Supply Chain Disruptions
By Dr. Elham Mousavidin–On April 23, 2016, the Cameron School of Business (CSB) hosted the Disaster Recovery Institute (DRI) International’s one-day regional collegiate conference at the University of St. Thomas. This conference covers important topics such as disaster recovery, business continuity and risk management. Even though the conference was planned months ahead, the timing of the event could not have been more appropriate as it lent itself to a great deal of engaging discussion on the topic of disaster recovery. April 22nd was the end of a week in Houston that started with torrential rainfall, flooding, and, unfortunately, a great deal of loss for individuals and businesses.
The initiative by CSB to host such an event is an important one since teaching, researching, and discussing disaster management is increasingly becoming an important part of the curriculum at business schools. Therefore, it is crucial to create an environment where the faculty, students, and the practitioners can exchange ideas.
Disasters hit businesses in many forms year-round, year after year. Flooding is merely one of the forms of disasters that can disrupt the supply chains of businesses. Supply chains are increasingly facing a great deal of uncertainty, risk and disruptions as a result of globalization, more complex structures, and more demand for flexibility and agility in volatile markets under persistent cost pressures. Traditional business models of vertically integrated supply chains are being re-evaluated. In addition, increasing emphasis on efficiency and adopting highly popular lean practices has made already-complex supply chains ever more vulnerable.
The Unexpected
Supply chain disruptions are unpredictable and unplanned events that disturb the usual flow of material and goods within a supply chain. Disruptions have proven to pose great financial and operational risk to supply chains. The costs that supply chains have to endure as a result of disruptions are difficult to anticipate and calculate because they are different than the typical costs businesses face in normal environments. Mitigating supply chain disruptions require a good understanding of the supply chain structure. Severity of supply chain disruptions can be understood through three attributes: Supply Chain Density; Supply Chain Complexity; and Supply Chain Node Criticality.
Supply Chain Density
Supply chain density is related to the geographical distance of supply chain nodes: the smaller the spacing of the nodes, the higher the density of the supply chain. Since high density of supply chains means that a greater number of entities of a supply chain are located in a smaller geographic area; therefore, there is a higher probability that supply chain disruptions will disrupt the same supply chain more severely.
Supply Chain Complexity
Supply chain complexity is defined through two components: the number of the supply chain nodes; and the flow of material into & out of and within the supply chain. A more complex supply chain has a greater number of nodes and flows than a less complex supply chain. Supply chain complexity directly affects its level of disruption: the higher the complexity of a supply chain, the higher the severity of disruption.
Supply Chain Node Criticality
Supply chain node criticality refers to the level of importance of a node within a supply chain. Nodes that handle more critical functions are more important than nodes that handle non-critical components of the supply chain. Therefore, disruption of a critical node has more severe consequences.
Supply Chain Visibility
These three attributes help understand and estimate the severity of supply chain disruptions. They also point to a critical factor: supply chain visibility. Visibility in supply chains allows for quick response, which is vital to mitigating supply chain vulnerability. As a result of high visibility, supply chains can become more alert, resilient, and prepared to deal with the consequences of supply chain disruptions. Visibility within supply chains is achieved to a high degree through information sharing.
Information Sharing
Information sharing in a controlled manner eases the coordination among different supply chain partners. In fact, information sharing accompanied with coordination of the physical flow of material enhances supply chain performance. Information has become so vital for existence of supply chains that any distortion, delay, and scarcity in supply chain information sharing imposes devastating challenges to supply chains. While information sharing is not the only way to mitigate risk, it is a vital part of firms’ business strategy to reduce uncertainty, severity of disruptions, and the damage caused by disruptions.
Conclusion
Disasters hit businesses in the most unexpected ways. The fast-paced changes in business environment have made supply chains more vulnerable to uncertainty and disruption. In order to be more prepared in the face of disaster, businesses need to have a clear understanding of the density and complexity of their supply chains. In addition, businesses need to identify their most critical and most vulnerable nodes. It is, therefore, of great importance to have visibility within supply chains where the flow of material and information can be easily tracked. While transparency and visible information sharing within a supply chain do not by themselves guarantee preparedness and recovery from disasters, they contribute significantly to the agility of supply chains to respond to disruptions.
Assistant Professor – Management & Marketing, Cameron School of Business
Source:
Craighead, C.W., et al., 2007. The severity of supply chain disruptions: design characteristics and mitigation capabilities. Decision Sciences, 38 (1), pp. 131–156.