SUPPLY CHAIN VULNERABILITY AND RESILIENCE: A STATE OF THE ART

OVERVIEW

F. LongoF. LongoMSC-LES, M&SNet Center atMSC-LES, M&SNet Center atDept. of Mechanical EngineeringDept. of Mechanical EngineeringUniversity of Calabria – ItalyUniversity of Calabria – Italy

The European Modeling & Simulation Symposium The European Modeling & Simulation Symposium Campora S. Giovanni, Italy Campora S. Giovanni, Italy

September 17 – 19, 2008September 17 – 19, 2008

T. ÖrenT. ÖrenFounding Director of M&SNetFounding Director of M&SNet

M&SNet Site M&SNet Site University of OttawaUniversity of Ottawa

CanadaCanada

OutlineOutline• IntroductionIntroduction

• Resilience Resilience applied to applied to supply supply chainchain

• Supply chain risks Supply chain risks and vulnerabilities and vulnerabilities

• Research fields Research fields combination for combination for supply chain supply chain resilience in SMEsresilience in SMEs

• ConclusionsConclusions

IntroductionIntroduction

• The authors are actively involved in a study related to the resilience in the Supply Chain.

• An accurate initial analysis of the state of the art and of the integration of different research fields for studying supply chain resilience for SMEs

During the last years enterprises aimed to production efficiency increase neglecting the innovation work (analyses and studies for new business opportunities)

• The industrial production trend has been characterized by wider networks enterprises, global sourcing, by global market able to guarantee easy resources and knowledge migration.

• The enterprises approach toward global supply chains can be considered as business opportunity but it introduces supply chain risks and vulnerabilities as well.

Definitions of ResilienceDefinitions of Resilience

According to the on-line According to the on-line American HeritageAmerican Heritage dictionarydictionary,, resilience is the resilience is the (i) “ability to recover quickly from illness, change, or misfortune”; (ii) (i) “ability to recover quickly from illness, change, or misfortune”; (ii) “the property of a material that enables it to resume its original shape “the property of a material that enables it to resume its original shape or position after being bent, stretched, or compressed”.or position after being bent, stretched, or compressed”.

According to the According to the on-line Merriam-Websteron-line Merriam-Webster the resilience is the (i) “an the resilience is the (i) “an ability to recover from or adjust easily to misfortune or change”; (ii) ability to recover from or adjust easily to misfortune or change”; (ii) “capability of a strained body to recover its size and shape after “capability of a strained body to recover its size and shape after deformation caused especially by compressive stress”.deformation caused especially by compressive stress”.

The The on-line on-line Compact Oxford DictionaryCompact Oxford Dictionary defines resilience as the (i) defines resilience as the (i) “ability to withstand or recover quickly from difficult conditions (of a “ability to withstand or recover quickly from difficult conditions (of a person)”; (ii)person)”; (ii) “the “the ability to recoil or spring back into shape after ability to recoil or spring back into shape after bending, stretching, or being compressed”. bending, stretching, or being compressed”.

Resilience applied to supply Resilience applied to supply chainchainThe concept of resilience applied to a logistic chain, intended as the capability of a

system to come back to its equilibrium position (or to shift to a different and more desirable position of equilibrium) after a disturbing action, recalls the ideas of agility, flexibility, velocity and visibility.

Some supply chain risks and vulnerabilities:• Terrorist attacks, wars, politic problems, natural disaster (external risks)• Demand/Supply problems, manufacturing problems, problems related to goods,

information finances flows (internal risks)

RISKS & INTERRUPTION OF THE SUPPLY VULNERABILITIES CHAIN CONTINUITY

Resilience applied to supply Resilience applied to supply chainchain

The Agility is the company capability to quickly respond to unforeseen and unpredictable demand/supply markets changes. Christopher and Rutherford (2004)..

The Flexibility helps companies to rightly answer to markets variability (concurrent processes, final goods completing postponement inside the supply chain, strategies sharing with suppliers), Sheffi (2006)

The Velocity can be interpreted as time required for goods moving along the supply chain (reduction of the number of activities of each processes as well as decreasing lead times). Sheffi (2006)

The Visibility that is the capability to establish end-to end supply chain relationships, (Stenger et al., 2000).

Some research works on supply chain Some research works on supply chain vulnerabilityvulnerability

Before 2001Before 2001

Choi and Hartley (1996), Christopher (1998), Choi and Hartley (1996), Christopher (1998), Braithwaite and Hall (1999). The first work presents Braithwaite and Hall (1999). The first work presents and compares different methodologies for and compares different methodologies for suppliers base selectionsuppliers base selection; the second research ; the second research work focalizes on strategic approaches for work focalizes on strategic approaches for reducing costsreducing costs within the supply chain; finally the within the supply chain; finally the last research work faces the problem of critical last research work faces the problem of critical decisions (in terms of business risks) in supply chain decisions (in terms of business risks) in supply chain management.management.

Some research works on supply Some research works on supply chain vulnerabilitychain vulnerability

Peck and Juttner 2002 propose a Peck and Juttner 2002 propose a survey on the main supply chain survey on the main supply chain risksrisks also considering the companies reactions for also considering the companies reactions for reducing/eliminating risks. reducing/eliminating risks.

Pai et al. (2003) present some Pai et al. (2003) present some methods for risks analysismethods for risks analysis based on based on Bayesian Networks, Fuzzy Logic and a combined approach of both.Bayesian Networks, Fuzzy Logic and a combined approach of both.

A number of research studies introduce the concept of supply chain A number of research studies introduce the concept of supply chain resilience. Such studies propose a resilience. Such studies propose a map of supply chain map of supply chain vulnerabilitiesvulnerabilities and classify supply chain risks in different and classify supply chain risks in different phenomena (i.e. Hurricanes, Earthquakes), incidents (i.e. Exxon phenomena (i.e. Hurricanes, Earthquakes), incidents (i.e. Exxon Valdese, Chernobyl), terrorist attacks (9/11 USA, 3/11 Spain), market Valdese, Chernobyl), terrorist attacks (9/11 USA, 3/11 Spain), market globalization (i.e. strikes, new security procedures, insolvency).globalization (i.e. strikes, new security procedures, insolvency).

Some research works on supply Some research works on supply chain vulnerabilitychain vulnerability

Concerning Concerning risk analysis and categorizationrisk analysis and categorization, Wu et al. (2006) propose a risk , Wu et al. (2006) propose a risk analysis in the inbound supply chain identifying, evaluating and validating supply analysis in the inbound supply chain identifying, evaluating and validating supply chain risks. Finally Gaonkar and Viswanadham (2004) present a model of a chain risks. Finally Gaonkar and Viswanadham (2004) present a model of a conceptual framework for supply chain risk categorization at strategic level.conceptual framework for supply chain risk categorization at strategic level.

Longo and Mirabelli (2008) focalize on the effects of Longo and Mirabelli (2008) focalize on the effects of demand/supply variabilitydemand/supply variability by using a supply chain management tool based on Modelling & Simulation (the by using a supply chain management tool based on Modelling & Simulation (the aim is to understand the impact of such factors on each supply chain stage, i.e. aim is to understand the impact of such factors on each supply chain stage, i.e. distribution centers, stores, etc.). Still on demand/supply variability De Sensi et al. distribution centers, stores, etc.). Still on demand/supply variability De Sensi et al. (2007) present and compare different inventory control policies considering (2007) present and compare different inventory control policies considering market demand and lead times constraints. Nagurney and Matsypura (2005) market demand and lead times constraints. Nagurney and Matsypura (2005) propose a model of a three stages supply chain able to monitor network nodes propose a model of a three stages supply chain able to monitor network nodes competitiveness.competitiveness.

The scientific researches carried out by Sun and Yu (2005) and Deleris and Elkins The scientific researches carried out by Sun and Yu (2005) and Deleris and Elkins (2004) respectively regard the impact of (2004) respectively regard the impact of catastrophic events on supply chaincatastrophic events on supply chain contracts and probability distribution of losses caused by such events.contracts and probability distribution of losses caused by such events.

Further studies on supply chain vulnerability reduction regard the Further studies on supply chain vulnerability reduction regard the information information sharingsharing. In particular Sheffi (2005-a) and Suo and Jin (2004) states that one of . In particular Sheffi (2005-a) and Suo and Jin (2004) states that one of the critical problems of the information sharing is the Bullwhip effect that is the the critical problems of the information sharing is the Bullwhip effect that is the amplification of the demand uncertainty moving back along the supply chain. amplification of the demand uncertainty moving back along the supply chain. Concerning the Bullwhip effect further information can be found in Lee et al. Concerning the Bullwhip effect further information can be found in Lee et al. (1997).(1997).

Some research works on supply Some research works on supply chain vulnerabilitychain vulnerability

Different SectorsDifferent Sectors

Hopper and Beck (2004) propose a study on supply chain risks in Hopper and Beck (2004) propose a study on supply chain risks in the the automotive sectorautomotive sector, ,

Agrell et al. (2004) in the telecommunication sector. Agrell et al. (2004) in the telecommunication sector.

Marine security levels analysis in Marine security levels analysis in marine terminalsmarine terminals (Barnes and (Barnes and Oloruntoba, 2005; Longo and Bruzzone, 2005; Longo et al. 2005, Oloruntoba, 2005; Longo and Bruzzone, 2005; Longo et al. 2005, Bruzzone et al. 2005), costs evaluation for disruptive events in Bruzzone et al. 2005), costs evaluation for disruptive events in railways networksrailways networks (Bruzzone et al. 2007), innovative tools for (Bruzzone et al. 2007), innovative tools for risk management in the aeronautical sector (Haywood and Peck, risk management in the aeronautical sector (Haywood and Peck, 2003) and the introduction of strategies for minimizing and 2003) and the introduction of strategies for minimizing and contrasting the effects of the new products from foreign contrasting the effects of the new products from foreign markets/countries in the textile sector (Chandra, 1999).markets/countries in the textile sector (Chandra, 1999).

Supply Chains disruption: some real case Supply Chains disruption: some real case studiesstudiesMany cases in literature report that supply chain vulnerability impact to Large Enterprises too. We can recall as samples cases as Nokia, Ericsson and Land Rover.

Millions of components for Nokia and Ericcson mobile phones destroyed

Disruption of a Philips Electronics plant

External risk (2000) Nokia:• new collaborations• phones changes

Ericcson:• no new collaborations• no phones changes

Correct strategy

Wrong strategy

Land Rover had no other supplier

VPF Thomson stops the supplies to Land Rover

Internal risk (2001)

Land-Rover was able to afford production stop but the economic impact was unexpected

Wrong strategy

BSE EpidemyBSE Epidemy

UK, 1996. Commonly known as UK, 1996. Commonly known as mad cow disease, In the UK, mad cow disease, In the UK, 179,000 cattle were infected and 179,000 cattle were infected and 4.4 million killed. estimated 4.4 million killed. estimated damages between 0.1% and damages between 0.1% and 0.2% of UK national income.0.2% of UK national income.

Supply Chains disruption: some real case Supply Chains disruption: some real case studiesstudies

ColgateColgateFirst july 2007, FDA found some First july 2007, FDA found some samples of colgate thoothpaste samples of colgate thoothpaste contain up to 13.7 per cent contain up to 13.7 per cent diethylene glycol (DEG), used in diethylene glycol (DEG), used in antifreeze and as a solvent. antifreeze and as a solvent.

AcquabomberAcquabomberNovember 2003, Italy. November 2003, Italy. Several bottles of mineral Several bottles of mineral water poisoned with bleach water poisoned with bleach selled in retail stores, 27 selled in retail stores, 27 peoples intoxicated, peoples intoxicated, Damages estimated in 17% Damages estimated in 17% reduction of salesreduction of sales

Lead Contamined ToysLead Contamined ToysAugust 2007. excess of lead August 2007. excess of lead found in certain Mattel’s toys. found in certain Mattel’s toys. 23 millions of toys where 23 millions of toys where retired from market. retired from market. economical estimations of economical estimations of damages around 4 billions damages around 4 billions dollar’sdollar’s

Supply Chains disruption: some real case Supply Chains disruption: some real case studiesstudies

Supply chain risks and vulnerabilities for Supply chain risks and vulnerabilities for SMEsSMEs

Risks characterize a global supply chain and take effect on Large Enterprises, but higher impacts strike SMEs, due to their lower decisional power and poorer management tools.

The consequent main idea is to create decisional models (opportunely integrated in development tools) that could allow SMEs to react in an agile, lean and flexible way to the events that characterize the evolution of competitive and international markets (both internal or external to the supply chain, controllable or not, unexpected, destructive or catastrophic).

These tools has to grant a correct and adequate process management, as well for controls, infrastructures and business strategies (as for example demand forecasting, stock management, supply chain configuration, information management) to increase the resilience of the system.

Identification of the research fields Identification of the research fields involvedinvolvedThe development of the research defines the integration

of the following research fields:

1. Supply chain vulnerability, security and resilience management for SMEs.

2. Methods for demand forecasting and risk analysis for SMEs in supply chain.

3. Information management and visibility methodologies in supply chains.

4. Modeling & Simulation integration.

Supply chain vulnerability, security and resilience management for SMEs.

1. The increase of security and resilience in supply chains can not leave out consideration the analysis and classification of risks, uncertainty and vulnerability. Processes of change management will be studied in SMEs to evaluate the effects in supply chains.

2. In particular, the attention should be pointed on the identification of cause-effect relations that connect strategic business choices of SMEs (operating in different sectors) to elements of vulnerability, security and resilience of supply chains.

Methods for demand forecasting and risk analysis for SMEs in supply chain

1. It’s also well known how, among the most important risks, a great importance is to put in supply/demand that’s to say the market variability and uncertainty that companies bear upstream and downstream (demand analysis).

2. In this sense demand forecasting models together with inventory management models has to be studied and analyzed, to prevent risks and improve supply chain resilience.

Information management and visibility methodologies in supply chains

1. A correct management and information sharing becomes one of the key elements to increase visibility in supply chains and reduce vulnerability. Information management is a process of “knowledge data discovery”, highly interactive and iterative, that consists of identifying valid, new, potentially useful and understandable relations among data.

1. This states a set of activities that involves the preparation of data, the research of relations, the evaluation and refinement of the extracted knowledge

Simulation & Modeling integration

1.In the end, the decisional models require to be integrated in Modeling & Simulation tools: a simulator able to combine the different models studied in the research and to operate as a complete and process integrated decisional tool, is the final step.

2.In this way, it is possible to build dedicated decisional models to evaluate and increase supply chain resilience for SMEs

ConclusionsConclusionsThe study proposed is based on the co-operation among University of Calabria, University of Ottawa and University of Genoa.

The research is still in the start up phase, actually, they are focused on the critical components that characterize the presented issues.

The most challenging aspects involve the development of different activities; for instance it is critical to perform a preliminary, but exhaustive, analysis concerning the State-of–the-art in order to be able to identify how many model can be reused.

The authors are currently involved also in some of the next steps such as the development of operative simulation tools.

After this phase the authors plan to concentrate their activities on the validation of the decision models, including the integration with other simulation models in relation to real case studies.