Abstract
The recent earthquake in Japan and the resulting nuclear crisis were reminiscent of how disasters can occur without warning. The volcanic eruptions in Iceland, terrorist attacks, and power outages resulting from floods and earthquakes are further examples of how disasters can adversely reduce the efficiency of a supply chain. The disasters can cause disruptions in the supply chain that can have a considerable effect on firms, especially if such firms had not instituted mitigation measures to counter the disasters. Hence, disaster preparedness is critical to sustaining the efficiency of the supply chain. The objective of this paper is to forward a proposal to undertake research in the mitigation of supply chain risk in disasters. The paper will explicate the need for companies to have a secure supply chain.
Introduction
Drastic improvements have occurred in SC management practices since the 1980s, these improvements have allowed firms to cut costs and concentrate on the firm’s core competencies. However, these improvements have been marked by an increase in the number and likelihood of disasters, both natural and man-made. Whenever disasters occur, they cause disruptions in the supply chain that greatly hamper the continuous flow of raw materials and quality parts from their suppliers. The disruptions can have dire consequences on the firm’s performance and livelihood (Deane et al, 2009). For instance, in February 1997, a fire outbreak in a Toyota brake supplier plant caused a direct shutdown of 18 Toyota plants in Japan, resulting in a loss of more than $195 million. The recent volcanic ash in Iceland affected several airlines around the world, leading to the loss of billions of dollars. British Airways alone had a quarterly loss of £164m, mostly attributed to flight cancellations due to the ash. Other sources of disasters include floods, hurricanes, earthquakes, tsunamis, and nuclear radiation. For these reasons, firms need to have mitigation strategies to lessen the effects of these disasters which is the central research area of this paper. The paper will take an analytical study of the mitigation strategies that firms can institute in order to lessen or avoid disruptions arising from these disasters.
Research question
In this study of mitigation of supply chain risk disasters, I intend to answer the following research question:
- What are some of the strategies that organizations can institute to improve the efficiency of a supply chain during disasters?
Literature Review
Disaster preparedness in a supply chain is defined as the ability of an organization to endure disruptions in the supply chain. These disruptions can arise from several sources: external and internal. Internal sources include customs regulations and information delays while external sources include competitor action, political environment, natural disasters and price fluctuations (Tomlin, 2006). However, the current research will focus on disruptions that arise from disasters, both man-made and natural.
Today’s business environment is plagued by numerous uncertainties arising from disasters. The recent earthquake in Japan and the resulting nuclear crisis, the unrest in Egypt, volcanic eruptions in Iceland, terrorist attacks and power outages resulting from floods and earthquakes are just some of the disasters that can adversely affect the effectiveness of an organization’s supply chain.
These disasters disrupt the supply chain in one way or another and the effects of these disruptions can be especially harmful to lean firms that cannot easily endure supply chain disruptions (Deane et al, 2009). Indeed, most business executives contend that disruptions in the supply chain are one of the greatest risks to their firms (Deane et al, 2009). Organizations need to have a disaster management procedure that can be used in case of these disruptions.
Disasters in a supply chain arise from external factors that the company cannot control and include price fluctuations, actions of the competitor, political atmosphere, and stochastic cost. There are some internal risks that arise from the company’s actions and which it can control or curb, they include the organizations storage capacity, information delays and sabotage by the organization’s staff (Cucchiella and Gastaldi 2006). Whether internal or external, disruptions in supply chain can adversely affect a firm’s capacity to deliver and to achieve its goals, this is worsened by the interdependence of the global society due to globalization (Wagner & Bode, 2006).
Companies cannot afford to have too much confidence in their handling of disasters and the ensuing disruptions in the supply chain. This can amount to denial and can prove disastrous when the disaster strikes. Several studies have proposed strategies that companies can use in order to mitigate the effects of disasters in their supply chains. For instance, Deane et al (2009), in their study of global sourcing, propose that an organization must choose its suppliers carefully. A detailed background check on the supplier must be done and the selection must be done after a thorough analysis using quantitative tools (Deane et al, 2009). The authors propose a methodology based on multi-criteria optimization structure that will allow an organization to have a better comprehension of how the risks will affect the supply chain.
Hale and Moberg (2005) develop a five-stage disaster management process that can be adopted by organizations in order to improve the efficiency of their supply chains in case of a disaster. This approach proposes that firms should consider the risk associated with the location of their businesses prior to their establishment. Using this approach, Hale and Moberg (2005) suggest that stocking emergency supplies at each supply chain facility can improve the efficiency of a supply chain by creating a constant flow of materials, even when the supply is cut by disasters. However, they mention that certain external factors may still hinder this endeavor and these include fires, hurricanes, and floods, which may destroy the storage facility or make it inaccessible. Hence, a secure selection of business location is vital towards mitigating risks arising from disasters in supply chain (Faisal et al, 2006).
Other strategies for mitigating supply chain risks arising from disasters include contingent re-routing and business interruption insurance (Tomlin, 2006). Contingent rerouting is a strategy in which a firm increases the production at an alternative supplier’s plant, thereby averting a looming disruption to a SC. Business interruption insurance is a financial mitigation strategy in which a firm receives financial reimbursement in case of a disruption to its supply chain. The amount can be used to finance or explore other supply chains.
The paper will analytically review recently published SC risk cases methodologies, models and risk instances. This extensive analysis will be followed by a categorization of SC risks on the basis of their frequencies and degree of disruption to supply chains based on the studies.
Research Philosophy
The study will adopt a positivist research philosophy approach where by emphasis will be placed on facts presented in several published papers in an attempt to come up with a categorization of supply chain risks on the basis of their frequencies and degree of disruption to supply chains based on these studies
The research paper will employ a deductive research approach where we shall work from a general perspective from various literature and narrow down to more specific ideas, and the conclusion will be based on a logical analysis of the facts presented in the papers.
Hypotheses
- Ho= Mitigating structures can lessen the degree of disruption to a SC arising from disasters as they can enable access to alternative suppliers
- H1= Mitigating structures have no effect on the degree of disruption to a SC arising from disasters.
Research Methodology
The methodology adopted in the paper will be an analytical and detailed review of published literature that focuses on the mitigation of SC risks arising from disasters. The methodology will review recently published literature on the current topics; we shall also review practical supply chain risk cases and models to illustrate the applicability of the models proposed. The research will enable us to consolidate and synthesize various literatures, then categorize the risks and compare their effectiveness. Finally, we will apply one of the proposals to a business organization or economy to illustrate the importance of mitigation of risks in supply chain arising from disasters.
Data Collection
Since this will be a comparative and analytical literature review, we shall not collect any data, however, the analysis and recommendations will be based on a detailed analysis of the facts and figures presented in the various published papers that we will include in our catalogue.
Contribution in current knowledge
Many studies have focused on a specific aspect of supply chain risk mitigation, the paper will consolidate several authors’ contribution to the field of mitigation strategies in the mitigation of supply chain risk in disasters. The research will offer a deep understanding of the methodologies used in mitigation measures, their strengths and weaknesses, and a practical application of the approaches.
Implication
Supply chain risk management is a topic that is increasingly becoming relevant in today’s business environment. The reliability of a supply chain is critical to a firm fulfilling its objectives, it may also help to maintain clients and thereby improve its rating on the public’s eye. Hence, any barrier to the effectiveness of a SC affects not only the organization, but also its clients and certain sectors of its economy. Mitigation of risks in a supply chain is a very important topic owing to the high frequency of occurrence of man-made and natural disasters. Mitigation strategies can help an organization reduce the costs associated with the disaster and maintain its day-to-day operations.
Conclusion
The adoption of a mitigation tool for SC risks arising from disasters is an important component of an organization’s general supply chain strategy. Organizations that are overconfident in their ability to handle disruptions in the supply chain leave themselves open to huge financial and stock losses, as experienced by Philips Semiconductors in 2000.
References
Cucchiella, F., and Gastaldi, M. (2006). Risk management in supply chain: a real option approach. Journal of Manufacturing Technology Management, Vol. 17 No. 6, pp. 700-720.
Deane, J. K., Craighead, C. W., and Ragsdale, C. T. (2009). Mitigating environmental and density risk in global sourcing. International Journal of Physical Distribution & Logistics Management, Vol. 39 No. 10, pp. 861-883.
Faisal, M. N., Banwet D.K. and Shankar, R. (2006). Supply chain risk mitigation: modeling the enablers. Business Process Management Journal, Vol. 12 No. 4, pp. 535-552.
Hale, T., and Moberg, C. R. (2005) Improving supply chain disaster preparedness: A decision process for secure site location. International Journal of Physical Distribution & Logistics Management, Vol. 35 Iss: 3, pp.195 – 207.
Tomlin, B. (2006). On the Value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks. Management Science, Vol. 52, No. 5, pp. 639–657.
Wagner, S. M., and Bode, C. (2006). An empirical investigation into supply chain vulnerability. Journal of Purchasing & Supply Management, 12 (2006) 301–312.