mba dissertation thesis

Supplier Disruption Risk Management and Resilience in Complex

Global Supply Chains

Santosh Reddy Hardageri

A dissertation thesis submitted in part requirement for the degree of

Master of Business Administration

University of Glasgow

School of Business and Management

September 2011

ii

Table of Contents

Abstract ............................................................................................................................................................ v

Acknowledgements ........................................................................................................................................ vi

Table of Figures ............................................................................................................................................. vii

Chapter One: Introduction ...................................................................................................................... 1

1.0 Introduction ............................................................................................................................................... 1

1.1 Aim and Objectives of the research ......................................................................................................... 1

1.2 Scope of the research ............................................................................................................................... 1

1.3 Structure of the report ............................................................................................................................. 2

1.4 Research Problem ..................................................................................................................................... 2

1.5 Research Questions .................................................................................................................................. 3

1.6 Summary .................................................................................................................................................... 3

Chapter 2- Literature Review: Supply Chain Management ..................................................................... 4

2.0 Introduction ............................................................................................................................................... 4

2.1 Defining Supply Chain Management (SCM) ............................................................................................ 4

2.2 Evolution of Supply Chain Management (SCM) ...................................................................................... 4

2.3 SCM in comparison with Porter’s Value Chain ....................................................................................... 6

2.4 Trend towards globalization in supply chain........................................................................................... 7

2.5 Outsourcing ............................................................................................................................................... 8

2.6 Supply Chain Complexity ........................................................................................................................ 10

2.7 SCM, Logistics and Purchasing ............................................................................................................... 11

2.8 Changing Trends in the Automotive Manufacturing Industry ............................................................. 14

2.9 Summary .................................................................................................................................................. 16

Chapter 3 - Literature Review: Supply Chain Risk Management ........................................................... 17

3.0 Introduction ............................................................................................................................................. 17

iii

3.1 Supply Chain Risk Management (SCRM) ............................................................................................... 17

3.2 Supply Chain Risk Mitigation Strategies ................................................................................................ 21

3.3 Cost Benefit Analysis ............................................................................................................................... 28

3.4 Resilience and Business Continuity Management ................................................................................ 29

3.5 Summary .................................................................................................................................................. 32

Chapter 4 - Research Design and Methodology .................................................................................... 33

4.0 Introduction ............................................................................................................................................. 33

4.1 Research Objectives ................................................................................................................................ 33

4.2 Hypotheses .............................................................................................................................................. 33

4.3 Rationale for chosen Research Strategy ................................................................................................ 34

4.4 Data Collection Methods ........................................................................................................................ 35

4.5 Data Analysis ........................................................................................................................................... 36

4.6 Summary .................................................................................................................................................. 38

Chapter 5- Case Studies ........................................................................................................................ 39

5.0 Introduction ............................................................................................................................................. 39

5.1 Case Study 1: A major Indian Automotive OEM ................................................................................... 39

5.2 Case Study 2: Nissan ............................................................................................................................... 42

5.3 Case Study 3: Toyota ............................................................................................................................... 47

5.4 Summary .................................................................................................................................................. 51

Chapter 6 – Findings and Results .......................................................................................................... 52

6.0 Introduction ............................................................................................................................................. 52

6.1 Context of Interviewee profiles ............................................................................................................. 52

6.2 Data Structure of Findings ...................................................................................................................... 53

6.3 Hypothesis Evaluation ............................................................................................................................ 66

6.4 Cross Comparison of Case Studies ......................................................................................................... 69

iv

6.5 Summary .................................................................................................................................................. 71

Chapter 7: Conclusion and Future Recommendation ............................................................................ 72

7.0 Introduction ............................................................................................................................................. 72

7.1 Literature Reviewed ................................................................................................................................ 72

7.2 Case Studies Reviewed ........................................................................................................................... 73

7.3 Empirical Findings Reviewed .................................................................................................................. 74

7.4 Managerial Implications ......................................................................................................................... 75

7.5 Implications for Academia ...................................................................................................................... 76

7.6 Limitations and Scope for Further Research ......................................................................................... 76

7.7 Summary .................................................................................................................................................. 77

References ............................................................................................................................................ 78

Appendix A: Interview Schedule ........................................................................................................... 86

Appendix B: Interview with Interviewee 1 of Auto-OEM1 .................................................................... 88

Appendix C: Interview with Interviewee 2 of Auto-OEM1 .................................................................... 91

Appendix D: Interview with Interviewee 3 of Auto-OEM1 .................................................................... 95

Appendix E: Interview with Interviewee 4 of Auto-OEM1 .................................................................... 98

Appendix F: Interview with Interviewee 5 of Firm 2 ........................................................................... 102

Appendix G: Interview with Interviewee 6 of Firm3 ........................................................................... 105

Appendix H: Interview with Interviewee7 of Firm 4 ........................................................................... 108

Appendix I: Interview with Interviewee8 of Firm 5 ............................................................................. 111

Appendix J: Interview with Interviewee 9 of Firm 6............................................................................ 114

Appendix K: Interview with Interviewee 10 of Firm 7 ......................................................................... 117

Appendix L: Interview with Interviewee 11 of Firm 8 ......................................................................... 120

v

Abstract

The very complexity and globally outsourced nature to today’s supply chains combined with the practice

of optimization techniques such as lean and just-in-time manufacturing in order to improve efficiency

has increased the supply chain vulnerabilities to even minor disruptions. Among the several types of

supply disruptions, most severe are those that have a relatively low probability of occurrence with a

very high severity of impact when they do occur. While such risks cannot be eliminated, however, its

severity can be reduced.

The key objective of this research is to provide a deep insight into the supply disruption risk

management practices in global supply chains with a focus on supply chains of automotive

manufacturing companies. This has been accomplished by using (a) a comprehensive literature review

highlighting the risk management process along with several risk mitigation strategies with special

emphasis on resiliency and business continuity and (b) through a critical analysis of three unique case

studies. From the findings of these, the hypotheses developed from literature have been tested and

validated thereby establishing a cause-effect relationship between the entities - supply chain length and

complexity, risk mitigation capability of organizations and severity of impact due to supply disruptions.

From the empirical findings of the research, eight key themes have emerged. While findings from

themes 1 and 2 describe the main factors that contribute to severity of supply disruptions, findings from

themes 3 and 4 discuss the disruption discovery mechanisms. Findings from Themes 5 and 6 explore the

disruption recovery mechanism which includes assessing the risks and applying risk mitigation

strategies. Theme 7 relates to redesigning supply chain to mitigate risks while theme 8 discusses the key

impediments to recovery of supply chains.

Finally, based on the literature reviewed, empirical findings, secondary data findings and the hypotheses

several key implications have been presented both for managers and academia along with

recommendations for further research.

vi

Acknowledgements

I would like to thank my supervisor Dr. Geoff Southern, who has provided guidance and support on the

subject matter throughout the research process. Through our regular discussions held prior to

commencement and during the dissertation period, he provided several insights and the required

direction that helped me to get a clearer picture of the research topic for which I am deeply indebted.

I would also like to thank all the interviewees most of whom are at the senior executive level for taking

time to participate in the research. The information provided by them has proved to be crucial to my

research.

Finally, I would like to thank and express my sincere gratitude to my Mum, Dad, and family members

especially my grandmother, who have all been very supportive throughout the MBA course. Without

their support, I would have never accomplished this arduous task.

- Santosh Reddy Hardageri

vii

Table of Figures

Chapter 2- Literature Review: Supply Chain Management ..................................................................... 4

Figure 2.1: Structure of a typical supply chain .............................................................................................. 5

Figure 2.2: Activities and firms in a supply chain .......................................................................................... 6

Figure 2.3: Porter’s Value Chain ..................................................................................................................... 7

Figure 2.4: Types of supply chain relationships .......................................................................................... 10

Figure 2.5: Perspectives of Logistics vs. SCM .............................................................................................. 12

Figure 2.6: Categorization of Purchasing process ....................................................................................... 13

Figure 2.7: Evolution of Manufacturing from mass-production to mass-customization ......................... 15

Chapter 3 - Literature Review: Supply Chain Risk Management ........................................................... 17

Figure 3.1: Disruption risk management ..................................................................................................... 18

Figure 3.2: Likelihood and impact of supply chain disruptive events ........................................................ 20

Figure 3.3: Supply Chain Risk Mitigation Strategies ................................................................................... 23

Figure 3.4: Scenario Planning and Risk Mitigation ...................................................................................... 25

Figure 3.5: Supply Chain Disruption Discovery and Recovery .................................................................... 27

Figure 3.6: Framework for Risk Mitigation .................................................................................................. 28

Figure 3.7: Creating Resilient Supply Chains ............................................................................................... 31

Chapter 4 - Research Design and Methodology .................................................................................... 33

Figure 4.1: Research Design Structure ......................................................................................................... 36

Chapter 5- Case Studies ........................................................................................................................ 39

Figure 5.1: Illustration of Supply Chain of Auto-OEM................................................................................. 40

Figure 5.2: Nissan’s Smyrna vehicle assembly plant at Tennessee in US .................................................. 45

Figure 5.3: The Automotive Supply Chain ................................................................................................... 48

Chapter 6 – Findings and Results .......................................................................................................... 52

Figure 6.1: Background information of Interviewees ................................................................................. 52

viii

Figure 6.2: Data Structure of Findings ......................................................................................................... 54

Figure 6.3: Findings from theme 1 ............................................................................................................... 55







Figure 6.10 : Findings from theme 8 ............................................................................................................ 66

Figure 6.11: Theoretical Synthesis of Hypotheses ...................................................................................... 69

Supplier Disruption Risk Management and Resilience in Complex Global Supply Chains 1

Chapter One: Introduction

1.0 Introduction

The main purpose of this chapter is to define the aims and objectives of research, discuss the structure

of report highlighting the research methodology employed, the research problem, the main research

questions and finally the automotive manufacturing industry upon which the research has been

conducted.

1.1 Aim and Objectives of the research

Aim: To explore the supplier risk management practices followed by organizations with global complex

supply chains and to test the hypotheses that are developed based on literature.

Objectives:

To discuss the supply chain risk management process in general.

To explore the various external supply disruption risks that could disrupt the entire supply chain.

To discuss and examine the various supply disruption risk mitigation strategies employed by

organizations within the automotive manufacturing sector.

To examine the extent to which organizations consider logistics and supply disruption risks in

their business continuity planning.

1.2 Scope of the research

The scope of this research is limited to the external risks encountered by firms on the supply side (i.e.,

upstream activities) of the supply chain, especially the disruptions that occur due to natural disasters

such as tornados, earth quakes, tsunamis, etc and man-made or accidental disasters such as fire,

terrorist attacks, etc. Other risks that occur on the demand side of the supply chain (i.e., downstream

activities) are out of scope of this research. For the purpose of this research, the manufacturing industry

has been considered with a focus on the automotive sector.


1.3 Structure of the report

The report is organized into seven chapters as below:

Chapter 2 discusses the background literature related to the basics of supply chain management

beginning from the evolution of the term SCM to how globalization and outsourcing trends have

changed the global production environment.

Chapter 3 begins with a discussion on the basics of supply chain risk management and further discusses

the risk management process in general, the risk mitigations tools and strategies with an emphasis on

supply chain resiliency and business continuity management.

Chapter 4 discusses the research methodology employed in this research, the rationale for choosing the

particular approach and the data analysis technique used for analyzing the research findings.

Subsequently, the hypotheses developed based on the existing literature have been discussed.

Chapter 5 discusses factors such as structural characteristics of supply chains, supply chain risk

management practices, etc using three case studies – Auto-OEM 1, Nissan and Toyota. Findings from

the case of Auto-OEM1 are based on the primary research whereas findings from other two cases are

based on secondary data sources. These findings are used to validate the hypotheses in the subsequent

chapter to facilitate data triangulation

Chapter 6 discusses and analyses the findings of the research. The various categories and themes that

have emerged due to the data collected have been discussed. The hypotheses that were developed

based on literature are validated using empirical findings. Further, the three cases are critically analyzed

and cross-compared to further validate the hypotheses.

Chapter 7 summarizes results of the research and presents conclusions that specifically address the

research questions. Further, the implications for managers and academia are discussed based on the

research findings and finally suggestions for future research are discussed.

1.4 Research Problem

Although, the concept of risk management, its practices, techniques and tools have been widely used in

the financial sector for many years, risks with respect to a company’s supply chain have only recently


begun to receive attention propelled by industry’s need for increasing supply chain efficiency,

effectiveness and agility. The nature and increasing complexity of supply chains makes them particularly

vulnerable to risks and the vast number of links between disparate members in the supply chain implies

that risks are transmitted throughout the chain.

A worrying trend has managers increasing the efficiency of supply chains by reducing the buffer stock to

a minimum level – and inadvertently increasing the supply chain risks. For instance, by using the JIT

approach, although companies increase efficiency by minimizing inventory levels, it also increases the

supply chain vulnerability to even minor disruptions. The magnitude of impact due to external risks

could be so intense that it could bring the entire supply chain to a standstill. Recent research conducted

suggests that although companies are becoming increasingly aware of supply disruption risks due to the

apparent threat it poses to business continuity, many do not take the required actions to mitigate it

(Juttner, 2005).

1.5 Research Questions

How do organizations with complex global supply chains manage the risk of supply disruptions

in their supply chains? – Case of “Automotive Manufacturing” industry.

How are the structural characteristics and risk mitigation capabilities of a supply chain related to

the severity of impact due to supply disruptions?

Do organizations consider logistics and supply disruption risks in their business continuity

planning?

1.6 Summary

This chapter gives a brief overview of the report and begins by discussing main objectives and the aim

for conducting research. Subsequently, the research scope followed by structure of report, which

provides a brief introduction to each chapter, has been discussed. Finally, this chapter concludes with a

brief description of research problem and research questions that have emerged from the literature.


Chapter 2- Literature Review: Supply Chain Management

“Business practices of the future will be defined in a new unit of analysis: the supply chain (not the

individual organization) [...] will become the effective unit of competition.” (Handfield, 2002; Done,

2011)

2.0 Introduction

This chapter gives a broad overview of supply chain management by defining it, describing its evolution

and the various functions involved in it. Since understanding the factors that have led organizations to

go global and outsource their activities is crucial to better understand supply chain risk management in

global supply chains, this aspect has been discussed in detail highlighting both the merits and demerits.

2.1 Defining Supply Chain Management (SCM)

Literature suggests that the term supply chain management has been defined using different

terminologies by various researchers over the past decades. For instance, Christopher (1998) defines

supply chain as”...a network of organizations that are involved, through upstream and downstream

linkages, in the different processes and activities that produce value in the form of products and services

in the hands of the ultimate customer". Alternatively, Scot and Westbrook (1991) and New and Payne

(1995) define SCM as “the chain linking each element of the manufacturing and supply process from raw

materials through to the end user, encompassing several organizational boundaries” and Baatz (1995)

further expands the definition of SCM to include the activity of “recycling”. While these differences in

terminologies and perspectives can become a source of confusion for researchers and practitioners in

the field of supply chain management (Mentzer et al., 2001, Croom et al., 2000), on the contrary,

Saunders (1995) argues that the pursuit for a single universal definition for SCM might not be necessary

as this “may lead to unnecessary frustration and conflict” (Saunders, 1995, Croom et al., 2000).

2.2 Evolution of Supply Chain Management (SCM)

2.2.1 Supply chain literature

Croom et al. (2000) argue that although the origin of the concept of SCM is unclear, its development can

be traced back down the line to “physical distribution and transport, using the techniques of industrial

dynamics" (Croom et al., 2000). They also emphasize the fact that various subject literatures such as


logistics and transport literature, purchasing and supply chain literature, organizational behavior

literature, marketing literature, transaction cost economics literature, etc have contributed to the

evolution of supply chain management in different perspectives. However, Oliver and Webber (1992)

argue that the term supply chain management was used initially in the early 1980s wherein it referred

to managing materials within the functional boundaries of the organization, but soon extended beyond

the organizational boundaries to include upstream production activities and downstream distribution

activities (Womack and Jones, 1996; Womack et al., 1990). Figure 2.1 presents the structure of a typical

supply chain.

Figure 2.1: Structure of a typical supply chain (Waters, 2007)

The figure 2.2 below shows the upstream and downstream activities and the firms involved in the supply

chain as depicted by New and Payne (1995). It begins with the extraction of minerals or raw materials

from the Earth through various stages of manufacturing, wholesalers, retailers and finally to the

consumers. After the useful life of the product, it goes backward the supply chain through the process of

recycling, (Tan, 2000) and is commonly referred to as reverse logistics.


Figure 2.2: Activities and firms in a supply chain (New & Payne, 1995; Tan, 2000)

2.3 SCM in comparison with Porter’s Value Chain

Porter (1985) defines the chain of activities performed by an organization in order to increase the buyer

value as the “value chain” (Porter, 1985,1990). He argues that value is created in every activity that a

product or service passes through and the product or service gains more added value through the chain

of activities rather than the sum of added values of individual activities (Porter, 1985, 1990).

Since the focus of SCM lies in integrating the various activities involved in the chain, it is closely

associated to Porter’s value chain. According to Porter, every firm in the supply chain can be

represented as a value chain and each value chain divides the firm into strategic activities. These

activities can be further divided into primary and secondary activities, which are interdependent since,

for example, by using superior quality raw materials, the production cost may rise, however, by

producing superior quality products the after-sale service costs will decrease. As shown in figure 2.3,

while primary activities are mainly related to the production and distribution of products, secondary

activities support the primary activities through cross-departmental functions and influence the

performance of entire organization. However, it is the firm’s strategy that guides the organization,

execution and performance of these activities based on which the firm can attain competitive advantage

(Porter, 1985).


Figure 2.3: Porter’s Value Chain (Porter, 1985, 1990)

The value chain of a firm can be considered as a system of upstream and downstream value chains of

other firms involved in the supply chain. Since the main goal of a value chain is to reduce the costs

associated with each process and to eliminate processes that do not add value, when all firms in the

value chain integrate and work as a single entity, the performance of the overall supply chain and all the

participating firms increases. In a fully integrated supply chain, the consumers pull the products from the

value chain rather than manufacturers pushing them to the end consumers (Porter, 1985; Tan, 2000).

2.4 Trend towards globalization in supply chain

Over the past few decades, one of the major trends in logistics and supply chain management is

globalization. As the trade barriers between nations continue to reduce, firms are extending their supply

chains beyond national boundaries due to the apparent benefits it brings. Globalization can be defined

from a supply chain perspective as “the cross-border movement of goods and the emergence of global

competitors and opportunities across competing supply chains within an industry” (Mentzer et al, 2006).

Today, every company either sources globally or sells globally and competes with some firm at a global

level. Although the complexity of managing a cross-border supply chain is much greater than managing


in a single country, the main reason why companies are going global is that global supply chains are a

main source of “competitive advantage” to firms enabling them access to cheaper labor, raw materials,

larger market segments, finance opportunities, and additional benefits provided by national and state

governments such as tax incentives in order to attract foreign investments (Waters,2008; Manuj &

Mentzer,2008; Kogut & Kulatilaka,1994).

However, along with the benefits that lure firms to go global, are the risks and complexities due to

inherent uncertainties that managers have to face in global supply chains. Although, the concept of risk

has been acknowledged and well researched as it is evident from the literature and also being practiced

by most multinational enterprises, research on risk management particularly in global supply chains has

gained momentum only recently (Christopher & Lee,2004; Manuj & Mentzer,2008; Spekman &

Davis,2004; Zsidisin, 2003; Zsidisin et al.,2004). According to Waters (2008), the three common sources

of risks in supply chains due to globalization are – the risks that are associated with working in a less

familiar remote location, which is far off from the firm’s country of operation, risks associated with

moving materials over lengthy supply chains, and the risks associated with occurrence of unpredictable

events (Waters, 2008).

2.5 Outsourcing

The trend towards outsourcing is ever increasing; it is not only the procurement of raw materials and

components but also services, which were once provided within the organization, that are being

outsourced. This increased level of outsourcing in global organizations has also increased the level of

complexity and risks associated with their supply chains. The rationale for outsourcing is that firms are

more likely to succeed if they concentrate on those activities in the value chain wherein they have a

distinctive advantage over their competitors i.e., the core competencies of the business, while letting

others to focus on their non-critical activities of the business. Also, by outsourcing, businesses leverage a

healthy competition for their procurement needs fostering an environment for innovation, while

increasing the efficiency levels. For example, Boeing’s 777 jet airplane was originally manufactured using

132,500 components sourced from 545 global suppliers. The reason why Boeing chose to outsource its

manufacturing operations to so many global suppliers is due to the fact that these suppliers are the best

in world at performing their particular activities, and Boeing’s focus was to produce a high-quality final

product while minimizing the overall production costs (Jones & George,2011)


The phenomenon of outsourcing has led to the development of “network organizations” (Waters, 2007)

wherein the various firms linked in the supply chain through shared information systems and processes

form a synergy in order to accomplish an increased overall competitiveness.

2.5.1 Transaction Cost Based Framework of Network Organizations

The concept of transaction cost economics (TCE) explains the various networking activities such as

outsourcing, off-shoring and in-sourcing that a firm involves itself in to improve the efficiency of its

supply chain and hence gain a competitive advantage (Kylaheiko, 1999). Coase (1934) asserts that a firm

benefits by organizing a transaction outside the firm (i.e., outsourcing) when the transaction costs of

using the markets are lower than the costs of using the company’s management. He argues that in the

absence of transaction costs, companies should use markets (i.e., outsource activities) as the preferred

option as it helps to exploit economies of scale, thus increasing organizational efficiency and

profitability. However, Williamson (1991) argues that transaction costs represent organizational failures

due to environmental and human factors and that higher the dependency of a company on its suppliers

or consumers, higher will be the transaction costs associated with it (Hallikas & Virolainen, 2004).

Teece (1984, 1986) argues that factors such as technological knowledge and innovation help to decide

on the governance structure i.e., outsource or manufacture in-house, of the organization. This strategic

decision helps to reduce the transactional and management costs thereby increasing the profitability.

He also states that transaction costs depend on the nature of the new knowledge (i.e., tacit or explicit)

and the protection mechanisms (Patents, Trademarks, etc) that exist to safeguard the knowledge. When

the knowledge is more tacit and legally well protected, the transaction costs associated with it will be

minimal thereby increasing the opportunities for networking or outsourcing (Hallikas &

Virolainen,2004).

Although firms receive tremendous benefits by outsourcing and going global, they also face the risk of

uncertainties due to disruptions. According to Barry (2004), “An enterprise may have lowest over-all

costs in a stable world environment, but may also have the highest level of risk – if any one of the

multiple gating factors kink up an elongated global supply chain!” (Manuj & Mentzer, 2008). Increased

outsourcing increases the supply chain vulnerability to supply disruptions. Since the company may not

have a total control over its global operations, it may become vulnerable to disruptions from one of its

suppliers and this may delay the recovery process. For instance, Boeing, inspired by the success of its


777 airplane’s outsourcing program, increased its reliability on its suppliers and involved them right

from the initial design phase for its new 787 Dreamliner airplane. However, due to design and quality

issues from one its components suppliers, the airplane manufacturer had to delay deliveries of the plane

by almost two years, which has proven to be very expensive to the company both in terms of reputation

and financially (Jones & George, 2011).

2.6 Supply Chain Complexity

Supply chain complexity level varies depending on its structural characteristics. Mentzer et al., (2001)

categorize supply chain complexity into three levels - a basic supply chain, in which the firm has a single

supplier and a single customer linked directly by one or more upstream and downstream flow of

products, services, information or finances (Figure 2.4), an extended supply chain, in which the firm’s

supplier has one or more suppliers and the firm’s customer has one or more customers and all are linked

directly by upstream and downstream activities, and finally, an ultimate supply chain, which includes all

firms involved in the upstream and downstream activities of the supply chain, including those that are

involved in market research, providing finance, third party logistics (3PL), etc, from the initial supplier to

the final customer.

Figure 2.4: Types of supply chain relationships (Mentzer et al, 2001)


Modern automotive supply chains are very complex in nature. This is due to the huge number of parts

required for producing each vehicle and the also the increasing dependency of firms on a complex

network of global suppliers with a focus on cost reduction in order to deliver the right quantity at the

right place at the right time (Karningsib, Kayis, & Kara, 2007).

Daft (1989) and Price (1972) define organizational complexity in relation to the structural differences

and varieties that exist between organizations. They propose a more tangible way of measuring the

structural complexity of an organization by categorizing it into three types – “vertical, horizontal and

spatial”. While the vertical complexity refers to the “number of levels in the system”, which corresponds

to the number of tiers of suppliers in the supply network, the horizontal complexity refers to the

“number of entities in the same level”, which represents the number of suppliers in each tier and finally

the spatial complexity refers to “the degree of dispersion within members in the system”, which

corresponds with the average distance between the supplying and buying firms. By measuring these

three attributes, the complexity level of a supply chain can be determined. However, other intangible

factors that exist between the firm and suppliers such as supplier relationships, which also add to the

complexity, cannot be measured using this method (Choi & Hong, 2002).

2.7 SCM, Logistics and Purchasing

From the available literature, it is evident that SCM is a large area that encompasses several functions

within the organizational context. However, logistics and purchasing functions have been chosen to be

discussed in more detail since they are closely related to SCM and also since they are often a subject of

debate amongst researchers and practitioners.

2.7.1 Logistics

Literature suggests that the term logistics originally emerged from military practice, used extensively

during the Second World War and concerned with military’s need to organize the movement, lodging

and supply of troops and equipment. Subsequent to this, the term has been used in business context as

defined by Cavinato (1982) as “.....the management of all inbound and outbound materials, parts,

supplies, and finished goods” (Cavinato ,1982; Lummus et al.,2001).

According to the Council of Supply Chain Management Professionals (CSCMP), logistics management is

"that part of supply chain management that plans, implements, and controls the efficient, effective


forward and reverse flow and storage of goods, services and related information between the point of

origin and the point of consumption in order to meet customers' requirements" (CSCMP, 2011).

From the above definitions, it can be stated that logistics is a small part within SCM. However, this

argument is not universal and contradicted by many researchers in the literature. The link between SCM

and logistics is discussed briefly in the section below.

2.7.2 Logistics and SCM

The ambiguity in defining the relationship between SCM and logistics has often been a matter of

confusion. In relation to this, Larson & Halldorsson (2004) propose four different perspectives of SCM

relative to logistics - traditionalist, relabeling, unionist, and intersectionist (Figure 2.5), based on the

available literature.

Traditionalist perspective views SCM as a small part of the bigger logistics function. Relabeling

perspective views the relationship as simply a renaming from logistics to SCM. Unionist perspective

reverses the traditionalist’s view and considers logistics as a small part within SCM, with other functions

such as marketing, operations, and purchasing as part of the SCM. The intersectionist perspective views

logistics and SCM as two different entities, with similarities in a few areas (Larson & Halldorsson,2004).

Figure 2.5: Perspectives of Logistics vs. SCM (Larson & Halldorsson, 2004)

The view of unionists is in agreement with the view of the Council of Supply Chain Management

Professionals, which defines logistics as a function that is part of the supply chain (CSCMP, 2011) and

hence for the purpose of this research the unionists view has been adopted.


2.7.3 Purchasing

Arnold (1991) defines purchasing as the process of buying a good or service and whose main task

involves obtaining “the right material, in the right quantities with the right delivery from the right source

and at the right price” (Arnold, 1991). Literature suggests that managing the purchasing and supply

functions in an organization have gained prominence over the past decades due to their relative

importance to organizational performance and hence have attained a strategic role in managerial

decision making (Quayle, 2006). Dobler (1990) describes the key activities specific to purchasing function

as “participation in the development of requirements and their specifications; managing value analysis

activities; conducting supply market research; managing supplier negotiations; conducting traditional

buying activities; administering purchase contracts; managing supplier quality; and buying inbound

transportation”.

Rushton et al. (2000) argue that the purchasing activities can be categorized into four broad categories

based on the level of priority to business and the annual purchase i.e., critical items, strategic items,

routine purchase and commodity purchase (Figure 2.6). While routine purchases have a low annual value

and are less business critical, they can easily be purchased through online catalogues with minimal

transaction costs; commodity purchases, on the other hand, have a high annual purchase value and

hence require formal processes such as tenders to select suppliers. Due to the high level of criticality to

business, critical items can be purchased through approved suppliers and finally the items that are

strategically important to the business and are both business critical and have a high purchase value are

best to source via strategic partnership with the suppliers.

Figure 2.6: Categorization of Purchasing process (Rushton et al., 2000)


2.8 Changing Trends in the Automotive Manufacturing Industry

According to Leeuw et al (2010), the mass production concept introduced by Henry Ford during the early

19th century with the launch of his model T automobiles, changed the face of manufacturing industry, in

particular the automotive sector. The traditional business concept was more of a push strategy wherein

the manufacturer makes the choice of product and could produce as many products as possible with the

only constraint being that of factory’s capacity. The finished goods are pushed to the wholesaler, retailer

and then finally to the customer and the goods that did not sell are held in warehouses or dealer

showrooms.

However, Over the past few decades, the manufacturing trend has changed and tends to be more

customer-centric, wherein companies manufacture, distribute and retail by customer demand. Malone

(2007) argues that such a pull strategy is associated with factors such as how good, how new and how

quickly the product is available in the market, in contrast to a push strategy, which focusses on how

many products are manufactured. Since the driving force of a pull strategy is customer demand,

organizations that adopt this strategy will have a long-term global business advantage.

One of the examples of a pull strategy is Toyota Production System (TPS), whose fundamental principle

is process stability and is a combination of two powerful manufacturing approaches – JIT and jidoka.

While JIT is associated with supply chain and focuses on moving goods from source to destination “on-

time”, jidoka focuses on maintaining “highest quality” levels in each step of manufacturing and

distribution activity and also on managing the exceptions that arise during the process thereby ensuring

that the system produces not only great products but also satisfied customers (Malone, 2007).

The figure 2.7 below shows migration from traditional manufacturing strategies to that of a mass-

customization strategy. Although most companies today follow a make-to-order concept, and

incorporate customization as per the needs of the customer into their process (Crandall & Crandall,

2008; Malone, 2007), research shows that a majority of companies display poor performance in

responding to customer requirements and hence depend on incentives and discounts to sell their

products (Holweg & Pil, 2004).


Figure 2.7: Evolution of Manufacturing from mass-production to mass-customization (Crandall & Crandall, 2008)

Holweg & Pil (2004) argue that despite the progress made in improving the operational efficiencies of

manufacturing companies through approaches such as JIT, lean, TQM, and six sigma, the automobile

distribution and sales strategies have not changed significantly in the industry because a majority of

automobiles are still manufactured based on build-to-forecast and make-to-stock rather than build-to-

order. The evidence from the research conducted suggests that although many companies in different

industries have begun adopting approaches such as JIT and lean since the early 1990’s, there has been

no drop in the overall finished goods inventory levels. Chen et al. (2005) argue that a majority of

industries, including automotive, have infact witnessed an increase in the overall finished goods

inventory levels (Leeuw et al, 2010). Consequently, the finished goods are sold from the inventory

stockpile of the dealers.

In relation to this, manufacturing firms holding high inventory levels face the risk of obsolescence due to

which they eventually have to sell the goods at highly discounted prices (Leeuw et al, 2010), thereby

decreasing the overall profitability. However, on the positive side, such a make-to-stock strategy helps in

maintaining the capacity utilization high and stable at the assembly plant of the manufacturer, thus

reducing the manufacturer’s vulnerability to market demand volatility (Malone, 2007).


2.9 Summary

This chapter began by defining supply chain management from various perspectives and then describing

the evolution of supply chain as a management field. Subsequently, after describing the structure and

activities involved in a supply chain, a comparison of supply chain is made with Porter’s value chain.

Then, the trend towards globalization and outsourcing has been discussed with a special emphasis on

the outsourcing phenomenon, which has been explained using Williamson’s transaction cost economics

framework. Following a comparison of SCM with logistics and purchasing functions, which are closely

interrelated, the chapter ends by giving a brief overview of automotive manufacturing industry and the

changing trends in manufacturing strategies over the past few decades.


Chapter 3 - Literature Review: Supply Chain Risk Management

3.0 Introduction

This chapter provides a comprehensive overview of supply chain risk management using specific

examples. The various supply risk sources are categorized and the disruption risk management process

explained. The comprehensive set of risk mitigation strategies and models are critically analyzed and an

overview of supply chain resilience and business continuity management is provided.

3.1 Supply Chain Risk Management (SCRM)

While Christopher et al (2002) define supply chain risk management in general as “the identification and

management of risks within the supply chain and risks external to it through a coordinated approach

amongst supply chain members to reduce supply chain vulnerability as a whole”; Zsidisin (2003) defines

supply risk in particular as “the potential occurrence of an incident associated with inbound supply from

individual supplier failures or the supply market, in which its outcomes result in the inability of the

purchasing firm to meet customer demand or cause threats to customer life and safety”.

Due to increasing level of globalization and outsourcing, many manufacturing firms are shifting their

practices from that of vertical integration to focusing on core competencies (Hamel and Prahlad, 1990;

Quinn and Hilmer, 1994). While outsourcing has given a competitive advantage to organizations, it has

also increased the supply chain complexity making it vulnerable to even minor supply disruptions. Since

outsourced organizations may not be able to exercise a total control over its suppliers, they may not be

able to manage the supply-side risks, and hence the failure of a supplier to provide materials can result

in shut-down of the entire production plant due to material non-availability. Subsequently, this may

result in loss of business, brand reputation and also customer goodwill (Zsidisin et al, 2000).

For example, the fire incident that occurred in one of Ericsson’s supplier’s factory in 2000, resulted in

the company incurring a major loss of about $2.34 billion that nearly jeopardized the business continuity

and as a result lost a significant market share to its competitor (Sheffi, 2005). In relation to this,

Hendricks and Singhal (2005) argue that supplier network disruptions can prove to be very expensive

and hypothesize from the research they conducted that such disruptions not only cause short-term

losses, but also long-term underperformance of the firm from a stock market perspective.


3.1.1 Supply Disruption Risk Management Process

In general, Supply disruption risk management process comprises of risk identification, risk assessment,

risk implementation and risk monitoring (Figure 3.1).

Figure 3.1: Disruption risk management (Feng et al, 2010)

Disruption Risks Identification

Literature suggests risk identification as the fundamental step in risk management process (Hallikas et

aI., 2004; Norrman & Lindroth, 2004; Waters, 2007).The main aim of risk identification is to recognize

the potential risks facing the organization. One of the most important tools for risk identification is “risk

mapping”, which uses a structured approach to map various risk sources and thereby understand the

consequences of each risk type. Recognizing such risk types helps the organization to proactively

manage future risks (Feng et al, 2010).

Literature suggests that many scholars have conducted research in identifying and classifying supply

chain risks based on their source. For instance, Waters (2007) classifies supply chain disruption risks

broadly into two categories - internal risks i.e., risks that exist within the firm and between other firms in

the supply network and external risks i.e., risks that come from outside the supply chain and exist

between the supply chain and its external environment. In accordance to this, Chapman et al. (2002),

Christopher & Peck (2004), Juttner et al. (2003), Veenstra et al. (2006), and Kiser & Cantrell (2006)

suggest a similar way to classify supply chain risks based on their source i.e., whether the risks are within


the organization or between supply chain members (internal risks) or outside the organization (external

risks).

Internal risks such as forecast errors, transportation delays, components shortage, excess stock, human

error, IT system issues, etc, are present in day-to-day operations and are generally less dramatic, and are

controllable by the operations managers using the traditional methods. In contrast, external risks such

as economic disturbances, industrial accidents, fires or explosions, tsunamis, earthquakes, hurricanes,

wars, terrorist attacks, outbreaks of disease, etc, are unpredictable and hence outside managers’ ability

to control. For example, there is a continuing risk of hurricanes striking the south-west coast of the USA.

Although managers cannot mitigate this risk, they can however design operations to reduce its effects,

perhaps by having secure buildings, closing plant during the hurricane season or simply moving to

another location (Waters, 2007).

Due to the complexity of globally outsourced supply chains, identifying all possible risks is not practically

feasible; however, through this process a list of most probable risks to the supply chain can be

identified.

Disruption Risks Assessment

Having identified the risk types, it is important to assess their impact, which mainly depends on two

factors – the probability of occurrence of a risky event and the severity of consequences when they do

occur. Literature suggests techniques such as Simulation (Levy, 2005; Wilson, 2007) and Optimization

(Goh et al, 2007) to estimate the impact of disruptions. Subsequently, managers can prioritize the risk

types and make decisions on where to concentrate the resources based on the risk priority level and

also devise plans to reduce the impact of such risk events. However, one essential limitation of listing

the risks and assessing their impact is that it does not capture the dependency relationship between the

different disruptive events, both at the frequency and impact levels (Basu et al., 2007).

Examples of a few disruptive events, their probability of occurrence and potential impact are show in

the figure 3.2 below


Figure 3.2: Likelihood and impact of supply chain disruptive events (Basu et al., 2007)

The output of this process is a prioritized list of risk types and their potential outcomes. Since all risk

factors cannot be predicted with certainty, their outcomes may not be predicted accurately, however,

this process does provide managers with significant information regarding risk avoidance, mitigation,

and acceptance in the supply chain (Feng et al, 2010).

Disruption Risks Implementation

This stage involves developing risk mitigation strategies such as transferring risks (e.g. insurance, vendor

managed inventory, etc), accepting risks (e.g. natural disasters, terrorist activities), eliminating or

reducing risks (e.g. avoiding risky suppliers, supplier location risks, etc). Subsequently, managers can

evaluate and decide on implementing the most appropriate solution for each risk type. Waters (2007)


suggests that although there are many ways of responding to risks, the three most common amongst

them are – prevention (to reduce the likelihood of occurrence of the disruptive event), mitigation (to

reduce the impact due to the event) and response (to decide on the appropriate response after the

occurrence of the disruptive event). This process results in a planned response to each risk type (Feng et

al, 2010).

Disruption Risks Monitoring

Once the risk types have been identified, & prioritized, they have to be monitored on a regular basis in

order to minimize risk exposure to the supply chain. The main aim of this process is efficient utilization

of the company’s and suppliers’ resources in order to manage the risk events. Blackhurst et al (2008)

argue that the key to risk monitoring is that once a supplier assessment process has been designed and

implemented, managers must be able to measure, track and analyze supplier and part specific risk

indices in order to effectively manage and monitor risks and develop strategies to mitigate them (Feng

et al, 2010). Handfield & McCormack (2008) argue that global event monitoring is crucial since most

disasters are only reported locally and when a tier-2 or tier-3 supplier is affected by a disruptive event

such as weather or political turmoil, it disrupts the entire supply chain.

3.2 Supply Chain Risk Mitigation Strategies

Literature suggests abundance of techniques and strategies pertaining to mitigating risks in global

supply chains. While Zsidisin et al (2004) focus on supply risks arising from factors external to the

purchasing organization, and suggest a four stage risk mitigation approach that includes creating

awareness, preventing risks, remediation and knowledge management; Finch (2004) focuses on risks

arising from inter-organizational networks and suggests using business continuity planning as the

approach to mitigate internal and external risks in the supply chain.


3.2.1 Supply Chain Visibility

Christopher and Lee (2004) suggest improving the end-to-end visibility throughout the supply chain as a

means of reducing risk while improving supply chain confidence. Moreover, visibility in the supply

network enables quicker discovery and mitigation of disruptions when they do occur. Part of supply

visibility involves having real-time information of location and the state of inventories such as in-stock,

on-transit, quarantined, etc within the supply network. By having such real time information of

inventory, capacity and demand levels across key nodes such as ports and shipping locations, of the

supply chain, the firm can perform real-time contingency planning enabling risk mitigation. In addition,

having supply chain visibility can increase competitive advantage of firms since it enables better

management of disruptive events (Penfield, 2008).

By using technologies such as RFID to track the containers in shipment, system-wide visibility can be

established and hence in the event of a disruption, the firm will be able to respond more effectively by

redeploying its resources and adjusting the capacities, thereby increasing the supply chain flexibility. As

an example, Airbus, due to the fact that it outsources most of its manufacturing processes realized the

need to have real-time visibility and speed in dealing with supply chain disruptions and demand

fluctuations. As a result, the company has introduced the RFID-technology through its “Value Chain

Visibility” program, to increase visibility across all entities of its supply chain (Airbus, 2011).

3.2.2 Proactive Risk Mitigation Strategies

According to Tang (2006), although there are significant costs involved in implementing risk mitigation

strategies, they serve as additional unique selling points (USP) for firms to acquire new clients while

retaining existing ones before and after a major disruption. Based on the research conducted on SCRM,

he proposes a list of nine “robust strategies” (Tang, 2006), which under stable conditions, enable firms

to reduce costs (i.e., supply management) and enhance customer satisfaction (i.e., demand

management) and in the event of disruptions, enable firms to continue operations during and after the

disruption.

The table below summarizes the main features of proactive and robust supply chain risk mitigation

strategies.


Robust Supply Chain Strategy Key ObjectiveBenefits(s) under stable conditions

Benefits(s) under disruption conditions

PostponementTo increase product flexibility Improves capability

to manage suppliesEnables quick changes to configuration of products

Holding Strategic Stock

To increase product availability

Improves capability to manage supply

Enables quicker response to supply disruptions and demand variations

Flexible Supply Base

To increase flexibility in supply


Enables firms to quickly shift production among supplies

Make-and-Buy

To increase flexibility in supply


Enables firms to quickly shift production between in-house facilities and suppliers facilities

Economic Supply incentivesTo increase product availability


Enables firms to quickly adjust order quantities

Flexible Transportation

To increase flexibility in transportation


Enables firms to quickly change transportation mode during disruption

Revenue ManagementTo increase control of product demand

Improves capability to manage demand

Enables firms to dynamically influence customer preference for products

Dynamic Assortment PlanningTo increase control of product demand

Improves capability to manage demand

Enables firms to dynamically influence demand for different products

Silent Product RolloverTo increase control of product exposure to customers

Improves capability to manage supply and demand

Enables firms to manage demands for different products quickly

Figure 3.3: Supply Chain Risk Mitigation Strategies (Tang, 2006)

Conversely, Tang (2006) suggests that while adopting such robust strategies enables firms to respond

more effectively when a disruption occurs, alternatively, when firms reduce their exposure to risks, they

will apparently reduce their vulnerability to risks thereby improving resilience. He argues that while


most disruptive events are unpredictable and cannot be eliminated, nevertheless, the severity of impact

on supply chain operations can be reduced by adopting strategies such as building “supply alliance

network” (Tang, 2006) that serves as a safety-net in the event of disruption, “reducing lead time” (Tang,

2006) by redesigning the supply network and by establishing “recovery planning systems” (Tang, 2006)

to enable quick recovery of supply chains from disruptions. In addition, he argues that all the robust

strategies mentioned in Table 3.1 would be ineffective unless they are implemented in a “proactive”

(Tang, 2006) manner by the firm.

3.2.3 Partnership Sourcing

In relation to the assertion made above by Tang (2006) that forming “supply alliance network” reduces

the severity of impact in the event of a disruption, partnership sourcing can be used as an effective

strategy to reduce costs while also mitigate supply chain risks. However, since maintaining a strong

supplier relationship is the key to attain benefits of a partnership, Macbeth and Ferguson (1994)

propose a five-stage supplier-customer relationship model to improve effectiveness in relationship and

also a Relationship Positioning Pool (RPT) to monitor the strength of relationship.

The tool captures the most important factors that determine success of a relationship. The strength of

existing supplier relationship depends on the performance metrics of “Quality, Delivery, Cost and

Innovation” and any discrepancies in the Quality, Delivery and Cost metrics with regard to the supplied

materials indicates “weakness” in relationship and in order for continuous improvements in innovation

in terms of supplied materials, it is important for the relationship to be effective both in the present and

in the future (Macbeth & Ferguson, 1994).

However, one of the main drawbacks of partnership sourcing is the potential lack of trust between the

supplier and customer, which acts as a barrier for the relationship to be effective (Macbeth & Ferguson,

1994). However, there are several instances within the automobile manufacturing industry, wherein the

firms have rescued their supplier partners since this is a low-cost option when compared to the risk of

losing the supplier.


3.2.4 Scenario Planning

According to Ringland & Schwartz (2006) scenario planning “builds plausible views of different possible

futures for an organization based on groups of key environmental influences and drivers of change

about which there is a high level of uncertainty”. Deep and Dani (2010) propose a risk mitigation model

using scenario planning at the operational level (Figure 3.4). They suggest that scenario generation

should be done at three levels – strategic, tactical and operational with the output of each level feeding

into the other.

Figure 3.4: Scenario Planning and Risk Mitigation (Deep & Dani, 2010)

While scenario planning can be used as an early warning tool to predict the most plausible future

scenarios pertaining to supply disruptions and devise plans to mitigate risks, none of the scenarios may


actually materialize. However, it is argued that using scenarios would enable managers to proactively

manage future risks and take effective decisions in the event of disruption. Literature suggests that

although many organization use scenario planning, there exists an ambiguity relating to issues such as

the exact method to be followed, the number of scenarios to be generated, etc since there are no

standard protocols to implementing it (Deep & Dani, 2010).

3.2.5 Early Supplier Involvement (ESI)

Zsidisin and Smith (2005) suggest early supplier involvement as a technique to reduce supply disruption

risks, especially in new product development. According to Leenders et al (2002) purchasing firms use

ESI to collaborate and involve their suppliers at an early stage, perhaps in the need recognition and

conceptualization stages of the product development cycle. While on one hand, ESI provides numerous

benefits such as greater efficiency and effectiveness due to enhanced level of trust between the firm and

its suppliers, on the other hand, evidence from research suggests that ESI does not always result in

positive results due to factors such as lack of mutual trust, collaborating with wrong partners, etc

leading to increased product and development costs.

For example, Boeing’s 787 dreamliner project pioneered the concept of ESI in the aviation industry and

involved its key suppliers’ right from the design stage to production stage in order to gain advantage of

the suppliers’ ingenuity while reducing costs. However, since the suppliers could not meet the delivery

requirements of Boeing, the launch of the airplane was delayed by nearly two years (Crandall &

Crandall, 2008), casting a doubt on the credibility of ESI as a means to reduce supply risks.

3.2.6 Disruption Discovery, Disruption Recovery and Supply Chain Re-design

Blackhurst et al (2008), based on the research conducted on automotive manufacturers, suggest the use

of a supplier risk assessment methodology that enables firms to measure, track and analyze supplier and

part specific risks. They suggest a three stage approach to risk mitigation – “disruption discovery,

disruption recovery and supply chain redesign” (Blackhurst et al, 2008; 2005).

Handfield and McCormack (2008) argue that most organizations fail to discover the occurrence of an

event in the supply chain and as a result the recovery process is hindered. From the figure 3.5 below, it


is evident that, in the event of a supply disruption, early discovery of the event (A) leads to early

deployment of risk mitigation strategies leading to quicker recovery and vice-versa. In order to eliminate

or mitigate the impact of disruption risks, they propose a four step strategy – deploying excess resources

(to enable quicker response to disruptions), supply chain planning and collaboration, enhancing

information visibility throughout the supply chain and supply chain redesign (product and process

redesign to mitigate risk exposure).

Figure 3.5: Supply Chain Disruption Discovery and Recovery (Handfield & McCormack, 2008)

Kleindorfer and Saad (2005) propose two key aspects in managing supply disruption risks. While the first

aspect involves using strategies and approaches that decrease the frequency and severity of occurrence

of disruptive events at both the firm level and supply chain level, the second aspect involves increasing

the capacity of suppliers to sustain or absorb risks in the supply chain without any major disruption to

operations. In order to mitigate the effects of disruptive events, they suggest a ten principle

methodology that includes: integrating and optimizing the firm’s internal supply chain, diversification of

supply chain activities, identifying vulnerabilities in the supply network through early warning systems,

risk assessment and contingency planning, optimally balancing the tradeoff between supply chain


robustness and operational efficiency, redundancy and safety stock, cooperation and collaboration

within the firm and amongst its supply chain partners, linking quantifiable supply risks with appropriate

mitigation strategies, modularity of process and product designs, and applying total quality

management (TQM) principles such as six-sigma methodology to reduce disruption risks.

3.3 Cost Benefit Analysis

Kleindorfer and Saad (2005) suggest a model (figure 3.6) based on the work of Shavell (1984) to reduce

the total cost of investing in risk mitigation by balancing the tradeoff between investing in mitigation (y)

and the potential loss due to disruption (L(y)), weighted by the probability of a disruption. According to

them, the total cost of investment and disruption loss can be represented as:

Where,

y is the investment to mitigate disruption loss

P(y) is the probability of occurrence of a disruption and

L(y) is the amount of loss

At the optimum level, i.e., y*, the total investment costs on risk mitigation are minimal.

Figure 3.6: Framework for Risk Mitigation (Shavell, 1984; Kleindorfer and Saad, 2005)

Total Cost = y + P(y) L(y)


However, Rice and Caniato (2003) and Zsidisin et al (2000) argue that due to the unpredictability of

occurrence of major disruptive events, it is difficult to perform a cost benefit analysis to justify the

implementation of risk mitigation plans and as a result many firms underestimate and hence are

unfamiliar with managing supply chain risks (Tang, 2006).

3.4 Resilience and Business Continuity Management

3.4.1 Resilience from an Organizational Perspective

From an organizational perspective, resilience refers to - (a) the ability of an organization to bounce back

from an unforeseen disruptive event (Sutcliffe & Vogus, 2003) (b) the ability of the organization to

positively adjust while maintaining the continuity of essential functions under stressful conditions

(Worline et al, 2004). Resilient organizations not only plan for recovering in the event of disruptions, but

also proactively build flexibility to adapt to both positive and negative environmental influences.

Alternatively, Hamel & Valikangas (2003) argue that organizational resilience is a dynamic capability that

builds over time and is a distinct source of competitive advantage.

3.4.2 Resilience from a Supply Chain Perspective

From a supply chain perspective, resilience is the ability to react to unanticipated disruptive events such

as natural disasters, terrorist attacks, etc while restoring the supply network operations back to its

normal level (Rice & Caniato, 2003). According to Christopher & Peck (2004) resilience is “the ability of a

system to return to its original state or move to a new, more desirable state after being disturbed”. Lee

(2004) defines the characteristics of a resilient supply chain through his Triple – A supply chain concept

as one that is ‘Agile’ (in order to react quickly to sudden changes in demand or supply), ‘Adaptable’ ( to

changes in environment and market structures) and whose interests are ‘Aligned’ with the interests of

all other firms in the supply network.

The complexity of supply networks is increasing as a result of global sourcing and adoption of techniques

such as lean, TQM and JIT in the operations in order to improve efficiency (Martin, 2005). Smith (2005)

argues that while adopting such processes inevitably improves operational efficiency and overall

organizational performance, under the assumption that the environment is stable. However, in practice,


due to the inherent uncertainty of occurrence of disruptive events, the supply chains become highly

vulnerable when subject to such events due to the lack of flexibility.

Sheffi and Rice (2005) argue that an organization’s resilience to disruptive events can be significantly

improved by introducing redundancy and flexibility in its supply chain. While the standard practice of

having redundancy in inventory includes maintaining either an underutilized capacity or the use of

safety-stock, such a strategy only results in an increased cost overhead. However, by building flexibility

that involves using strategies such as designing products for maximum postponement, the ability to

quickly move production to other plants and maintaining good supplier relationships, etc can increase

efficiency of day-to-day operations and also create a long-term sustainable competitive advantage to

the firm. As an example, by using postponement and build-to-order principles in its operations, Dell was

able to recover much quicker than Apple Inc during the 1999 Taiwan earthquake disaster that disrupted

the worldwide supply of memory and graphics chips (Sheffi & Rice, 2005; Sheffi et al, 2006).

In contrast, literature suggests that although building resilience in supply chains has many benefits, they

are subject to many trade-offs. For instance, increasing the redundancy and flexibility increases the

supply chain complexity. As a result of this, the supply chain vulnerability increases and this decreases

the resilience. Hence, in order to improve supply chain resilience, it is essential that organizations

optimally balance the trade-off between resilience and complexity.

According to Christopher (2005) resilient supply chains can be built by incorporating five broad elements

– supply chain re-engineering (understanding the supply chain structure and designing optimal

processes), supply base strategy (deciding on the number of suppliers to source from), supply chain

collaboration (collaborate with all firms in the supply chain), agility (to improve visibility and flexibility of

supply chain) and by creating a supply chain risk management culture (figure 3.7) within organizations.


Figure 3.7: Creating Resilient Supply Chains (Christopher, 2005)

3.4.3 Business Continuity Management (BCM)

According to the Business Continuity Institute BCM involves “anticipating incidents which will affect

mission critical functions and processes for the organization and ensuring that it responds to any incident

in a planned and rehearsed manner whilst the business recovers” (Waters, 2007). The primary goal of

BCM is to enable organizations survive and recover from catastrophic disruptions to supply regardless of

the cause of disruption. BCM involves using preplanned methods that ensure that the essential business

activities continue to function, and in relation to a supply chain, to ensure that the material flow is

uninterrupted in the event of a disaster hitting the supply chain and bringing the operations back to

normal as quickly as possible (Waters, 2007).

According to Waters (2007), while traditional risk management approaches deal with identifying risks,

assessing the vulnerability to the supply chain and defining responses to known risky events, BCM

provides additional support to traditional risk management practices by defining responses to unknown


and unanticipated events. For instance, if a supplier going bankrupt is a probable risk identified by

traditional risk management processes, BCM involves preparing alternative plans if supplies are stopped

abruptly due to a disruptive event. The process of BCM is in many ways similar to that of traditional risk

management, with the exception that in BCM, the key is to identify the critical elements of a supply

chain and plan for ways to reduce risk whereas traditional risk management identifies the most

probable anticipated risks to the supply chain and takes measures to mitigate their impact when they

occur (Waters, 2007).

Research suggests that although supply disruptions pose a major threat to business continuity,

particularly for those organizations that have implemented JIT in their operations, only a small

proportion of them consider logistics and purchasing functions into their BCM plans. This may be due to

the fact that the occurrence of catastrophic disasters is so rare that managers tend to ignore them as

anticipated risks to the supply chain. Waters (2007) argues based on the research findings that a

majority of managers consider loss of IT systems and loss of telecommunication systems to be the most

critical disruptions to business continuity. In relation to this, Juttner (2005) argues that most system

failures are not caused by catastrophic events but due to factors such as poorly managed system

upgrades, loss of key personnel, etc and introduction of new methodologies such as lean and JIT in the

operations that exacerbates vulnerability of business continuity (Waters, 2007; Juttner, 2005).

3.5 Summary

This chapter initially defines supply chain risk management (SCRM) and in particular supply disruption

risk management. After discussing the various stages of the supply disruption process that include risk

identification, assessment, implementation and monitoring, and categorizing the risk types, the key risk

mitigation strategies are critically analyzed and discussed. Subsequently, a model for calculating the cost

benefit analysis for implementing risk mitigation methods is presented. Finally, this chapter ends with a

critically analysis of resilience from both organizational and supply chain perspectives and by providing a

brief insight on business continuity management relative to traditional risk management practices.


Chapter 4 - Research Design and Methodology

4.0 Introduction

This chapter discusses the research methodology employed along with the rationale for choosing the

particular approach. The hypotheses developed from the literature are listed and the various data

collection methods employed in the research and the data analysis methodologies used are discussed.

4.1 Research Objectives

The main objectives of this research as defined by the research questions (in section 1.5) is to explore

How global complex supply chains in the automotive manufacturing industry manage the risk of

unplanned supply disruptions?

How the structural characteristics and risk mitigation capabilities of such supply chains relate to

the severity of impact due to supply disruptions? and

Do automotive manufacturing companies consider ‘logistics and supply chain risks’ in their

business continuity planning? If not, why?

4.2 Hypotheses

The factors reviewed in literature in chapters 2 and 3 have led to the development of three hypotheses

as below,

Hypothesis 1: A supply disruption in a ‘complex and global’ supply chain would likely be more

severe than a disruption that occurs in a relatively less complex and more localized supply chain.

Hypothesis 2: A global supply chain that has capability to quickly detect disruptions using early

warning systems (EWS) and proactively respond to the situation would incur less severe impact

than a supply chain that has no such capability at all (derived from (3.2.5))

From Hypotheses 1, and 2 hypotheses 3 can be inferred as


Hypothesis 3: An unplanned supply disruption in a global, complex supply chain is less likely to

be severe if the supply chain has the capability to quickly detect and proactively respond to the

disruptive event.

4.3 Rationale for chosen Research Strategy

To achieve the aim and objectives of the research and validate the hypotheses, this research uses a

qualitative approach since qualitative research is subjective in nature and emphasizes on describing,

understanding and explaining the relationships and patterns of various “social and human activities”

(Collis & Hussey, 2003, Saunders et al., 2009) and the context in which such activities occur, which would

enable to explore and get an in-depth overview of supply chain risk management practices in global

supply chains. Also, this method can be classified as inductive rather than deductive, since inductive

approach is more suitable “for relatively new subjects or research areas where definitions are still

unclear and is more appropriate for questions like what and why”(Yin 1994, Saunders et al., 2009)

Due to the exploratory nature of the topic, a case study approach has been chosen over strategies such

as survey, action research, experiment, grounded theory, ethnography and archival research. Case study

approach is most appropriate when the research involves “an empirical investigation of a particular

contemporary phenomenon within its real life context using multiple sources of evidence” (Robson,

2002; Saunders et al., 2009). When undertaking an explorative study using case studies, the use of

unstructured or semi-structured interviews in research (Cooper & Schindler, 2008) encourages

interviewees to describe and explain various aspects of the phenomena providing an opportunity to

explore the emerging concepts and gain an in-depth understanding of the context of research (Saunders

et al., 2009).

This study involves use of multiple cases and multiple data collection methods. By using multiple cases

and multiple methods, the bias from a single case or from a mono-method can be reduced (Doty &

Glick, 1998), which would result in enhanced data quality and reliability thus providing a multi-

dimensional and dynamic picture of supply chain risk management. The cases are evaluated and

selected based on the adequacy of theoretical inferences that can be generated with the aim to

generate patterns and linkages to theory (Bryman, 1989). Subsequently, the multiple sources of data

(case studies) are triangulated in order to ensure the validity of the data (Saunders et al., 2009).


4.4 Data Collection Methods

Based on the previously conducted research and conceptual discussions on SCRM in the reviewed

literature, a case study research protocol (Appendix A) is developed prior to commencement of data

collection. During the execution of case studies, information is gathered through a combination of

primary and secondary data collection methods. The primary method comprises of conducting semi-

structured interviews using predominantly open-ended questions with top-level supply chain executives

and the secondary method comprises of historical data and written documents such as journals,

newspaper articles and books, which facilitate in triangulation.

The data is collected in three phases (Figure 4.1) involving different sources and collection methods with

the goal being to identify the supply disruption risk management practices employed by globally

outsourced manufacturing organizations.

The phase-one focuses on exploring the existing literature on supply chain risk management practices

and also on analyzing two case studies – Nissan and Toyota that have encountered supply disruptions in

the past and have implemented risk mitigation practices using the secondary data sources.

The phase-two focuses on a large Indian-based automobile original equipment manufacturer (OEM)

“Auto-OEM1”. In executing this typical case study as per the guidelines of Yin (1994) and Eisenhardt

(1989), a series of four individual semi-structured interviews via e-mail were conducted with

professionals holding managerial positions in the supply chain department of the company according to

the questions listed in Appendix A. By focusing on a single firm, a depth of information related to its

global supply chain and the risk management practices can be better understood.

Finally, phase-three of the research focuses on conducting individual semi-structured interviews with

seven top-level executives from different firms in various sectors having diverse supply chain structures

and complexity levels to substantiate SCRM theory with practical research findings and also to

strengthen the validity of the hypotheses. These executives were chosen due to the depth of knowledge

they possess from managing the supply chains for a significant period.

For the purpose of triangulation, the same questions have been asked to all interviewees who

participated in the research. The questions are semi-structured and a majority of them are open-ended

so that new issues related to supply chain risk management would emerge. The use of e-mail as the

medium to conduct the interview provided the flexibility to the interviewees to think and respond at


anytime of their convenience since most of them are from the senior managerial level to executive level

and owing to their busy work schedules, may not be able to complete the interview in a single session.

Before interviewing, the participants were provided the plain language statement in order to give a brief

introduction about the research being conducted and also to explain the confidentiality and anonymity

of the participants, and their firms. After the interview questionnaire was e-mailed to the participants,

the responses received were considered as the required consent to proceed with interviewing the

participants via e-mail. During the course of the interview, the participants were asked to give their

views to a combination of general questions related to supply chain risks and a few specific questions

related to how they handled disruptive incidents, if any, based on their work experience. (Appendix B -

E).

Figure 4.1: Research Design Structure

4.5 Data Analysis

4.5.1 Sampling

The interviewees are selected based on a “purposive sampling” (Saunders et al., 2009) technique in

order to ensure that the participants are most likely to answer the questions related to the

phenomenon of SCRM thereby fulfilling the aim and objectives of the research. Within this technique, a


heterogeneous strategy of selecting samples is used so that the data collected describes and explains

the key emergent themes related to the research topic. In order to explore the diverse characteristics

and key themes of the research, a small sample comprising of different cases has been used (Saunders

et al., 2009). In relation to this, this research uses a sample of supply chain professionals, who have at

least five years of experience in managing supply chains and possess substantial knowledge on risks

related to supply chain.

4.5.2 Hypotheses Testing: The Critical Incident Technique

The section C of the interview questionnaire uses the critical incident technique, which “offers an

opportunity to go straight to the heart of an issue and collect information about what is really being

sought” (Flanagan, 1954, Easterby-Smith et al., 2008). By employing this technique, the interviewees are

asked to describe a critical supplier disruptive incident that they faced recently and how they handled it.

The findings provide precise information to establish a cause-effect relationship of severity of incidents,

which helps to test the validity of the hypotheses.

The hypotheses are tested based on the findings from interviewees of Auto-OEM1 and also from the

findings of secondary cases of Nissan and Toyota. Due to the explorative nature of the research, the

findings from the interviewees, several of which are unique, are grouped into different themes and

these themes are further grouped into categories for the purpose of data reduction. Finally, the

different themes are systematically developed into tables highlighting the quotations from interviewees

and then analyzed relative to findings from literature.

4.5.3 Reliability and Validity

Reliability

According to Easterby-Smith et al. (2008) “reliability refers to the extent to which your data collection

techniques or analysis procedures will yield consistent findings”. Robson (2002) argues that there may

be four different threats to reliability - participant error, participant bias, observer error and observer

bias. By using email as the medium for conducting interviews in this research, participant error and bias

is reduced since the participants were given the opportunity to choose the time of their convenience to


participate in the interview. Since only one researcher conducted all the interviews and also interpreted

the result findings, the chances for observer error and bias are also reduced.

Validity

Data validity, according to Saunders et al. (2009), is related to factors such as “whether the findings are

really about what they appear to be about? Is the relationship between two variables a causal

relationship?” In order to reduce the threats to validity of research findings, a multiple case study

approach using multiple data collection methods has been adopted and also the findings are

triangulated to strengthen the validity.

4.6 Summary

This chapter initially discusses the research objectives as stated earlier in chapter 1. Then the

hypotheses followed by the research methodology employed are discussed. Subsequently, the data

collection methodology and the data analysis techniques used in the research are explained with

emphasis on ensuring reliability and validity of data.


Chapter 5- Case Studies

5.0 Introduction

This chapter discusses case studies of three typical automotive original equipment manufacturers

(OEM’s). Each case study focuses on describing the structure of its supply chain, sourcing strategies used

and also the risk mitigation capabilities embedded in its supply chain. The findings of these case studies

along with the empirical findings aid in validating hypotheses and in triangulation of data in the

following chapter.

5.1 Case Study 1: A major Indian Automotive OEM

Company Profile

Auto-OEM1 is a major Indian automotive company that has diversified its business into several

segments that include aircraft design and manufacturing, farm equipment manufacturing, trade and

logistics services, IT services, infrastructure development and others. The company employs around

14000 people and is headquartered in India.

The company’s automotive segment manufactures and sells automobiles, spare parts and related

services. The company is one of top producers of utility vehicles and light commercial vehicles to the

Indian market and also has overseas operations that include Americas, Europe, Middle East, Asia and

Africa. Due to client confidentially the company has been referred to as Auto-OEM1.

Automotive Industry trends

Indian Automobile Market

Automakers in the Indian automobile manufacturing sector face intense competition because of the

liberal policies of the government. Consequently, most foreign automakers have local production

facilities and operations in the country thereby increasing the pressure on domestic automakers. Most

automotive OEMs in India source locally and from low-cost countries such as China, Philippines, Taiwan,

etc since their main focus is on reducing production costs to provide attractive prices on automobiles for

the Indian market.


Since a majority of population belongs to the middle-class category, the general preference for

automobiles is that of low-cost with fuel efficiency. The high oil prices in India act as a barrier for people

to purchase cars that are not fuel-efficient. Besides the import duties for parts imported from other

countries are high. High investment on R&D is required to develop low-cost and fuel efficient cars, which

acts as a barrier for most automakers to operate successfully in the Indian market. The Tata Nano,

which costs approximately $2500 released recently by Tata Motors (Fogarty, 2009), is an example of the

kind of preference of the masses – low cost yet fuel efficient. There is also increasing pressure on

automakers to conform to environmental standards as per the regulations of the Government of India.

Characteristics of the supply chain

Auto-OEM1 sources parts and components from a multi – tiered network of local and global suppliers

based in different locations. However, India being a low cost country, a majority of parts is sourced

locally through its supply base of more than 500 vendors. The company maintains and depends on a

pool of Tier-1 suppliers such as Bosch for electronic combustion units (ECU’s), Exide and Amaron for

batteries, etc based on factors such as vendor capacity, lead-time, financial health, global tech-support,

location and amount of investment involved.

The company monitors its Tier 1 suppliers, who are responsible for monitoring and procuring parts from

tier-n suppliers and all procurement activities are handled by the company’s inbound logistics

department (Figure 5.1). The company maintains clusters of suppliers with each cluster having a hub.

This enables the 3PL providers (i.e., outbound logistics function) to build optimal routes to collect

materials from several hubs to the assembly plant, thereby increasing efficiency in transport.

Figure 5.1: Illustration of Supply Chain of Auto-OEM


The firm manages its supply chain through its supply chain planning and control department. Within this

department the procurement function has two units – Strategic Sourcing Business Unit (SSBU) and

Materials Management Business Unit (MMBU). While the SSBU mainly comprises of top-level

executives, who are responsible for key decisions such as vendor selection, sourcing strategies, etc, the

MMBU comprises of buyers, who provide technical specifications to the suppliers and supply quality

analysts, who periodically review quality processes and also perform quality audits for the procured

materials.

Supplier Kanban system

In order to ensure material availability relative to changing material requirements, the company follows

a supplier kanban system. Using various scientific methods kanban sizes and number of kanbans are

decided and kanban triggers are sent to suppliers electronically. Once the triggers are received, the

suppliers acknowledge receipt of trigger and dispatch the material within the lead-time specified in the

service level agreement.

The firm sources nearly 80% of parts from local approved suppliers and the rest from overseas suppliers.

A majority of overseas suppliers are from low-cost economies such as Taiwan, Singapore, Philippines

and China due to the cost benefit they provide. The company also depends to a small extent on Japan

for its electronic component supplies.

Risk Mitigation Capabilities

Some of the strategies that Auto-OEM1 has implemented in order to reduce its susceptibility to supply

disruptions are as below,

The company has taken several initiatives in order to reduce its susceptibility to supply disruptions.

Recently, in the process of moving to a pull based sales strategy from that of a push based strategy the

company has taken measures such as - implementing an IT based system to enable near real-time

visibility of stocks so that they are replenished at the stockyard, frequent deliveries of parts to reduce

overall inventory levels and also as a means to monitor supplier performance through key performance

indicator (KPI) metrics. The move to a pull based system, wherein parts and components are ordered

based on actual demand by using robust inventory planning tools assists in adjusting to variations in

supply and demand, thereby reducing supply chain risks.


In order to increase the reliability and commitment levels of its suppliers, Auto-OEM1 rationalizes it

supply base in order to have the optimal number of suppliers by carefully identifying and assessing

suppliers for each category of parts. In order to bridge the communication gap with its suppliers, the

company has integrated its systems through implementation of cutting-edge ERP tools enabling visibility

across the supply chain. Also, this allows to analyze key metrics such as spend vs. supplier performance

level, supplier’s payment history, etc. In addition to this, to increase the visibility of vehicles on-transit,

the company has implemented a GPS based vehicle e-tracking system to track critical components in

transit. This system assists in tracking the entry – exit times of transport vehicles, the cities traversed,

current location of trucks, etc, which enhances the accuracy in production planning thereby reducing

risks.

5.2 Case Study 2: Nissan

Company Background

Nissan Motor is one of the leading automakers engaged mainly in the manufacture and sale of

automobiles, marine equipments, fork lifting products and related parts. The group organizes its

operations into two reportable segments – automobile and sales financing. The automobile segment

manufactures and sells passenger cars, sports utility vehicles, light utility vehicles and mini vans under

the brand names – Nissan, Infiniti and Forklift.

Nissan has partnered with Renault, a French automaker for automobile manufacturing, sales and

financing. The group together forms the third largest automaker in the world and has recently entered

into electric car market. While Nissan’s alliance partner Renault holds 44.3% stake in the company,

Nissan holds a 15% stake of the French automaker. Renault-Nissan jointly manages the operations of

RNPO (Renault – Nissan Purchasing Organization) and RNIS (Renault – Nissan Infrastructure Services).

The company has manufacturing facilities in twenty countries and sells its products and services in about

sixty countries. The company operates predominantly in Japan, United States, Canada, Mexico,

Australia, New Zealand, South Africa, Middle East and Asia. The company is headquartered in

Yokohama, Japan and employs around 150,000 people globally (Datamonitor, 2011).


Characteristics of Nissan’s Supply Chain

In contrast to Toyota, which manufactures nearly 45% of its global output in Japan, Nissan produces

significantly lesser volume of its global automobiles and parts in Japan. The company’s lesser

dependence on Japan has known to have reduced its vulnerability to risks such as exchange rate

fluctuations, higher labor costs, prevailing high corporate tax rates and Japan’s lack of free trade

agreements with other countries (Soble, 2011).

Nissan procurement strategy involves sourcing from multiple-tiers of global suppliers, with majority of

them being local to the country of production and a small fraction of parts from international suppliers.

Some of the key supply chain functions that the company performs are as below,

Strategic planning,

Procurement,

Bills of material establishment and maintenance,

Production scheduling,

Vehicle order processing,

Parts ordering,

Inventory management,

Logistics network planning,

Transportation,

Warehousing,

Material handling, and

Export operations

A majority of activities related to supply chain planning and management are handled in-house by

Nissan’s employees whereas other repetitive non-value adding functions are outsourced to logistics

providers (Nissan, 2011).

Nissan believes in long-term supplier relationships and works in collaboration with its suppliers to

optimize the entire supply chain as per the processes defined in “Renault-Nissan Purchasing Way”

document by its purchasing departments. The group promotes its values of “Trust, Respect and

Transparency” to every supplier in its supply chain in order to enhance supplier performance and

sustainability.


Supplier Selection

Nissan selects suppliers based on a clear, open and a transparent approach by comparing facts of

supplier capabilities with its requirements. All suppliers are assessed based on the QCDDM (Quality,

Cost, Delivery, Development and Management) metrics. The group evaluates its suppliers’ performance

periodically and shares the results with its suppliers to enhance transparency and to identify scope for

improvement (Renault-Nissan, 2011).

Most of Nissan’s production plants have supplier parks built near the main assembly plant. For example,

In Nissan’s vehicle production plant at Smyrna, Tennessee (Figure 5.2), major components such as

stampings, plastic bumpers, etc required for body assembly are produced in-house whereas the engine

assembly is produced at its Decherd plant in Tennessee and the remaining parts are purchased from

more than 450 suppliers of which 125 are based in Tennessee. Several of Tennessee suppliers are

located in the supplier parks, which are close to the main assembly plant. This allows for just-in-time

manufacturing and delivery of components leading to enhanced efficiency levels and economies of scale

in operations (Nissan, 2011).


Figure 5.2: Nissan’s Smyrna vehicle assembly plant at Tennessee in US (Nissan, 2011)

Nissan monitors and regularly audits its tier-1 suppliers and all other tier-n suppliers are monitored by

the tier-1 suppliers. In order to increase the co-operation with its suppliers and strengthen the

relationship, Nissan involves suppliers in the early phase of product development to enhance

opportunities for co-innovation. The company also works with its suppliers through its “Alliance Supplier

Improvement Program” (Renault-Nissan, 2011), which involves Nissan’s specialists working with


suppliers to improve the supplier’s process efficiency to reduce cost, delivery lead-time and materials

(Renault-Nissan, 2011).

Supply Disruptive Event and Impact

The recent tsunami and earthquakes in Japan has adversely affected the supply chains of all production

plants of Nissan. The disaster has damaged around nine of Nissan’s Japanese parts and vehicle

production facilities and nearly 35 of its suppliers and several other sub-tier suppliers. Most severely

affected is its engine production plant at Iwaki, Japan.

Although Nissan relies mainly on parts produced in the region it operates, some vital high-tech parts

such as electronic components, computerized engine control systems, etc are produced and shipped

from Japan to rest of its manufacturing facilities around the world. Due to the fact that the company

follows just-in-time delivery principles in all its manufacturing plants, key parts arrive at the assembly

line exactly when the vehicle is being assembled. While this obviously reduces cost in holding excess

inventories, it also increases the risk, for instance, following the incident, the company’s Sunderland

manufacturing facility was forced to shut down for three days due to shortage of components (Massey,

2011) and its U.S. and Mexican assembly plants were shut down for six and five days respectively

(Rechtin, 2011).

Although, Nissan and other Japanese automakers maintain a backup stock in anticipation of emergency

situations, however, in the case of electronic components such as chips, which are cheaper to transport,

they are typically sourced from overseas suppliers and often from unique suppliers since most

components are customized according to the automobile. This increases the complexity levels due to

which it becomes difficult to produce such components elsewhere (Reed, 2010).

Risk Mitigation Capability

Since the company maintains a strategic buffer inventory, it provided time to respond to the incident

and minimize the loss (Bunkley, 2011). In relation to this, the company, in order to resume its operations

in Japan, was quick to react and imported engines from its Decherd plant in Tennessee to Japan.


In spite of the impact suffered by Nissan, the company communicated that its global sales for the

financial year would rise to 10% since a majority of its global production volume remains external to

Japan. The company claimed that it was able to assess the global impact of the disruption caused by the

earthquakes in a very short period (Ferrari, 2011). This is most likely due to high visibility the company

maintains across its supply chain.

In contrast to Toyota that lost nearly $1.2 billion, Nissan lost around $434 million (Brennan, 2011). This

could be attributed to its lesser dependence on Japan and also quickly reacting to the crisis situation by

importing the engine assemblies from its overseas production plant to resume its domestic operations

and thus minimizing the impact.

5.3 Case Study 3: Toyota

Company Background

Toyota Motor Corp, one of the largest automobile manufacturing firms in the world designs,

manufactures, assembles and sells motor vehicles and related parts in more than 170 countries. The

company sells its products that include passenger cars, sports utility vehicles, minivans, compact cars

and trucks under the brand names – Toyota, Lexus, Hino, and Daihatsu.

Toyota operates through three segments – automotive, financial services and other businesses. The

automotive segment accounts for nearly 90% of the company’s revenue. The company employs around

320,590 people and is headquartered in the capital city of Japan – Tokyo (Datamonitor, 2011).

Characteristics of Toyota’s Supply Chain

Toyota sources thousands of parts and components from hundreds of Tier 1 suppliers, who build the

parts and ship them directly to the assembly plants. As most other automotive OEM’s, Toyota’s Tier 1

suppliers further source parts from several sub-suppliers forming several tiers of suppliers as depicted

in the figure 5.3 below. In order to increase efficiency in operations, Toyota organizes suppliers into

clusters based on geographic proximity and designs truck routes to pickup parts from these clusters of

suppliers and deliver them to a regional “cross-dock”. However, since the suppliers are located in

various geographic locations the lead time for parts to reach the assembly plants varies significantly.


While it may take about two to three days to procure parts from local suppliers, it takes several weeks

for overseas supplies to reach the assembly plants (Iyer et al., 2009).

Figure 5.3: The Automotive Supply Chain (Mojonnier, 2011)

Toyota’s Sourcing and Purchasing Policy

Toyota categorizes parts into four broad categories and follows a unique purchasing process for each

category. The categories are:

Local parts, which are supplied by suppliers located in the same geographical region as the

assembly plant.

Long-lead time parts, which are sourced from overseas suppliers

In-house parts, which are produced in-house i.e., in the same site as that of assembly plant and

Sequenced parts, which are produced by suppliers located in close proximity to the assembly

plant (Iyer et al., 2009).


For parts that have longer lead times, Toyota orders several weeks in advance of production of vehicles,

and also takes into account the work schedules of the respective countries. For example, Toyota’s North

American and European plants source nearly a quarter of their parts from Japan that have a lead time of

about six weeks and hence such parts are ordered in advance by taking into account national holidays,

vacation seasons, etc of the respective countries (Iyer et al., 2009).

Toyota recognizes the fact that its suppliers play a crucial role in its value chain and hence looks at

suppliers as the starting point of value creation to its customers. In relation to this, Toyota uses stringent

processes to select its suppliers and maintains a high level of collaboration with its suppliers (Iyer et al.,

2009).

In order to increase visibility in the supply chain, Toyota encourages suppliers to share information of

their operations with its plants. Since Toyota focuses on “bad news first” i.e., to discuss problems first to

ensure that they are resolved at the earliest, in case any issues are found at the supplier’s site, Toyota’s

managers proactively act and work with the supplier until the issue is resolved. In order to monitor

supplier performance and detect any issues proactively, the company relies on frequent deliveries of

parts from its suppliers (Iyer et al., 2009).

Unlike most OEM’s Toyota doesn’t believe in increasing the number of suppliers so as to induce

competition and bid for best prices. In contrast, Toyota aims to reduce its supplier base while creating

and maintaining long-term relationships with its existing suppliers and also to assist their suppliers to

develop their “capabilities, capacity and performance levels” (Iyer et al., 2009).

Supplier location

Toyota ensures that suppliers are located in close proximity from the assembly plants so that their

delivery lead times provide for efficient operation of the assembly plants. For instance, in Japan’s

assembly plants, nearly 85% of parts volume come from suppliers located with fifty-mile radius, whereas

in North America and Europe, the company ensures that at least eighty percent of parts can be procured

within a lead time of 3 – 5 days. Also having suppliers located close to the assembly plant ensures

maintaining lower inventory levels, thus increasing the efficiency levels and reducing the supplier risk

(Iyer et al., 2009).


Crisis Management at Toyota

Due to the unpredictable nature of crisis events such as natural disasters, fire, etc and due to the

increased focus on efficiency in operations by adopting approaches such as lean, JIT and six sigma,

Toyota’s supply chain is just as vulnerable to disruption as that of any other automaker.

Hence, in order to deal with such crisis situation, Toyota uses contingency plans to ensure business

continuity. The company follows an eight step crisis management process that includes,

1) Identifying the crisis

2) Communicating with the internal and external stakeholders

3) Assessing the impact of the disruptive event

4) Assigning the appropriate crisis owner

5) Assembling and dispatching the crisis team to the scene of crisis.

6) Mitigating the impact of the incident through short-term and long-term plans

7) Practicing good corporate citizenship and supporting suppliers during recovery process

8) Preparing the reflection report and sharing it throughout the organization (Iyer et al., 2009).

Supply Disruption Event: Aisin Seiki

On February 1, 1997, a fire erupted in one of the plants of Aisin Seiki, a supplier that produced more

than 99% of Toyota’s brake valves, seriously damaging the tools and machinery used to manufacture the

valves. Since Toyota procures parts based on just-in-time delivery and maintains only a four hour supply

of these valves, the company abruptly shut down 20 manufacturing plants in Japan, which built about

14,000 automobiles a day (Iyer et al., 2009).

Due to the close long-term supplier relationship that Toyota maintains, most of the suppliers that

Toyota and Aisin approached responded positively. Once the blueprints of the valve were supplied, the

suppliers improvised their tooling systems and setup makeshift production lines. Since Aisin’s inspection

plant was unaffected due to the incident, all valves produced by suppliers went through quality checks

at the plant before being shipped to Toyota to ensure only quality parts are being supplied. Further, in

order to speed up the production and resolve any potential bottlenecks, Toyota dispersed its personnel

across supplier production locations (Iyer et al., 2009).


By the 5th of February, the first batch of the valves was delivered to Toyota thereby resuming the

production and limiting the impact of suspended operations to just five days following such as major

incident (Iyer et al., 2009).

5.4 Summary

This chapter has discussed the case studies of Auto-OEM1, Nissan and Toyota. While the findings of

Auto-OEM1 are majorly based on primary interviews conducted on the company’s supply chain

managers, the findings of other two cases are from secondary sources that include articles in

newspapers, company documents, etc.


Chapter 6 – Findings and Results

6.0 Introduction

This chapter discusses the research findings and results. The data from the interviews conducted is

grouped into key themes which are further grouped into four key categories and explained in detail by

comparing with relevant literature. Subsequently, the hypotheses developed earlier are validated and

the cases discussed earlier are cross-examined in order to facilitate data triangulation.

6.1 Context of Interviewee profiles

Using the purposive sampling technique as mentioned earlier, a sample of eleven supply chain

professionals with diverse experience in managing supply chains have been selected. The background

details of the interviewees are presented in the table below,

Interviewee and Firm No of employees Level of job functionNo of years of service

Depth of involvement in SCM

Familiar with SCRM concepts?

Interviewee 1 , Auto_OEM1 20000+ Manager 5 - 10 years High YesInterviewee 2 , Auto_OEM1 20000+ Vice President 15+ years High YesInterviewee 3 , Auto_OEM1 20000+ Manager 15+ years High YesInterviewee 4 , Auto_OEM1 20000+ Manager 10 - 15 years High YesInterviewee 5 , Consulting-Firm2 < 5000 Managing Director 5 - 10 years High YesInterviewee 6 , Pharma3 < 5000 Director 15+ years High YesInterviewee 7 , Agri4 10000 - 20000 Managing Director 15+ years High YesInterviewee 8 , TEXTILE 5 < 5000 Manager 15+ years High YesInterviewee 9 , TEXTILE 6 < 5000 Managing Director 5 - 10 years Medium YesInterviewee 10 , TEXTILE 7 < 5000 Manager 5 - 10 years High YesInterviewee 11, Auto8 5000-10000 Manager 5 - 10 years Medium Yes

Figure 6.1: Background information of Interviewees

A series of four individual interviews with managers of one major automotive OEM and individual

interviews with seven other executives from different industries and sectors with substantial experience

in supply chain management were conducted.

In order to maintain the anonymity of respondents, they have been named with numbers from

interviewee 1 to interviewee 11 and to maintain anonymity of their organizations, they are referred to

as Auto-OEM1, Consulting-Firm2, Pharma2, Agri4, Textile5 to Textile7 and Auto8 respectively. In

addition to this, no reference of the firms will be presented in the list of references section.


6.2 Data Structure of Findings

The findings of the research are based on interviewee responses. These findings are first summarized

into data units which are then grouped into eight key themes. These themes are further grouped into

four broad categories as presented in the table below.

Themes 1 and 2 belong to category 1 and discuss common factors influencing the severity of impact of a

supply disruption. Theme 3 and 4 are grouped in category 2 and discuss how firms discover the

occurrence of a disruption in its supply chain. Themes 5 and 6 belong to category 3 and are related to

recovery of supply chain from a disruption. Themes 7 and 8 discuss supply chain redesign and common

barriers to recovery and are grouped into category 4.

Research Findings Themes CategoriesPolitical InstabilityRaw material risksExchange rate fluctuationsTransportation issuesEnvironmental regulationsWeather

Lean Manufacturing Longer supply chainsCommunication issuesSingle sourcingManufacturing issuesPoor forecasting Logistics issuesSupplier capabilitiesInappropriate planning

Frequent communication Feedback from agentsReportsDelivery patternsForecast modelsOthers

Supplier performance monitoringSupplier AuditsIT systems

Cate

gory

1: F

acto

rs in

flue

ncin

g se

veri

ty o

f im

pact

of a

sup

ply

disr

upti

on

Theme 1: External Factors

Cate

gory

2: D

isru

ptio

n D

isco

very

Theme 4: Early Warning Systems (EWS)

Theme 3: Risk Identification

Theme 2: Supply Chain Characteristics


Site visitsFrequent communicationExtent of disruption vs inventory levelAssessing risk to company's revenueOrders on-hand vs Product demand Assessing extent of loss of sale

Systems integrationMulti-SourcingMonitoring Proactive StrategiesDiversification of SC while increasing dependency on local suppliersSupplier evaluationForecastingStandardization of processesVendor managed InventoryIncreasing safety stock for critical materialsUse of contingency plansScenario PlanningHedging Ca

tego

ry 3

: Dis

rupt

ion

Reco

very

Theme 6: Risk Mitigation

Theme 5: Risk Assessment

Systems Integration technologiesSupplier relationshipUnification of all entities in SCTraining all entities in SCAlternate supplier development Robust risk analysis and risk planning approach

Resistance to ChangePoor communication within the SCTime and Money implicationsScarcity of suppliesMultiple regulations in different countries

Lack of SC flexibilityLack of ownership Monopoly suppliersSupplier attitudesDamage to infrastructureCo-ordination issues Accurate information availability

Theme 7: SC Process Redesign

Theme 8: Barriers to recovery

Cate

gory

4: S

uppl

y Ch

ain

rede

sign

Figure 6.2: Data Structure of Findings


Theme 1 – External Factors

This theme addresses the factors that are external to the supply chain and influence severity of impact

of a supply disruption. The interviewees highlighted several points and the most prominent amongst

them have been presented in the table below

Research Findings Quotations from IntervieweesPolitical Instability "Political instability" (10), country stability(6)Raw material risks Raw material costs driven by weather or oil " (10) ,

..any sudden changes in...raw material costs..(11)

Exchange rate fluctuations currency fluctuations that would ultimately implicate erratic behavior of commodity prices(8), change in...exchange rate..(11)

Transportation issues ..Transportation risks..(11), Logistics bottlenecks (transportation) (2), transportation cost increases (6), high transportation costs found for moving material from one of our manufacturing unit(4)

Environmental regulations ..compliance to environmental standards, governmental incentive restriction, new regulation etc.... (11)

Weather raw material costs driven by weather(10),Weather conditions(7)

Theme 1: External Factors

Figure 6.3: Findings from theme 1

(The number in brackets after each quotation represents the interviewee number)

It can be seen that one of the most important external factors as highlighted by four respondents is

“transportation issues”. Logistics is an integral function of any supply chain and efficient management of

this function is crucial for materials to reach the right place at the right time and at the right cost. A

sudden disruption in logistics can bring the entire flow of materials to a standstill leading to negative

ramifications throughout the supply chain.

Political instability is another important factor that can disrupt the supply chain. Since most automotive

OEM’s procure at least a few components through global suppliers, a political crisis in a far-off country

can still impact the normal operations of the company. For instance, the recent political crises that

erupted in Egypt and Libya led to disruption of movement of several cargo ships enroute to their

destination countries for a significant period, until finally alternate routes were developed and rerouted.

Since most automakers follow just-in-time delivery of components, such incidents may result in shortage

of components bringing the production line to a standstill.


From the literature reviewed, it can be stated that one of the major risks associated with raw materials

is its availability. Depending on availability of raw material, its demand and also cost varies. Shortage of

raw materials leads to increased demand and hence increased cost of procuring them and vice-versa.

The risk is further amplified when the raw material availability is scarce at the manufacturing region and

holding excess stock proves to be too expensive. As a result of this, internal product quality issues that

may arise due to use of sub-standard materials from alternate suppliers could lead to transfer of risk

throughout the supply chain.

Another factor that drives raw material costs is exchange-rate fluctuations due to market volatility as

stated by Interviewees 8 and 11. This leads to abrupt changes in commodity prices due to which the

materials have to be purchased at higher costs and this may increase the overhead costs thus reducing

the bottom-line performance of the organization. Managing raw material risks in a supply chain is hence

very essential. However, from the literature, it is clear that by using strategies such as hedging against

the most volatile raw materials, this particular risk can be mitigated. Also, this increases the security of

supply and improves supply chain operations.

Sudden changes in government regulations, especially those related to compliance to environmental

standards could also pose a risk as mentioned by interviewee 11, as they interrupt normal operations in

supply chains. This may be because companies would have to invest heavily on R&D to redesign its

existing products to comply with the norms. This might also result in changes in sourcing of parts and

materials from new suppliers and may result in shortage of supplies.

Natural calamities such as hurricanes, tsunami, etc have been known to cause severe damage to people

and infrastructure. Consequently, this may lead to supply disruption, even if one of suppliers in the

supply chain is affected. Also, as highlighted by interviewees 10 and 7, this may result in increase in raw

material costs, thus increasing the risk as explained earlier. Although, this risk cannot be eliminated, by

using early warning systems such as weather forecast tools, firms will be more likely to handle the

situation in a better manner and reduce its impact.

Theme 2 – Supply chain characteristics

This theme highlights the characteristics of modern supply chains that increase the vulnerability of

disruption risks to supply chains.


From the literature, it is evident that increased outsourcing of manufacturing activities to low cost

economies in order to achieve economies-of-scale and gain expertise advantage has extended the

length of supply chains, making them global. Global supply chains are excessively dependent on factors

such as transportation, global political stability, etc. Also as organizations optimize their supply chains by

following approaches such as just-in-time, lean operations, etc in the pretext of improving operational

efficiency, are thereby increasing their vulnerability to even minor disruptions. These factors have been

highlighted by interviewees 4, 5 and 6 in Table below.

Research Findings Quotations from IntervieweesLean Manufacturing Overall, supply chains are leaner and operate with

fewer buffers....(5), Optimization at silos level leads to sub-optimization at global level. This means that all the entities in the supply chain try to optimize or improve their processes and become unaware of the impact or disruption they cause to the entire chain(4)

Longer supply chains Longer supply chains, multiple trade zones & barriers...(6)

Communication issues Inter-departmental communication(4),Lack of communication between all the supply chain entities right from manufacturer's manufacturer to the final supplier(4),Lack of continuous communication(9),

Single sourcing Single source dependence(2),Always have 2-3 approved suppliers, products and costing(1),

Manufacturing issues Manufacturing process failures (3)Poor forecasting No or Poor forecasting based on sales / production

planning..(1)Logistics issues Supplier shipment failures(3),Logistics bottlenecks

(transportation)(2)Supplier capabilities Improper assessment of supplier

capabilities(technical/Capacity/operational/commercial)(2)

Inappropriate planning No focus on Supplier planning..material planning...(1),Incorrect production planning(3)

Theme 2: Supply Chain Characteristics


One of the common supply chain characteristics of most automotive manufacturers is dependency on

single sources of supply. By depending on few suppliers, the order sizes are larger enabling firms to

purchase materials and components at lower prices. As it is evident from the case studies, Toyota, for

example, has always aimed at reducing its supply base and maintaining long-term relationships with its

existing suppliers. While this approach may provide cost advantages and efficiency, it increases the


dependability of a firm on its suppliers, thus exposing it to risks such as supplier insolvency, supplier

manufacturing failures, etc.

Poor communication has been highlighted by interviewees 4 and 9 as one the important factors

contributing to risk. Automotive supply chains are very complex in general and procure parts from

several tiers of suppliers globally. The lack of proper communication channels among the different

entities involved in the supply chain reduces the transparency level in the supply chain and hence in the

event of a disruption, leads to chaos due to lack of coordination among the suppliers.

Other factors such as inappropriate planning, incorrect assessment of supplier’s capabilities such as

“technical, capacity, operational”, etc have been emphasized by the interviewees as factors that add to

the risks.

Theme 3 – Risk Identification

This theme discusses the risk identification process, which is the first stage of risk management process,

as stated in the literature. While there could be several organization specific ways of identifying risks in

the supply chain, a few of them that emerged from the research findings are discussed below.

Based on the responses from interviewees 1, 6, and 7, delivery patterns has been highlighted as the

most common way of identifying supplier risks. Interviewee 1 emphasizes the use of “weekly ordering”

as a strategy to identify risk. This finding is supported even in the cases of Auto-OEM1, Toyota and

Nissan, who depend on frequent deliveries of parts as a means of reducing their inventory levels and

also to identify risks from the suppliers. Since the parts are delivered on a frequent basis any issues such

as product quality, failure to deliver on-time, non-delivery, etc from a supplier can be quickly identified

and steps taken to reduce risk from such suppliers.

While interviewees 8 and 9 highlight frequent communication as a means of identifying risks since it may

reveal any “changes in behavior”, interviewee 10 depends on the feedback from agents in supplier

locations to identify any risks.


Research Findings Quotations from IntervieweesFrequent communication Day to day communication may reveal change in

behaviours...(8),Communication and analysis...(9)Feedback from agents Rely heavily on agents based in country to feedback

information(10)Reports We also have production tracking reports which are

updated weekly(10),Delivery patterns Delivery patterns & confirmations. Yes, metric systems

primarily are delivery confirmations, dealing with unique orders(6), Non-delivery (7), weekly ordering / delivery...(1)

Forecast models The use of progressive forecast models helps to avoid such situations...(7)

Others Structured Demand vs capacity review,Orders Vs acknowledgement review between suppliers and responsible people throw out potential disruptions (2)

Theme 3: Risk Identification


Traditional methods such as reviewing the number of ‘orders vs. acknowledgement’ received between

the suppliers and the buyers can be used to identify risks (Interviewee 2). Alternatively, more scientific

approaches such as “progressive forecast models” can be utilized (Interviewee 7). Additionally, as stated

by interviewee 10, regularly updated “production tracking reports” can prove to be useful in identifying

potential supplier risks.

Theme 4 – Early Warning Systems

This theme has emerged as a consequence of the research question that explores if organizations use

any early warning systems or tools in order to proactively discover any potential supply disruptions.

Most of the interviewees either responded negatively or unsatisfactorily when they were asked if their

organizations use any early warning tools to detect disruption risks. However, among those who

responded, interviewees 1 and 5 highlighted that monitoring supplier’s performance in terms of

“production sequences”, “material planning”, etc serve as an early warning indicator to detect any

disruptions. Interviewee 2 highlighted regular supplier audits and using effective enterprise resource

planning (ERP) packages to spot any irregularities that might lead to supply disruptions.


Research Findings Quotations from IntervieweesSupplier performance monitoring From my observation, most firm's rely on supplier or

operational performance indicators as early warning mechanisms(5), Even at supplier location, we monitor proper material planning and production sequences on timely basis in order to get early alarm in case of any supply chain disruption (1)

Supplier Audits supplier qualification audits...Periodic system audits(2)

IT systems A robust ERP system(2)

Theme 4: Early Warning Systems

(EWS)


Theme 5 – Risk Assessment

This theme discusses the second stage of SC risk management process as reviewed in the literature

earlier. Literature suggests that by assessing the probability of occurrence of each risk with its potential

impact level, the criticality of each risk could be evaluated.

Based on the responses from interviewees 10 and 11, by assessing the “extent of disruption vs.

inventory level” held by the company, the severity of impact could be assessed. In relation to this, it may

be noted that although most automakers follow just-in-time manufacturing approach, they do hold

strategic buffer stock for critical components to absorb any minor disturbances in supply or demand, as

highlighted in literature. However, due to the complexity in automobile supply chains due to the high

number of parts involved, the non-availability of even a small less expensive component could bring the

production line to a standstill as explained earlier in the literature. Hence, assessing risks for every

component becomes crucial in such a case. In support to this argument, Interviewee 5 suggests an in-

depth assessment of risk to company’s revenue at the component level.


Research Findings Quotations from IntervieweesSite visits Key professionals would visit, would assess the

severity of the current and future damage - review contracts and negotiate the way forward(8)

Frequent communication Communication and analysis what they can provide and find alternatives(9)

Extent of disruption vs inventory level We measure the potential length of disruption versus our current inventory position(10), ..For how much time we can run production line based on the inventory available?..(11)

Assessing risk to company's revenue Leading-edge companies are able to associate any part or component with some value of risk to revenue.In other words, if this part was suddenly unavailable, what value of company revenues would be at risk? (5)

Orders on-hand vs Product demand Impact of disruption is then a assessment of orders on hand and potential demand for the product from market(2)

Assessing extent of loss of sale [By assessing,] Does this attract stock out and result into lose of sale?, Does this result into production stoppage?, Does this attract any customer penalty?(3)

Theme 5: Risk Assessment


While interviewee 9 mentions that frequent communication with the disrupted suppliers helps to assess

the extent of disruption and find alternatives, interviewee 9, suggests sending key professionals to the

supplier site to assess the severity of damage and then depending on the severity level, finding alternate

options.

Interviewee 2 suggests that the demand for the product plays a role in risk assessment and by assessing

the number of orders on-hand relative to the demand for the product, the impact due to the disruption

could be evaluated. Conversely, Interviewee 3 suggests assessing the extent of lost sales due to the

disruption as a means of estimating the severity of impact.

Theme 6 – Risk Mitigation

This theme forms the third stage of risk management process and is very important in the context of the

research. Literature suggests an abundance of strategies for mitigating risks in the supply chain.

However, application of these strategies depends on several organization specific factors and hence

these findings cannot be generalized.


From the responses of interviewees 2, 5, 7, and 9, it is evident that “multi-sourcing” is the best way to

mitigate supply risks. Interviewee 11 suggests “diversification” of supply base, but with a focus on

sourcing from local suppliers as in the cases of Auto-OEM1 and Nissan. However, it may be noted from

the literature that multi-sourcing can only be effective when the alternate suppliers have the capacity

and capability to increase their production at short notices. This can be possible if the alternate suppliers

either maintain redundant stocks or have flexible production facilities.

Interviewees 8 and 9 suggest using systems integration technologies to facilitate easier communication

among various entities involved in the supply chain. There are several technologies available in the

market such as electronic data interchange (EDI), enterprise wide ERP packages provided by vendors

such as SAP and Oracle, etc that help to reduce the communication gap and increase visibility in the

entire system.

While interviewee 4 suggests regularly evaluating suppliers through auditing processes, interviewees 1

and 9 suggest monitoring the production process and labor positions of suppliers as means to risk

mitigation. In contrast, interviewee 1 suggests holding safety stock for critical materials to reduce risk.

Interviewee 2 suggests vendor managed inventory (VMI) as a strategy to mitigate risk. While obviously

VMI is one of the best approaches to managing inventory since the supplier monitors and replenishes

the inventory levels of the customer, however, it does have drawbacks such as the cost and reliability of

the technology used, the relationship and high level of trust with the suppliers, etc, which limits its

applicability in automotive supply chains.

Interviewees 1 and 3 suggest the use of scenario planning as a tool to generate different scenarios and

develop contingency plans for each scenario. While having back-up plans incorporated in the supply

chain planning does provide flexibility, however, in reality, since the occurrence of most disruptive

events is unpredictable, the scope of this technique is limited. However, as suggested in literature it

does enable managers to be better prepared in handling disruptive incidents.


Research Findings Quotations from IntervieweesSystems integration Monitoring and unification of systems(8), Have

integrated technologies to effect easier communications(9)

Multi-Sourcing Multiple suppliers(9), Multiple sourcing(7),Multiple sourcingspread across geographies...(2),dual-sourcing of suppliers(5)

Monitoring Must keep an eye on suppliers...(9), we monitor proper material planning and production sequences on timely basis..Monitoring of labor positions..(1)

Proactive Strategies ...do data analysis for any failure or operational performance. In order to take corrective action in advance (11),A complete risk assessment of potential risk areas throughout the supply chain (5), Multiple manufacturing sites, hub & spoke arrangement geographically (6)

Diversification of SC while increasing dependency on local suppliers

Diversify supply chain & be ready to pay more for nearer supply sources(11)

Supplier evaluation Regular vendor audits ensure that all processes are being adhered to and followed (4), Having supplier evaluation mechanism which keeps suppliers on their toes to be in the race(4)

Forecasting Disruption Forecasting(7), An accurate forecasting tool and a scientific planning horizon (2)

Standardization of processes standardization where possible(2) Vendor managed Inventory supplier managed inventories, etc .....to mitigate the

risks of disruption(2)Increasing safety stock for critical materials

...more safety stock(1)

Use of contingency plans If the supply disruption is severe then look at the option of getting thematerial by alternate method(3)

Scenario Planning Look at the options.....Is there any alternate part for this which could be used?(3), need to have strong planning in place..More focus towards planning is the key.. (1)

Hedging We encouraged our suppliers to extend their raw material purchasing reach and to buy ahead (stock-pile)(10)

Theme 6: Risk Mitigation


While interviewees 5, 6, and 11 highlight using proactive strategies to mitigate the impact of a supply

disruptions, Interviewees 2 and 7 propose “disruption forecasting tools” and scientific planning

approaches that aid in better inventory decisions based on actual demand. Interviewee 10 suggests

hedging as a proactive strategy to reducing certain supply risks while interviewee 2 suggests

standardization of various processes to minimize risks. A product with a standardized set of processes


can be easily produced at different facilities in the event of disruption, thus increasing flexibility and

hence resiliency of supply chains.

Theme 7 – Supply Chain Redesign

This theme discusses the strategies that can be implemented in order to redesign the supply chain to

mitigate the severity of risks and hence improve supply chain resiliency. As stated in the literature

earlier, supply chain redesign involves product and process redesign to mitigate risk exposure. However,

the empirical findings suggest mostly process redesign strategies.

From the responses of interviewees 2, 4, 5, and 9, it is clear that integrating the various systems and

unification of all members of the supply chain, as discussed earlier are the most crucial factors to

consider in supply chain redesign. Apart from this other factors such as strengthening the supplier

relationships (10), training all members in the supply chain (4), alternate supplier development (1) and

robustness in risk planning and analysis (2) can be incorporated in the supply chain to increase its

responsiveness and resiliency.

Research Findings Quotations from IntervieweesSystems Integration technologies Have integrated technologies to effect easier

communications (9), a number of technology and other process tools (5), A robust ERP system is the most essential(2)

Supplier relationship We must work to strengthen the operational relationship with all parties involved(10)

Unification of all entities in SC as far as redesigning of the chain is concerned we need to ensure that all the entities involved in the supply chain act as a single unit and work in tandem....There has to proper cohesion and gelling of the members only then the supply chain(4)

Training all entities in SC holding meetings with suppliers and having open house sessions...to make the users understand the significance of supply chain..(4)

Alternate supplier development Alternate supplier development & weekly ordering(1)

Robuse risk analysis and risk planning approach

A thorough risk analysis and a robust plan to cover as many risks have to be considered while designing a company's SCM process. Considering all the risks up to at least 2nd tier suppliers and finding an optimal balance is also a factor (2)

Theme 7: SC Process Redesign



Theme 8 – Barriers to recovery

This theme discusses the common barriers that organizations encounter when implementing recovery

plans in their supply chains.

One of the key factors highlighted by interviewees includes resistance to change (interviewee 4). It is

very common in most organizations that employees resist to change due to several factors such as fear

of job loss, loss of comfort zone, fear of adapting to new environment, etc. In order to reduce this

barrier, firms could hire external change managers in order to implement effective change management

practices. Although this has a cost overhead, but the long-term benefits far outweigh the short-term

expenses.

Another key barrier to recovery is supply chain flexibility (interviewee 6). SC flexibility, as highlighted in

literature enhances a supply chain’s resiliency and sustainability to major disruptions. Flexibility can be

built through several ways such as increasing visibility across the supply chain, strengthening supplier

relationships, improving communication channels etc. This helps to reduce other barriers such as

supplier attitudes (interviewee 2), coordination issues (interviewee 3), etc. From the literature, it can be

stated that partnership sourcing can be used as an effective strategy to reduce this barrier to recovery.

Other major barriers to recovery include damage to infrastructure (interviewee 2), monopoly suppliers

of highly specialized products (interviewees 1, 2), scarcity of supplies (interviewee 5) and different

regulations that exist in different countries (interviewee 6). However, by taking appropriate measure

such as, for example, backward integration in order to reduce dependability on monopoly suppliers,

these barriers can be reduced.


Research Findings Quotations from IntervieweesResistance to Change Slow responses to change(8),Resistance among users

to accept changes...(4) Poor communication within the SC Lack of continuous communication(9), ..Lack of

communication..Inter-departmental communication.(4)

Time and Money implications Time and money(10), Cost implications(3) Scarcity of supplies Both you and your industry competitors are seeking to

recover or find alternative means of supply. One company can lockout another from available capacity (5)

Multiple regulations in different countries

Multiple regulations in different countries of manufacturing & the actual country of sale(6)

Lack of SC flexibility Lack of flexibility, Supply Chains are rarely fluid(6)

Lack of ownership Ownership of the cause is one of the foremost barriers. Nobody comes forward to accept and take the responsibility of the cause (4)

Monopoly suppliers critical / customized products which are more sensitive than other common products...(1),Highly specialized materials /process with no alternatives can be another barrier (2),

Supplier attitudes Softer issues like the attitude of suppliers can also be a factor to be reckoned (2)

Damage to infrastructure Natural calamities have a higher barrier for recovery due to the breakdown of infrastructure (2)

Co-ordination issues Co-ordination with other functions like engineering dep’t for alternate material etc…(3)

Accurate information availability Availability of information to take calculated risk (3), ....barriers would be getting information from all concerned..(4)

Theme 8: Barriers to recovery

Figure 6.10 : Findings from theme 8

6.3 Hypothesis Evaluation

Hypothesis 1

The complexity and length of a supply chain are positively related to the severity of impact of a supply

disruption.

From the responses of Interviewees 1 and 2 of Auto-OEM1 who state that,

“India being a low cost country, our company sources majorly through local suppliers. We maintain a

pool of local and global approved suppliers that form the tier 1 of the supply chain.” – Interviewee 1


“A local supply base and 'Arm's length' supply process, based on the complexity of the product sourced.”

– Interviewee 2

It can be inferred that although Auto-OEM1 has a global supply chain, the company sources a majority

of parts from local suppliers and follows an 'Arm's length' supply process. This indicates that the supply

chain of Auto-OEM1 is relatively less complex and localized compared to most other automakers. Due to

the relatively lesser nodes and a local supply base in a less complex supply chain as in the case of Auto-

OEM1, in the event of a supply disruption, the firm’s supply chain will most likely be able to recover

much quicker than other more complex supply chains. For instance as stated by interviewee 1

“A few years back, labor strikes at a supplier's organization – [led to] loss of half day production due to

JIT inventory – we procured the same item from other local supplier.”

It is clear from the statement above that the company was quickly able to respond to the situation and

mitigate the loss of production to just half a day, although it followed a just-in-time delivery approach.

Hence it may be stated that,

A supply disruption in a “complex and global” supply chain would likely be more severe than a

disruption that occurs in a relatively less complex and more localized supply chain.

Hypothesis 2:

The quick detection and response capability of a supply chain to a disruptive incident is more likely to

reduce the severity of impact of disruptions. The response mechanism of firms involves adopting either

a reactive or a proactive approach to risk mitigation. Literature suggests that companies that adopt a

proactive approach fare better in mitigating the risks than those that adopt a reactive one. For instance,

due to the recent earthquakes and tsunami in Japan, a few of Auto-OEM1’s sub-tier component

suppliers were disrupted as stated by interviewee 2,

“The recent earthquake in Fukushima on Japan had an impact in our organization. This was mainly due

to the impact on the 2nd/3rd tier component suppliers....“

However, due to the company’s proactive approach towards supply chain risks, i.e., by sourcing most

parts from multiple suppliers based in different locations and also by maintaining a strong relationship

with suppliers as stated by interviewee 2,


“....we were quick to approach quality alternate suppliers from different locations who pitched in with

immediate effect.”

Due to this, the firm was able to avoid a potential supply disruption, which would have otherwise

impacted the production.

Also in another instance, Toyota’s Georgetown production facility was shut down for a day in 1998

following an ice storm that blocked major roads. Post event, Toyota hired a weather forecasting

company, WeatherData Inc., as an early warning mechanism to monitor and update on weather

forecasts. The payoff came in 1999, when a similar snow storm occurred and Toyota’s production

facilities were unperturbed, whereas those of Ford Motor Company were interrupted. Since the weather

forecasting company also monitors Toyota’s suppliers’ locations, any disruption such as hurricane,

tsunami, etc occurring at its supplier’s location could also be detected in advance (Murphy, 1999).

Hence, it may be stated that using early warning systems enables mitigation of disruption risks.

From the above two instances, it may be hypothesized that,

A global supply chain that has capability to quickly detect disruptions using early warning systems

(EWS) and proactively respond to the situation would incur less severe impact than a supply chain that

has no such capability at all.

Hypothesis 3:

From the hypotheses 1 and 2, it may be inferred that

An unplanned supply disruption in a global, complex supply chain is less likely to be severe if the

supply chain has the capability to quickly detect and proactively respond to the disruptive event.

The three hypotheses have been depicted pictorially in the Figure 6.1 below,


Figure 6.11: Theoretical Synthesis of Hypotheses

6.4 Cross Comparison of Case Studies

Through an in-depth analysis of Auto-OEM, Nissan and Toyota’s supply chains, many interesting facts

have emerged.

Although most automotive supply chains have similar characteristics such as global sourcing,

outsourcing, lean and just-in-time manufacturing, etc, they differ in terms of risk management

capabilities. Since most risks are unpredictable, only the well planned supply chains are likely to survive

from severe disruptions with minimal impact.

Among the cases selected for research, Auto-OEM1 was chosen because of the typical characteristics of

its supply chain, which is more localized with relatively lower level of complexity compared to that of

Nissan and Toyota. Due to these characteristics and also its risk management capabilities such as

increased visibility across its supply chain, multi-sourcing, increased dependence on local suppliers,

supply base rationalization, etc the company was able to perform well in crisis situations as evident from

the interviewee responses.

In the cases of Nissan and Toyota, both are Japanese automakers and follow similar manufacturing

approaches such as just-in-time, lean, six-sigma, etc in order to increase operational efficiency. Both the

companies rely extensively on strengthening relationships with suppliers by forming partnership


alliances. For example, Nissan through its “Alliance Supplier Improvement Program” (Renault-Nissan,

2011), works with its suppliers to improve their processes and capabilities in order to increase efficiency

levels. As evident from the literature, partnership sourcing is an effective strategy to reduce risk in

supply chains since it strengthens the relationship between suppliers and customers thereby improving

information flows and supplier capabilities leading to improvements in “quality, delivery, cost and

innovation” (Macbeth & Ferguson, 1994).

In terms of risk management capabilities, both companies have well defined strategies and back up

plans embedded in their operational strategies. Toyota, for example has a well defined crisis

management procedure and contingency plans to ensure business continuity during emergencies. In the

event of a crisis, the company follows a structured approach to resolving the issue and also to learn the

vulnerabilities in existing system from the experience. The effectiveness of Toyota’s risk management

capability is clearly demonstrated by the way it managed to reduce the impact when it faced a severe

supply disruption due to the Aisin fire incident as discussed earlier.

However, Nissan and Toyota differ in their operational strategies.

Toyota produces nearly half of its volume in Japan. Although, after the financial crisis of 2008, the

company has reduced its domestic production, the company continues to export more cars than it sells

in Japan. This has been highly criticized as a money-losing strategy due to the high strength of Japanese

Yen, higher taxes, etc, as a result of which the company incurred a loss of Y362bn in 2010 of which

nearly 60% was due to automobiles produced domestically and shipped overseas (Soble, 2011). Despite

these constraints, the company continues its domestic operations at the same level because of the high

value of patriotism to the country that Toyota believes in, as admitted by Mr. Toyoda, the company’s

President (Soble, 2011).

In contrast, Nissan produces one-fourth of its global volume domestically. The company produces a

major percentage of automobiles in the country it operates. Due to this, Nissan has reduced its

vulnerability to currency swings while facilitating expansion in emerging markets such as China, Russia,

India and Brazil (Soble, 2011).

The recent tsunami and earthquakes in Japan exposed the vulnerabilities of both supply chains.

Although both the automakers were impacted by the disaster, Toyota incurred more severe losses

approximating nearly $1.2 billion when compared to Nissan that incurred a loss of around $434 million

(Brennan, 2011). Although both companies have now recovered to normal levels, due to more widely


dispersed production facilities of Nissan, it was able to recover much quicker than Toyota as evident

from the statement “By May, its [Nissan’s] global output was back above last year’s volume, while

Toyota’s was only halfway there” (Soble, 2011).

From the findings above and the interviewee responses of Auto-OEM1 and others, it can be seen that

the structural characteristics of a supply chain positively influence the severity of impact of a disruption

while the risk mitigation capability of supply chains is negatively related to severity of impact of a supply

disruption further validating the hypotheses discussed earlier.

An additional finding of the research is related to business continuity planning. Literature suggests that

most companies do not include logistics and supply chain risks in their business continuity plans.

However, the empirical findings to this particular research question suggest that companies

affirmatively include logistics and supply chain disruption risks in their business continuity plans and

consider it a crucial part of the planning process as it is evident from the interviewee responses below.

“Yes. A periodic review of this is also carried out during supplier audits.” – Interviewee 2

“.....they are a major core of this process “– Interviewee 7

6.5 Summary

This chapter begins by providing a brief description of the background details of the interviewees who

participated in the research. Subsequently, the data structure of findings, which includes the eight

themes that have emerged are discussed in detail. Then after evaluating the hypotheses based on the

interviewee responses of Auto-OEM1, the three case studies are cross-compared to further validate the

hypotheses.


Chapter 7: Conclusion and Future Recommendation

7.0 Introduction

This chapter summarizes the main findings of research that answer the research questions as discussed

in chapter 1 and through these findings provides implications for managers and academia.

7.1 Literature Reviewed

Due to the relatively broad nature of research area, it is pragmatically not possible to cover every aspect

of it in detail. Hence the key topics that are most relevant in literature are discussed. Further, in order to

have a clear distinction between supply chain management and supply chain risk management, the

literature has been divided into two different chapters - chapter 2 and chapter 3. While chapter 2

introduces supply chain management in general, chapter 3 specifically discusses risk management in

supply chains.

Chapter 2 provides an overview of supply chain management as a management discipline. Initially, the

ambiguity that exists in defining SCM from an academic point of view and how the field evolved has

been discussed. Then by critically comparing a typical supply chain with Porter’s value chain the

inferences- (a) integration of all firms in the value chain increases the performance levels of all firms in

the supply chain and (b) in a fully integrated supply chain, products are pulled from a supply chain by

consumers rather than manufacturers pushing them to consumers, have been made.

Subsequently, a critical analysis of the phenomena of globalization and outsourcing has been made. Due

to the relative importance of understanding these two phenomena from the research point of view,

they have been comprehensively discussed by providing both the merits and demerits using relevant

examples. Supply chain complexity, which is one of the key concepts used extensively in the research,

has been discussed by providing a model through which the relative complexity of any supply chain can

be measured.

Following this, the functions of logistics and purchasing, which are closely related to SCM and are often

a subject of debate between academia and practitioners is briefly discussed.

Due to the ambiguity that exists in literature in relating SCM and logistics functions, four different views

are presented and the view that has been adopted in this research (unionist view) has been described.


After a brief discussion on the purchasing function, the changing trends in the automotive

manufacturing industry – from that of a mass-production to that of a mass-customization or from a push

based system to a pull based system, have been critically analyzed.

Chapter 3 comprehensively discusses the main focus of this research – Supply chain risk management.

After initially defining the topic and explaining the need for organizations to implement supply chain risk

management practices using suitable example, the supply disruption risk management process, which

also includes the various risk types categorized according to their sources has been discussed in detail.

Following this, while the literature suggests an abundance of risk mitigation strategies, some of the key

strategies and models that help in mitigating impact of supply disruption risks are critically evaluated

and discussed using relevant examples. In order for managers to reduce the total cost of investment in

order to mitigate risks, a model that helps to perform cost benefit analysis has been discussed.

Subsequent to this, the concept of resilience has been defined from both organizational and supply

chain perspectives. After critically discussing the significance of resiliency in supply chains using

examples, a model proposed by Christopher (2005) that highlights the important factors required to

build resiliency in supply chains is discussed. Finally, Business continuity management has been

discussed in brief. The manner in which BCM differs from traditional risk management approaches has

been specifically addressed and the view that BCM is a more effective approach to mitigating unplanned

risks in the event of supply disruptions is discussed.

7.2 Case Studies Reviewed

The key supply chain characteristics and the risk mitigation strategies of the three automakers have

been discussed in chapter 5. From the findings of these case studies and the interviewee responses of

Auto-OEM1, the hypotheses have been validated.

Cross-comparison of the three cases has revealed that Auto-OEM1, due to its relatively lower supply

chain complexity and its sourcing strategy of localization i.e., source parts majorly through local

suppliers, has performed well in the past in mitigating impact of supply disruptions compared to others.

In contrast, although Nissan and Toyota, both share a lot of similarities in terms of manufacturing

approaches, supply chain risk management approaches, etc, they differ mainly in terms of operational

strategies. It can be seen that although Toyota has a well defined crisis management process and due to


its strong focus on long-term supplier relationships, was able to significantly reduce the impact during

the Aisin fire incident, but when struck with the recent tsunami and earthquakes in Japan, the company

incurred major losses and took considerable period to recover from the disruption when compared to

that of Nissan. This incident has exposed the vulnerabilities of both supply chains to supply disruption

risks.

7.3 Empirical Findings Reviewed

Based on the empirical findings as a result of interviews conducted on key supply chain professionals,

eight key themes have emerged which are further grouped into four broad categories. These findings

have enabled to explore the various practices and strategies utilized by organizations to mitigate supply

disruption risks. Also, the findings from critical incident questions have provided succinct information

enabling validation of the hypotheses.

From the eight themes that have emerged, some of the key points that can be highlighted are as below,

Based on the interviewee responses, a majority of them believe that transportation issues, political

instability and raw materials availability are the main external factors and lengthy supply chains, lean

operations, single sourcing and poor communication are the main supply chain characteristics, which

together increase the severity of impact of supply disruptions.

In order to identify risks, frequent communication with suppliers and delivery patterns monitored by

frequent ordering of materials are the key strategies and frequent monitoring of supplier performance

through regular supplier audits can be used as early warning mechanism to detect potential risks.

From the interviewee responses, the impact of a disruption can be assessed mainly through frequent

communication, evaluating the extent of disruption in comparison with the current inventory levels, and

through a comprehensive method of evaluating the company’s revenue at risk at the component level.

Some of the key risk mitigation strategies stated by interviewees include – multi-sourcing, localization,

systems integration, vendor managed inventories, proactive strategies, forecasting tools and

standardization.

Most interviewees responded that in order to redesign the supply chain, integrating the various systems

in the supply chain and unifying all supply chain members are the most important factors. Finally, some


of the key barriers to recovery of supply chain have been identified as employee resistance to change,

supply chain flexibility and infrastructural damage.

7.4 Managerial Implications

From the empirical research conducted, several important findings have emerged, which has provided

an opportunity to explore and present the various risk management practices from a practitioner’s point

of view.

From a managerial perspective, this research, although informative, provides a comprehensive set of

risk mitigation strategies that aid in managerial decision making to implement them in organizations in

order to assist in reducing the risks of supply disruptions while enhancing supply chain resiliency. These

strategies can be useful in eliminating certain risks and in mitigating the impact of risks that cannot be

eliminated thereby enabling business continuity even when struck with severe disruptions. The model

discussed in literature to evaluate the optimal investment decisions for risk mitigation can be used by

managers to perform a cost benefit analysis prior to choosing certain methodology. Also, due to the fact

that the application of risk mitigation strategies to organizations cannot be generalized, it is important

that managers carefully assess and identify strategies that best suits their organization.

From the findings of empirical research several themes have emerged that are presented in previous

chapter. These findings provide managers with information related to key trends in supply chain risk

management in the automotive sector. Since the findings are also validated by key supply chain

professionals from other sectors as well, the reliability of information is enhanced.

The hypotheses and themes developed can offer guidance to managers to systematically identify the

risk types that their organizations are exposed to, the extent and the speed with which disruptions can

be discovered using the organization’s existing capabilities, the risk mitigation capability gaps that exist

in the supply chain and finally to devise and implement appropriate measures to fill such capability gaps

in order to reduce vulnerability to risks. Also, the hypotheses could be used to assess specific supply

chain decisions (such as single sourcing) and the severity level of impact due to such decisions when

struck by disruptions.

In fact, one important implication to managers that has evolved from the hypotheses is that, the

prevalent wisdom of adopting supply chain optimization techniques such as JIT, lean, six-sigma, and


strategies such as single sourcing, global sourcing, etc is questioned since these factors increase the

vulnerability of risks to their supply chains. Although it is clear from the literature that adopting such

optimization strategies increases the efficiency levels, however, a balance with respect to efficiency and

risk mitigation capability in order to reduce the negative impact due to disruptions is essential. Finally,

the evidence from the research could guide managers to take measures to reduce vulnerabilities to

certain risks while also employing optimization techniques.

7.5 Implications for Academia

From an academic perspective, this research contributes to the knowledge base of SCM by identifying

prevalent supply chain risk management practices in the manufacturing industry with a focus on the

automotive sector. The key contribution of this research is to provide a deep insight into the supply

disruption risk management practices in global supply chains. Additionally, several manufacturing

practices that are often attributed to enhancing operational efficiency during stable environmental

conditions but that could be potentially disastrous under crisis situations have been presented citing

relevant examples. In addition to this, the research contributes by providing a holistic view of supply

chain risk management process and risk mitigation strategies from the available literature and validates

the same through empirical research findings.

The hypotheses that have been developed using the literature and validated using empirical findings

justifies that the fact that supply chain characteristics and risk mitigation capabilities of organizations

are directly related to the severity of impact in the event of supply disruptions.

7.6 Limitations and Scope for Further Research

The main focus of this research is on the external risks occurring on the supply side of the supply chain.

Other risks such as organization’s internal risks and the demand side risks of the supply chain are not

considered. As a result of this, the scope of understanding the entire phenomenon of supply chain risk

management as a whole is hindered.

Although, this research explores various risk mitigation strategies from theory and practice, however,

they are mainly qualitative in nature, due to which managers cannot accurately estimate the optimal


investment required to mitigate risks. Further research could focus on quantifying the costs and benefits

related to implementing risk mitigation processes.

While there is abundance of literature on SCRM and risk mitigation strategies, very little exists

pertaining to how companies actually perform during and after disruptions, the risk mitigation strategies

used, the success and failure factors, etc, which could aid in identifying effective risk mitigation

strategies that enable quicker recovery. Additionally, the findings could reveal a more cost effective way

of implementing risk mitigation methods.

Although the hypotheses are validated using empirical findings and secondary data, however, due to the

limited sample size and a narrow focus on automotive manufacturing sector, the findings cannot be

generalized to supply chains of other industries. However, the aim of this research is not to generalize

the findings but to explore the phenomenon using multiple sources of data and get an in-depth

understanding of the phenomenon. The hypotheses could be further assessed and validated against

supply chains with relatively different levels of complexity (i.e., from a basic supply chain to a complex

supply chain) from different industries thereby allowing to develop a theory and generalize the findings

to certain extent.

Due to the relatively small sample size, the research question that evaluates the theoretical assertion

that most companies do not include logistics and supply chain risks in their business continuity planning

process cannot be justified with accuracy and hence needs more research.

7.7 Summary

This chapter discusses the main findings of the research by reviewing the literature, case studies, and

the empirical findings. Subsequently, through these findings, the implications for practitioners and

academicians are provided. Finally, the research limitations and scope for further research are

discussed.


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Appendix A: Interview Schedule

Contextual Questions

Warm - up questions

1) Are you familiar with the concept of risk management in supply chain?

2) Does your firm practice any corporate standard(s) for managing “Supply chain disruption risks”?

Section A: Supply Chain Structure and Characteristics

3) Could you please provide a brief description of your supply chain structure (in terms of global/ local sourcing of materials, single/multiple suppliers, etc)?


4) According to you, what characteristics of the supply chain increase the severity of impact of supply disruption?

5) Which characteristics do you believe are common among severe supply disruptions?

Section B: Disruption Discovery, Disruption Recovery and Supply Chain re-design

6) How does the firm discover a disruptive event occurring at one of its supplier’s location? Does the firm have any early warning systems /metrics to predict supply disruption events?

7) Assuming the discovery of a supply disruption from one of your key suppliers, how does the firm assess the severity of impact due to the disruption?

8) According to you, what are the alternate mechanisms that can be employed to reduce the impact of supply disruptions?

9) What are the primary barriers to recovery of supply chain when faced with a supply disruption?

10) According to you, how can the firm’s supply chain be re-designed in order to eliminate or mitigate the impact of a disruption?

Section C: Critical Incident Questions

11) Can you describe a recent disruptive event that impacted your organization’s supply chain? How did it impact the organization?

12) ‘How’ and ‘When’ did your firm discover the disruption?

13) How did your organization respond to mitigate the impact of this disruptive event and did the disruption discovery mechanism have an influence over this?

14) According to you, how could the approach followed to respond to the disruption be improved and what could be the possible barriers?

Section D: Business Continuity Planning

15) Does your firm perform Business Continuity Planning on a regular basis? 15 (a) if yes, are logistics and supply disruption risks included in the business continuity plan? If not, why?


Appendix B: Interview with Interviewee 1 of Auto-OEM1


Warm - up questions

1) Are you familiar with the concept of risk management in supply chain? Yes

2) Does your firm practice any corporate standard(s) for managing “Supply chain disruption risks”? Yes




India being a low cost country, our company sources majorly through local suppliers. We maintain a pool of local and global approved suppliers that form the tier 1 of the supply chain.


No or Poor forecasting based on sales / production planning, delay in reordering & No focus on Supplier planning are major [factors] impacting supply chain.


No Focus towards material planning much ahead of re-ordering time.



Even at supplier location, we monitor proper material planning and production sequences on timely basis in order to get early alarm in case of any supply chain disruption. Normally organizations follow up only at the time of delivery while PO given was 2-3 months back.


There are alternate suppliers who are approved suppliers for specific products. Orders placed to them in case of disruption in existing suppliers, most important is when we get the alarm & get sufficient time to get it through alternate supplier.


Always have 2-3 approved suppliers, products and costing especially when single sourcing is in place, organization needs to have strong planning in place and better control mechanism to monitor supplier material and planning also along with production control.


Entire model works on how we control overall supply chain risk management, depends upon critical / customized products which are more sensitive than other common products. Focus on alternate source is the key in such cases.



More focus towards planning is the key; others can be little more safety stock for all such critical materials, Alternate supplier development & weekly ordering / delivery in order to make it continuous flow of entire supply chain model.



A few years back, labor strikes at a supplier's organization - loss of half day production due to JIT inventory - we procured the same item from other local supplier.


As the problem occurs, we came to know from the supplier & started taking immediate countermeasure to get the material from alternate supplier.


Monitoring of labor positions & meeting with HR / IR managers in order to understand the situation became a monthly activity post this disruption.


Approach / Corrective actions taken were successful and organization had better control over the alarming situation in case of any such disruption.


15) Does your firm perform Business Continuity Planning on a regular basis? Yes

15 (a) if yes, are logistics and supply disruption risks included in the business continuity plan? If not, why?

Yes


Appendix C: Interview with Interviewee 2 of Auto-OEM1


Warm - up questions





3) Could you please provide a brief description of your supply chain structure (in terms of global/ local sourcing of materials, single/multiple suppliers, etc)? We follow a policy of multiple sources located in different regions of the world. And also a local supply base and 'Arm's length' supply process, based on the complexity of the product sourced.


Single source dependence Logistic bottlenecks Improper assessment of supplier capabilities (technical/ Capacity/ operational/ commercial). Dependency on limited source of raw materials. Extremely specialized processes/materials ….are some of the factors.


Logistics bottlenecks (transportation) Supplier capabilities/inabilities. Supplier's ability to react to uncertainties.



Firstly, supplier qualification audits capture the process of risk assessment and the supplier's plan to mitigate risks.

Risk identification and monitoring process are agreed forehand. A robust ERP system is the most essential tool for a foolproof SCM. Periodic system audits also capture potential risks at supplier's end. Structured Demand vs. capacity review, Orders Vs acknowledgement review between

suppliers and responsible people throw out potential disruptions. Market intelligence, seasonal behaviors etc need to be accounted for. A good ERP has an ability to give early warnings.


This is a very open question. Different companies have different approaches. Basic information here is the recovery date/period. Impact of disruption is then an assessment of orders on hand and potential demand for the product from market.



An accurate forecasting tool and a scientific planning horizon Multiple-sourcing spread across geographies, standardization where possible Supplier managed inventories etc can be used to mitigate the risks of disruption.


Natural calamities have a higher barrier for recovery due to the breakdown of infrastructure. Highly specialized materials /process with no alternatives can be another barrier. Softer issues like the attitude of suppliers can also be a factor to be reckoned.


A thorough risk analysis and a robust plan to cover as many risks have to be considered while designing a company's SCM process.

Considering all the risks up to at least 2nd tier suppliers and finding an optimal balance is also a factor.



The recent earthquake in Fukushima on Japan had an impact in our organization. This was mainly due to the impact on the 2nd/3rd tier component suppliers.


Unfortunately this was a post event as it was a natural disaster.


Since these were 2-3 tier suppliers, the products did not have a direct influence on the company's product. Hence we were quick to approach quality alternate suppliers from different locations who pitched in with immediate effect.



When scale can support you, try and have your sources diversified across the globe and mainly away from historically 'risk zones'.



15 (a) if yes, are logistics and supply disruption risks included in the business continuity plan? If not, why? Yes. A periodic review of this is also carried out during supplier audits.


Appendix D: Interview with Interviewee 3 of Auto-OEM1


Warm - up questions


2) Does your firm practice any corporate standard(s) for managing “Supply chain disruption risks”? No



3) Could you please provide a brief description of your supply chain structure (in terms of global/ local sourcing of materials, single/multiple suppliers, etc)? About 80% of the part numbers are dual sourced. 20% of them are single source due to proprietary designs.


Customer demand variation Manufacturing process failures Supplier shipment failures Credit limit crossed Incorrect production planning.


Manufacturing process failures Supplier shipment failures Incorrect production planning



As part of purchase order, supplier is asked to inform for any unforeseen delay he expects while executing the order.

Buyer will be contacting the suppliers 2 weeks before shipment just to ensure the orders to be shipped is on time and there are no hold ups.


Does this attract stock out and result into lose of sale? Does this result into production stoppage? Does this attract any customer penalty?


If the supply disruption is severe then look at the option of getting the material by alternate method. For example move the consignment by air instead of sea or road transportation.


Look at the option if the shortage part could be assembled downstream of the supply chain. i.e., if the part could be assembled at Dealer/warehouse/customer without compromising on functionality of the product.

Is there any alternate part for this which could be used?


Cost implications Co-ordination with other functions like engineering dep’t for alternate material etc… Availability of information to take calculated risk.


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15 (a) if yes, are logistics and supply disruption risks included in the business continuity plan? If not, why? Yes


Appendix E: Interview with Interviewee 4 of Auto-OEM1


Warm - up questions






We do have single suppliers for some parts which are monopoly items. We also have multiple suppliers for majority of the items due to high volume as well as avoiding dependency on single suppliers.


Lack of communication between all the supply chain entities right from manufacturer's manufacturer to the final supplier.

Optimization at silos level leads to sub-optimization at global level. This means that all the entities in the supply chain try to optimize or improve their processes and become unaware of the impact or disruption they cause to the entire chain. Each entity tries to look for their benefit which leads to friction and gaps in the entire chain.


Same as above



--


The severity of impact depends on the nature of business he's into. The type of services he's providing to us and the use of those services or products at our end.


Alternate mechanisms can be implementation of JIT system for suppliers in the vicinity of production sites so that they ensure that quality of material is right before dispatch.

Regular vendor audits ensure that all processes are being adhered to and followed. Having supplier evaluation mechanism which keeps suppliers on their toes to be in the race.


Ownership of the cause is one of the foremost barriers. Nobody comes forward to accept and take the responsibility of the cause.


Resistance among users to accept changes if any being incorporated to improve the performance of the chain.

Inter-departmental communication.


This is something which would be organization specific. But as far as redesigning of the chain is concerned we need to ensure that all the entities involved in the supply chain act as a single unit and work in tandem. There has to be a proper cohesion and gelling of the members only then the supply chain can deliver the required results with least impact or disruption. In our organization we are trying to incorporate the same and trying to make the users understand the significance of supply chain. We are holding meetings with suppliers and having open house sessions with them to understand their concerns and also take suggestions from them to incorporate in the supply chain so that it benefits all involved.



Recent event was high transportation costs found for moving material from manufacturing units to other locations. The event has impacted our bottom-line to some extent.


It was discovered when the firm started focusing on improving the Logistics for the said material from the plant to other locations.


The firm appointed an external agency to study the entire logistics and find out areas of high costs. Yes, the mechanism had an influence over this.


The firm can form a special cell whose primary activities would be to improve the business performance of the entire logistics activities across all plants. The possible barriers would be getting information from all concerned since it is something which no one likes to part of with.



15) Does your firm perform Business Continuity planning on a regular basis? Yes


Yes


Appendix F: Interview with Interviewee 5 of Firm 2


Warm - up questions






We are consultants and advisors to firms with supply chain risk needs.


Overall, supply chains are leaner and operate with fewer buffers to absorb disruption or severe events.


Unplanned or extraordinarily- beyond what normal business planning would consider.



From my observation, most firms rely on supplier or operational performance indicators as early warning mechanisms. The problem is that the severity of current events has caught many firms without any warning mechanisms. The most recent devastating earthquake that occurred in Japan uncovered vulnerabilities such as sole component sourcing of lower-tier, but critical components, or suppliers' suppliers having exposure to supply disruption. Current supply chain plans were not granular enough to identify the problem on a timely, early-warning basis. Some did not know that the sudden non-availability of for example, an epoxy, would shutdown multiple supply chains.


Leading-edge companies are able to associate any part or component with some value of risk to revenue. In other words, if this part was suddenly unavailable, what value of company revenues would be at risk? For those components that have high risk profiles, companies might elect to have mandatory dual-sourcing of suppliers, or alternative components that can be easily substituted.


A complete risk assessment of potential risk areas throughout the supply chain



Both you and your industry competitors are seeking to recover or find alternative means of supply. One company can lockout another from available capacity.


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N/A


N/A


Appendix G: Interview with Interviewee 6 of Firm3


Warm - up questions






We source from 16 countries which entails 9 manufacturing plants and 7 global hubs. Our sourcing is a fluid continuous process which not only takes in sales, forecast & manufacturing patterns but also exchange rates, delivery patterns & global monetary impacts. We are in the process of moving to a pull supply chain strategy given the current global economic situation


Longer supply chains, multiple trade zones & barriers, various transportation modes, documentation, country stability


In today's economic scenario - country stability and individual regulations of protectionism



Through delivery patterns & confirmations. Yes, metric systems primarily are delivery confirmations, dealing with unique orders


Direct loss of business, Opportunity costs, inventory threshold levels, transportation cost increases


Multiple manufacturing sites, hub & spoke arrangement geographically.


Multiple regulations prevalent in different countries of manufacturing & the actual country of sale. Lack of flexibility, Supply Chains are rarely fluid



This changes from business to business. Disruption can be mitigated cannot be eliminated. The cost involved to maintain a 100% back up rarely is justified as all these costs add to the bottom line.



Products manufactured in Egypt cannot go into Libya, Syria, etc. which are primarily catchment areas for the Egyptian manufacturing plant. Excess capacity in Egypt is not being utilized today


As the country scenarios evolved


We are operating our plant to capacity to maintain the integrity and cost base. The end products are being shipped out to our hubs in Antwerp & Jebel Ali for re- distribution


Instead of hub shipments could be directly shipped to actual countries of sale




Yes


Appendix H: Interview with Interviewee7 of Firm 4


Warm - up questions





Wholesale Trading of agricultural products, pesticides, fertilizers and animal food



Weather conditions


Non-delivery, out of stock, expiry of usage date



The use of progressive forecast models helps to avoid such situations. If the still occur and are unavoidable, there is always the possibility to change sourcing channels due to multiple sourcing strategies


There are no assessments made, other than changing supplier from multiple sourcing


Multiple sourcing, Disruption Forecasting, date interchange with suppliers on high transparency levels


None known


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Insolvency of a supplier - Impact: delay in supply of 2 weeks but no severe harm



Non-delivery of an order, and delay. Found out by telephone contact


This situation was totally unpredictable for any outsider. But due to multiple sourcing, we managed the situation very well.


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15) Does your firm perform Business Continuity Planning on a regular basis? Yes 15 (a) if yes, are logistics and supply disruption risks included in the business continuity plan? If not, why? Of course, they are a major core of this process


Appendix I: Interview with Interviewee8 of Firm 5


Warm - up questions






Europe, China, India - clothing industry from yarn sourcing, designing, product make up to the finished/packed and bar-coded product


External Factors: currency fluctuations that would ultimately implicate erratic behavior of commodity prices - changes in export regulations and quotas for product categories and natural disasters. Internal Factors: poor expertise of staff and multitudes of different approaches to the management of the chain given the international settings, agency problem through internal subcontracting


All factors mentioned above are very common



Firms may have different systems that are very flexible in detecting anomalies. Day to day communication may reveal change in behaviors that are immediately investigated - these are normally accompanied by late communication/product make up and so forth - Additionally firms now have sourcing offices in all countries they deal with problems /supplier guidance/quality control therefore anomalies are immediately investigated on site.


Key professionals would visit, would assess the severity of the current and future damage - review contracts and negotiate the way forward


Monitoring and unification of systems


Slow responses to change


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Currency fluctuations that affected the sale margins


Immediately


Risk can be mitigated - uncertainties cannot. However, firms nowadays have their internal policies in how they pay and through which currency - they also have specific time frames for payments


Clothing firms work 2 years ahead to when the product is delivered into shops. Mitigating risks and uncertainties is at the forefront of their management - flexibility and systematic approach is one of the key to mitigate the need of sudden changes - of course a healthy balance sheet helps to mitigate damages.


15) Does your firm perform Business Continuity Planning on a regular basis? Yes 15 (a) if yes, are logistics and supply disruption risks included in the business continuity plan? If not, why? It depends on firms and the needs they have and the extent of their supply chain and business volume. Global firms have contracts with several worldwide logistic companies- that help them to mitigate any possible disruption


Appendix J: Interview with Interviewee 9 of Firm 6


Warm - up questions




3) Could you please provide a brief description of your supply chain structure (in terms of global/ local sourcing of materials, single/multiple suppliers, etc)? Global: China, Indonesia, Malaysia, Lebanon and local in Qatar for different items



Lack of control, policing the process if no/ little history in dealing with supplier


Bottle necks due to poor supplier organization



Global: need people quality controlling the supplier otherwise things start not to arrive on time. Locally, can have a slower trickle of supply, but globally everything is coming in complete containers and multiple containers to meet my customers deadlines some of which are very critical E.g. Asian Games which cannot be delayed.


Communication and analysis what they can provide and find alternatives


Must keep an eye on suppliers until you have track experience with them. Multiple suppliers


Lack of continuous communication


Evaluate current and future needs. Relate to suppliers performance. Utilize integrated technologies to facilitate easier communication. Have a specific point of contact with each supplier. Always look out for new suppliers. Try them out with ever increasing responsibilities




Supplier closed down. Was a unique supplier - had to go back to customer to get approval for alternative from new designer. Financial loss!


In the middle of a big order. Supplier communicated his problem


Had other potential suppliers and used local suppliers for some quick deliveries to make up for lost momentum from global supplier


More of a mix with local and global suppliers - don't rely so much on global when you can. Spread the risk



15 (a) if yes, are logistics and supply disruption risks included in the business continuity plan? If not, why? Yes they are


Appendix K: Interview with Interviewee 10 of Firm 7


Warm - up questions





3) Could you please provide a brief description of your supply chain structure (in terms of global/ local sourcing of materials, single/multiple suppliers, etc)? Fully outsourced garment manufacturer with multiple suppliers and purchasing through direct and agent contacts. Main sources in Bangladesh and China.


Political instability, raw material costs driven by weather (cotton) or oil (polyester)


Not having a Plan B. There will always be disruption but it is how you are prepared and react that measures the true level off disruption



We rely heavily on agents based in country to feedback information. We also have production tracking reports which are updated weekly


We measure the potential length of disruption versus our current inventory position


We can carry more inventories but this is expensive. We can have alternate suppliers but this affects consistency of product quality. The key is having done the required due diligence on the country you will source from, the agents you will use, and the suppliers they have identified for you.


Time and money


You can never eliminate the impact of disruption. The key is to minimize the impact. When sourcing from abroad it is essential to be fully involved in the process from point of order to point


of delivery. Assuming an arm’s length approach is a recipe for disaster. We must work to strengthen the operational relationship with all parties involved.



The recent floods in Pakistan had a huge impact on the supply of raw cotton. As a result, prices went up and cotton quality went down. We were then hit with increasing product costs, increasing lead-times, and a drop in finished goods quality due to poor fabric


The floods were well reported on the news. We drew our own conclusions from this and then watched as they came true


We encouraged our suppliers to extend their raw material purchasing reach and to buy ahead (stock-pile) raw cotton and yarn


We reacted pretty well here but are all hostages to Mother Nature in cases like this. Also, all garment buyers faced the same disruption at the same time, so everyone is scrambling to find a solution to the same problem


15) Does your firm perform Business Continuity Planning on a regular basis? No


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Appendix L: Interview with Interviewee 11 of Firm 8


Warm - up questions






Global Supply chain: The ordering of parts is done based on the production schedule. It is a variant type ordering based on the sourcing in part list. Model specific requirement is tossed to mother country based on the requirement as per schedule. The ordering cycle for KD parts is based on N-3 month base. Local Supply chain: Based on the monthly requirement, PRT runs for each & every local part. PRT runs two times in a month, for the 1st 15 days schedule is confirmed & for next 15 days tentative schedule is given to supplier for their production plan. Transfer of schedule- schedule for parts is transferred electronically through portal. Supplier can view daily requirement & also can download their delivery plan. At the company each PIC can track delivery activity online. In case of delivery failure, supplier can track easily as it is quite possible to monitor parts delivery status starting from supplier plant to receiving at company. Company is relying on single supplier base.


Below are the few categories which control main supply chain risks factors: Operational / technology - this includes forecast error, capacity problem, quality issues,

transportation risks, process problems, communication / IT disruption, and plant efficiency. Social - labor shortage, loss of key professional, strikes, accidents, human error,

organizational error, etc Natural / hazard - fire, hurricane, tsunami, earthquake etc. Economy - changes in Exchange rate, interest rate, tax revision, global economic crisis, Price

& incentive war etc. Legal & Political: liabilities, law suits, customs risk, war, compliance to environmental

standards, governmental incentive restriction, new regulation etc.


Mainly economy related, legal & political characteristics are common among the suppliers which cause supply disruption. Because any sudden changes in exchange rate & raw material costs or any legal lawsuits or war affects all suppliers of any particular area.



Regarding discovery of a disruptive event occurring at one of our supplier’s location, it depends on a case to case basis. In certain cases, the firm can have earlier information but in certain cases it is not possible at all e.g.


In case of any accident such as Fire, it is very difficult to predict any future information. Certain accidental break-down on any critical machine can some time cause very difficult

situation. However there are certain cases where we can have early warning systems like In case of any legal changes there can be advance information before its actual

implementation. Any raw material change or exchange rate fluctuation can be early monitored. If any particular area is labor sensitive, some early measures can be taken.

So in sum it all depends upon case to case basis.


Severity of any disruption is broadly based on below factors: Velocity of disruption- i.e., how quickly we are going to feel the impact of the disruption Persistence of disruption – i.e., for how long can our suppliers continue to support the

supplies. Response readiness- How resilient would we be in reacting to the loss of any supply. For how much time can we run production line based on the inventory available?

Whether company is having any back up plan in case of long time disruption like getting

the part from other country location. Applicable in case where we are having global models

How is market responding for the product? Based on the demand forecast actual loss can be judged.


Single source dependency: This has been very risky factor in case of supply. We must have multiple sourcing for the parts to avoid disruption. Diversify supply chain & be ready to pay more for nearer supply sources.

Avoid them from happening: we have to do data analysis for any failure or operational performance in order to take corrective action in advance.

Integrate order & inventory system: faster communication & supplier contracts for inventory control

Quick Response: Business continuity plan - for disaster recovery, safety of employee, retrieval of back up

business data, emergency communication, possible relocation of business, alternate suppliers.

Insurance program.



Retrieval of back-up business back log- based on capacity of the supplier Alternate source development - In this case it depends upon the implementation of

engineering Financial constraint- supplier can have some financial constraint for any up-gradation of

its IT system or any operation. Quality maturation- Incase of any major quality problem it is difficult to establish process

control & quality.


First of all indentified risk by mapping the business process required to procure parts, assemble & delivery.

Assessment of the current identified risk: evaluate current process, identify factors affecting, and highlight worry areas.

Quantify & prioritize risk: Measure likelihood or impact & ease of detection. Develop risk mitigation strategy: Develop improvement plans.



Recent earthquake & tsunami in Japan impacted the organization supply chain leading to slight change in production plan of company.


Disruption was discovered within 3~4 days through head office.


Company adjusted the production of cars as per market requirement as some parts supply were affected in common with all models. Focus area was most selling cars of the company depending upon the requirement.


Main disruption was caused by single source supply leading to disruption in supply chain. Alternate supplier approach was decided right after the impact to avoid this type of situation. Possible Barriers: Certainly new development is going to cause some financial impact. Supply chain route to be re defined.


Part approval need to be done to ensure same level of quality



15 (a) if yes, are logistics and supply disruption risks included in the business continuity plan? If not, why? Yes. Logistics and supply disruption risks are included in our business continuity plans

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