörterbuch der deutschen Sprache. Retrieved 04 01, 2012, from http://www.dwds.de/?kompakt=1&qu=Stabilit%C3%A4t

Aim is to have a supply chain that is…

•  SC performs well with respect to uncertain future conditions1

•  For example, costs or travel times Robust

•  SC performs well when parts of the system fail2

•  For example, when a distribution center becomes unavailable because of poor weather Reliable

•  Ability to, and speed at which they can, return to their normal performance level following a disruption3

•  Not only continue operating, but also to turn this resilience into competitive advantage

Resilient

1 Investopedia. (n.s.). robust. Retrieved 03 22, 2012, from Investopedia: http://www.investopedia.com/terms/r/robust.asp#ixzz1vDKFUgZF 2 Snyder, L. V. (2003). Dissertation: Supply Chain Robustness and Reliability: Models and Algorithms. Evanston: n.s. 3 Sheffi, J. (2006). Resilience reduces risks. Logistics Quarterly, 12-15

Risk management for supply chains

Introduction Residual risk

Occurrence of risk in a supply chain Aim and procedure Generic strategies

Types of risks Risks in logistics on management levels

General }  What is risk management

for supply chains? }  „The management of

supply chain risk through coordination and collaboration among the supply chain partners so as to ensure profitability and continuity“1

}  How is this risk defined? }  A damage that is weighted

with its probability of occurrence and this damage affects more than one company of the supply chain. The causes of such damages can be within a company, within the supply chain or in their environment2

}  For the assessment of risks two dimensions are taken into account: The extent of damage and the probability3

1 C.S. Tang (2006). Perspectives in Supply Chain Risk Management: A Review. Los Angeles: UCLA Anderson School 2 Dipl.-Kfm. Kemmerling, R. (2008, 04 17). European Association for Defence Public Private Partnership. Retrieved 04 15, 2012, from http://www.eppp.org/cms/attachments/087_Vortrag_Kemmlering.pdf 3 ISCM. (n.s.). Institute for Supply Chain Management . Retrieved 05 18, 2012, from http://www.ebs.edu/smi/2520.html

Residual risk1

}  selecting a suitable risk appearing encounter in implementing the strategy and subsequent action }  Risk is always ≠ 0 !!

}  For the residual risk once again, a risk strategy meeting will be elected until the risk of volume reduced to an acceptable level for the company }  Individual for each company (e.g. risk appetite of

managers)

1 BITKOM. (n.s.). BITKOM Bundesverband Informationswirtschaft, Telekommunikation und neue Medien e.V. Retrieved 5 8, 2012, from http://www.bitkom.org/de/publikationen/38337_39864.aspx

Occurrence of risk in a supply chain

Supplier Manufacturer Consumer Transport Transport

Supplier risk Manufacturer risk Consumer risk

Control risk Control risk

Inte

rnal

Mic

ro

Mac

ro

Culture

Interest rates

Fore

ign

com

petit

ion

Governm

ent

Aim and procedure of SCRM }  It is the aim of supply

chain risk management to recognize potential damages from the supply side for the company at an early stage and to counteract them1.

}  Expenses for SCRM must be relative to the prevented risk / loss!

}  Procedure2

Risk identification and

modeling

Risk analysis, assesment and

impact measurement

Risk mangement

Risk monitoring and evalutation

1 ISCM. (n.s.). Institute for Supply Chain Management . Retrieved 05 18, 2012, from http://www.ebs.edu/smi/2520.html 2 Zsidsin, B. R. (2009). Supply Chain Risk – A Handbook of Assessment, Management, and Performance. New York: Springer Science + Business Media

Generic strategies for SCRM1 }  Risk reduction / avoidance

}  Risk transfer

}  Risk control

1 Institut für Logistik und Unternehmensführung. (n.s.). Technische Universität Hamburg-Harburg. Retrieved 04 06, 2012, from http://www.logu.tu-harburg.de/de/forschung/supply-chain-risk-management

Types of risks1

Natural disasters

Accidents Disasters perpetrated by humans

Nature of global trade

Hurricanes Earthquakes Tsunamis

In any form Terrorist attacks Sabotage

Labour disputes Border inspection delays Traffic congestions

1 Sheffi, J. (2006). Resilience reduces riks. Logistics Quarterly, 12-15.

Risks in logistics on management levels

Strategic risks

Tactical risks

Operational risks

Technical-related risks Smooth functioning of material, product and information flows and trouble-free operating of logistic infrastructure Personnel-related risks Qualifications of staff and process control by employees Organization-related risks Scheduling and feasibility of logistic processes Environment-related risks

Risks from the corporate strategy Risks of expansion and growth strategies; risks of location and capacity strategies Risks from the corporate logistics strategy Risks arising from strategic decisions of the procurement, production and distribution logistics; risks from non-optimal tuning of parameters of the logistical process Risks from the company's overall logistics strategy Configuration of the logistics chain / logistics network; Coordination and control mechanisms in the supply chain / in Logistics network; IT structures in the supply chain / logistics network

Technical-related risks Guarantee functioning of all flows and logistic infrastructure Quality-related risks Guarantee quality of products, services and processes Personnel-related risks Qualifications of staff and managerial behaviour Organization-related risks Scheduling and control security of logistic processes

Problems and importance of robustness on the management levels

Strategical, tactical & operational

Strategic

• Cost-effective design •  Lay-out of entire network and individual logistic systems •  Evaluation of investment decisions • Choosing right partners and linkages • Right way and depth of communication • Map strategies for corporate, logistics and overall logistics

Important tasks

• Results from strategic decisions like •  JIT concepts • Global sourcing, single sourcing or combination of both

• Have far-reaching impact on company and supply chain members, too

Risks

•  Finding good partners • Holding relationship •  Profit of a partnership •  Internal up- and downwards as well as external horizontal and vertical information exchange

Problems

Tactical

• Creation and execution of robust supply chain • Risk mitigation strategies •  Increase flexibility in transportation and supply

Important tasks

• Corporate strategy and supply chain strategy as well as their execution need to be linked (for all members of supply chain)

• Communication and motivation may differ between members of supply chain •  Too less trust between members of supply chain

Risks

• Develop network may be situated in uncertain conditions •  The bigger the network the more the effect can be far-reaching, extensive, complex and

beyond one’s control

Problems

Operational

• Coordination and control of the movements in the supply chain in real-time •  Focus on smoothly running processes

Important tasks

•  All risks associated with the daily business •  Transport risk, e.g. loss or damage of the goods by accident or other events •  Seasonality (problematic for utilization rates) • Other liability-related issues

Risks

• React and respond quickly on problems •  Too less integration of supply chain with no improved communication and too less flexibility

makes not resilient and transparent

Problems

Stabilization on the different management levels

Strategical, tactical & operational

Management levels

Strategic risks

Tactical risks

Operational risks

à Multisourcing

à Simulations à Synchroshipping/ Multimodal

à  Intelligent cargo

Bottom Up

Approach

Certify origin and transit rights

Verify customs authorisation

Identify shipment

Qualify content

Track cargo conditions

EURIDICE: Service Combination on the Fly

}  Combine required services : }  Cargo observation }  Customs handling }  Transport controlling }  ...

EURIDICE: Virtual representation of cargo

Real world

Virtual world truck container

item

item

item

Position Speed Latency …

Cargo Temp. Erruptions …

ID Condition Humidity …

…

= Sensors / Devices / RFID

}  De-coupling of business-specific services from the distributed Multi-Agent-System }  decouple from communication problem

}  Robustness (+) }  decouple from concurrent behavior problem

}  robustness (+), maintainability (+), complexity (-)

}  Share Cargo-specific knowledge also on server-side (see example) }  Decrease communication amount

}  Performance (+), communication-costs (-) }  Overcome connection problems

}  Performance (+), robustness (+)

EURIDICE: Intelligent Cargo Network - Benefits

The legacy of EURIDICE }  EURIDICE showed that

}  intelligent cargo can provide a unified concept for taking decisions at a local level

}  intellient cargo and its role in the modern supply chain can play a central role in achieving customer satisfaction and a robust supply chain

}  The EURIDICE vision of the future implies that }  to achieve the full potential of intelligent cargo data and

information needs to be securely detached from its owner }  ICT, esp. the cloud, can enable ubiquitious information

storage and retrieval

iCargo: Approach (1)

Common Framework

New low-CO2 services offer, Better utilization of resources

Less GHG emissions, Less traffic

Optimized solutions for environmental efficiency

Higher penetration of ICT-based services in the logistics market

Logistics Companies

Community

ICT for Transport

Research & Industry

Logistics users

No. 30 © Logica 2010. All rights reserved

iCargo: The idea visualised

Real-time automated event management

Interoperable cargo, vehicle and infrastructure

Dynamic multi-actor plans

Cooperative freight business ecosystem

Origin Destination

Terminal Carrier

Truck

Planner

Pallet Shipment Ship

Carrier Container

Forwarder

Truck Terminal

Customs

Package

Distr. Center

Container Truck

Traffic Mgmt

Infra- structure

Field operator

Package

Local Carrier

Distributor Distrib. Planner

Vehicle

Infrastructure Field user

Logistic Services

Authority Shipper

Cargo

Shipment from factory In-city delivery Long haul transport Road transport

Conclusion

Conclusion }  Robust supply chains become more attractive as

the lead to a better utilization of the existing resources

}  An integrated approach is needed to build interdisciplinary tools for robust supply chains

}  At the operational level intelligent cargo can be used to support a coherent holistic towards environmental friendly robust supply chains

Thank you for your attention