Combatting Supply Chain

Disruptions
Professor (Dr.) Robert de Souza

Executive Director and Chief Executive

The Logistics Institute – Asia Pacific
Singapore

rdesouza@nus.edu.sg www.tliap.nus.edu.sg
Risk versus Uncertainty

Theoretically,

» Risk is applicable where the odds are known

» Uncertainty applies where the odds are unknown

• Source:Olson

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Defining Disruption

Source: Yossi Sheffi and Hopp

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Estimating probabilities

• TALEB [2007]
» BLACK SWANS
» Humans tend to assume anything they haven’t seen it, it’s not
likely
•Mathematics
–Fair coin flips have a 50/50 probability of
heads or tails
–If you observe 99 heads in succession,
probability of heads on next toss = 0.5

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Severe Disruptions are also Hard to Predict

Disasters (Weather,
Earthquake, Terrorists)

Supply Chain
Disruption

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Business Impact of March 11 2011
- Year-on-Year Comparison of Production
by Japanese Electronics / Automotive Industry
2,500,000

2,000,000
2005
2006
1,500,000
2007
2008
1,000,000 2009
2010
2011 1,200,000
500,000
2012
1,000,000
800,000
0
600,000
Oct
Nov
Dec
Mar

May
Jan

April

Jun
Jul
Aug
Sept
Feb

2010
400,000
2011
Source: Japan Electronics and Information Technology Industries 200,000 2012
Association. Production by the Japanese Electronics Industry.
Accessed at http://www.jeita.or.jp/english/stat/electronic/2011/ on 17 0
Aug. 2012.

July

October
November
December
January
February

May

September
April
March

August
June
Source: JAMA Active Matrix Database System. Japanese Automobile
Manufacturers’ Association. Accessed at
http://jamaserv.jama.or.jp/newdb/eng/index.html on 30 May, 2011.

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Slow Recovery from Disruptions

Source: eye for transport

Respondents representing hi‐tech companies were asked to

evaluate the impact of recent disruptive supply chain disasters on
their supply chain (i.e. Japanese earthquake and tsunami, Thai
flooding, Icelandic volcano). The majority saw some disruption
(66%), though 21% saw a significant disruption.
Source: Eye for Transport April 2012

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 Countering the Supply Disruption Profile

Detection
and
response
Recovery - minimized
Sustaining
Initial Impact Impact = 0

Full Impact – Avoided!

Sustaining
Impact >0
Initial Impact
Performance

Detection
Preparation and Full Impact
Response
“When a severe supply chain
disruption occurs it is usually
preceded by some indicators
of – “what is to come”.
If predictors are good
one could avoid the entire
impact of the disruption”
Source:internet

Recovery

Disruption
Event

Time
(Traditional) Risk Reduction Strategies

1. Identify different types of risk

2. Estimate likelihood (probability) of each event
3. Assess potential impact (loss) from major disruption
4. Identify strategies to reduce risk

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Vulnerability :
The Supply Chain is a Network (of dispersed
clusters)

Source: Lambert DM, Cooper MC, Pagh, JD. 1998. Supply Chain Management: Implementation Issues and Research Opportunities. The International Journal
of Logistics Management. 9:2. p. 7

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Vulnerability: Trade is concentrated –
Ghemawat’s Law of Distance

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Vulnerability: The drive for efficiency
vs. responsiveness across resources

Corporate
Strategy

Supply Chain
Source: Simichi-Levi Strategy

Efficiency Responsiveness

Market
Facilities Inventory Transportation Information Segmentation

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Robust Strategies
Tang [2006]

• Postponement
• Strategic stock
• Flexible supply base
• Flexible transportation
• Dynamic pricing & promotion
• Silent product rollover – slow product introduction

FAIM 2008 Conference, University of Skövde

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 Robust Supply Chain Strategies

• Postponement

» By re-sequencing the dyeing and knitting process at Benetton, Benetton is able to

postpone the colour specification of the sweater by knitting the undyed sweaters first
and then dyeing the sweaters different colours after receiving customer orders.

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Robust Supply Chain Strategies

• Strategic stock
» Manufacturers may keep inventories of spares at strategic
locations to achieve a higher customer service level.
» When a disruption occurs, these shared inventories allow a
firm to deploy these strategic stocks quickly to the affected
area.

Source: Tang, C.S. 2006. Robust strategies for mitigating supply chain disruptions. International Journal of Logistics Research and Applications. 9:1. pp. 33-45

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 Robust Supply Chain Strategies (cont’)

• Flexible supply base

» Li and Fung’s 7500-supplier network offers
Li and Fung great flexibility to shift
production among suppliers in different
countries quickly when a disruption occurs
in a particular country.

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Robust Supply Chain Strategies (cont’)

• Flexible modal choices

» Seven-Eleven Japan urges its logistics partners to diversify their mode of
transportation, which includes trucks, motorcycles, bicycles, ships and
helicopters.
» This flexible logistics strategy won the hearts of many Japanese when
Seven-Eleven Japan used 125 motorcycles and seven helicopters to
make rush deliveries of 64,000 rice balls to earthquake victims in Kobe
shortly after the earthquake that destroyed many roads in the late 1980s.

Source: Tang, C.S. 2006. Robust strategies for mitigating supply chain disruptions. International Journal of Logistics: Research and Applications. 9:1. pp. 33-45

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Robust Supply Chain Strategies (cont’)

• Demand shaping and revenue management through

dynamic pricing and promotion
» when Dell was facing supply disruptions from their Taiwanese
suppliers after an earthquake in 1999, Dell offered special “low-
cost upgrade” options to customers if they chose components
from other suppliers.
» This dynamic pricing and promotion strategy enabled Dell to
satisfy its customers during a supply crisis

Source: Tang, C.S. 2006. Robust strategies for mitigating supply chain disruptions. International Journal of Logistics: Research and Applications. 9:1. pp. 33-45

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Robust Supply Chain Strategies (cont’)

» As Swatch produces each watch model only once,

Swatch utilizes the silent product rollover strategy to
launch new watches so that its customers will view all
available Swatch watches as collectibles

Source: Tang, C.S. 2006. Robust strategies for mitigating supply chain disruptions. International Journal of Logistics: Research and Applications. 9:1. pp. 33-45

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In Summary…

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Vulnerability: The opportunists thrive

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Building Advanced Capabilities (in Singapore)

Common Platform for integration of tools and algorithms

Large-scale mapping Disruptions Real-time decision Dynamic resources to Dynamic security

capabilities to model propagation with fault support for risk handle scale & with Circle-of-Trust,
the SCs’ connectivity intensity tracing and mitigation with what-if complexity of data privacy and data
reverse diagnostic scenario planning including large-scale integrity capabilities
analytics

Common Platform for integration of tools and algorithms

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 Putting it all together - Profiling

Desired
Response
Relief Stability

Detection
Performance

Detectability

Actual
Response
• Risk is
Robust
Everywhere Disruption
Strategies
• Cost Reduction
Increases Risks
Probability
• Reduction of Risk
is Relationship
Dependant
Vulnerabilities Opportunities

Time
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Some books and papers referred to

Key Papers:

Strategic Risk from Supply Chain Disruptions

Hopp et al in Management Science
Risk and Disruptions: New Software Tools
Sheffi et al (internet sourced)
Robust Strategies for Mitigating Supply Chain Disruptions
C.S. Tang in I.J. Logistics Research and Applications
Managing Risk to Avoid Supply-Chain Breakdown
Chopra and Sodhi in MIT Sloan Management Review
Supply Chain Risk Management: Literature Review and Future Research
Vanany et al in I.J. Information Systems & SCM

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