03: Supply risks: conceptual background Flashcards
How does a typical supply chain look like?
Supply side –>upstream
OEM (manufacture)
demand side –>Downstream
What are the 3 types of supply chain risk? (Flows)
- Flow of Materials
- Flow of Information
- Flow of Funds
What are some supply chain risks?
- Supplier defaults
- Shipment delays
- Supplier quality issues
- Labor strikes
What is a supply chain disruption ? (Def)
A Disruption is an exceptional and anomalous situation in comparision to every-day-business
–>resulting impact is usually a function of time: The consequential situation, if ignored or mismanaged, threatens operations/supply chain objectives
What does a disruption constist of?
1.Triggering event (moment in time)
- Unitendend, unexpected event that materializes in the supply chain or the supply environment, and triggers the consequential situation
2.Consequential situation (duration >0)
- Exceptional situation that significantly threatens the normal course of business operations of the affected firm
What does the Thomas theorem say about event?
(Zitat and key point)
“If men define situations as real, they are real in their consequences”
-> an even is a disruption if it is perceived as one
–>: The Subjective interpretation of a situation influences (causes) the actions, not objective facts
What are the main implications of the thomas theorem?
- We can only speak of disruption, if actors perceive the situation as not normal
- the subjective nature of a disruption, makes it difficult to neatly demarcate the beginning and ending of a disruption
–>because different actors perceive a situation in terms of crisis at different points of time
What are the different stages of a supply chain disrtuption?
before triggering event:
1.Prodromal stage
after triggering event:
2.Acute stage
3.Chronic stage
4.Resolution stage
What is the Prodromal stage?
(+ example)?
- also calleed incubation period
- normal condition, but early warning signals (percursory signs) might foreshadow the triggering event
Example: A suppliers bad credit rating
What is the Acute stage?
(example)
- triggering event sets off the actue stage
- sense-making: uncertaintiy, stress, limited or fragmented information, demand of swift decision making
Example: Supplier files for bankruptcy
What is the Chronic stage?
(Example)
- Firm starts to cope with the situation
- Short-term decisions are made
- Attempts to prevent escalation
Example: focal firm subsidizes the distressed supplier
What is the resolution stage?
- firm returns to normality
- Disruption is evaluated
- Learning might take place
- Strategic responses to the disruption are devised
Example: focal firm finds a new supplier
What are the 5 different supply chain risk sources?
- Deman side risks
- Supply side risks
- Regulatory, legal, bureaucratic risks
- Infrastructure risks
- Catastrophic risks
What is demand side risks?
(where does it come from, what are i.e.)
Demand-side risks arise from downstream supply chain operations:
- Risks associated with the physical distribution of products to the end-customer (transportation operations, distribution network)
- Customers’ unforeseeable demands (mismatch between a company’s projections and actual demand) (cf. Bullwhip effect)
- Credit risk (accounts receivables)
- Opportunistic behavior by customers (e.g., hold up)
What is supply side risks?
Supply side risks arise from upstream supply chain operations (purchasing activities, suppl. relationships, and supply networks): e.g.
- Supplier business risks (defaults, vertical integration by a direct competitor)
- Material price fluctuations
- Opportunistic behavior by suppliers (e.g., lock in)
- Capacity constraints or shortages, poor logistics performance
What is regulatory, legal, and bureaucratic risks?
= arise from non-compliance with laws, rules, regulations, or ethical standards, as well as from regulatory, legal, or administrative barriers:
– In many countries, authorities are a significant factor of uncertainty in the setup and operation of supply chains
– Sudden changes in supply chain-relevant institutions may lead to violations of laws, rules, regulations, or
ethical standards
– Administrative barriers (tariffs, embargos, import/ export quotas, or local content constrains)
What is infrastructure risks?
= arise from the infrastructures and systems a buying firm maintains for its supply chain operations
– Socio-technical accidents (equipment malfunctions, machine breakdowns)
– IT failures or breakdowns
– Local human-centered issues (e.g., vandalism, sabotage, labor strikes, industrial accidents)
What is catastrophic risks?
(what are the two types?)
Arise from extreme events (usually low-probability, high-impact event)
- Natural catastrophes: Extreme weather conditions (draughts, floods), epidemics, volcanoes, earthquakes, wild fires
- Man-made catastrophes: Terror attacks
What are sustainability related supply chain risks? And What is the risk path of those?
Sustainability risks have no imminent risk of disruption
–>risk path:
1. sustainability related supply chain risks source
2. Stakeholder reaction
3. Negative effects
Why did sustainability related supply chain risks become important?
Stakeholders have begun holding buying firms accountable for the sustainability-related conditions at their suppliers and even sub-suppliers
What is supply chain vulnerability?
- Mechanisms internal to a supply chain that moderate (amplify or mitigate) the negative consequences of a supply chain disruption experienced by a focal firm
- Susceptibility or predisposition to loss because of existing organizational or functional practices or conditions
- “Vulnerability” and “exposure” deal with the same phenomenon, but take a different perspective
What are recent trends affecting supply chains?
Interconnectedness
- More dependencies (“Tight coupling”)
- Increasingly complex supply networks
Industry clock speed
- Shorter product life cycles
- Explosion of product variety
- Mass customization
- Smaller margins of error
Globalization
- Globalization of supply and demand markets
- Longer paths in supply chains
SCM/OM Trends:
- Outsourcing
- Single Sourcing
- Lean Production
- Focus on cost efficiency but not on robustness
What are the two popular theoretical perspectives on supply chain vulnerability?
Normal accident theory (NAT:) Pessimistic perspective
High reliability theory (HRT) Optimistic perspective
What is the normal accident theory (NAT)?
Core argument: Accidents are inevitable (normal), in systems that exhibit:
- Interactive complexity and/or
- Tight coupling
What is meant exactly with the first element of NAT: (interactive) Complexity?
1. What is a complex system?
A complex system is “made up of a large number of parts that interact in nonsimple way
What are examples of supply side risks?
- Supplier business risks (defaults, vertical integration by a direct competitor)
- Material price fluctuations
- Opportunistic behavior by suppliers (e.g., lock in)
- Capacity constraints or shortages, poor logistics performance
What are examples of demand side risk?
- Risks associated with the physical distribution of products to the end-customer (transportation operations, distribution network)
- Customers’ unforeseeable demands (mismatch between a company’s projections and actual demand) (cf. Bullwhip effect)
- Credit risk (accounts receivables)
- Opportunistic behavior by customers (e.g., hold up)