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An ongoing debate in supply chain management is about the degree to which companies should collaborate with their supply chain partners. In business and research the concept is called supply chain integration and may also be a useful strategy for reducing certain risks. And of course it is an often used strategy in supply chain management in general
Analyzing the effect of supply chain integration on performance therefore is an important issue in SCM research.

Supply Chain Integration

In the case of this study supply chain integration ( SCI) can be defined as

the degree to which a manufacturer strategically collaborates with its supply chain partners and collaboratively manages intra- and inter-organization processes. The goal is to achieve effective and efficient flows of products and services, information, money and decisions, to provide maximum value to the customer at low cost and high speed.

The authors split SCI in three dimensions: customer, supplier and internal integration.

Internal integration and external integration play different roles in the context of SCI. While internal integration recognizes that the departments and functions within a manufacturer should function as part of an integrated process, external integration recognizes the importance of establishing close, interactive relationships with customers and suppliers.

Methodology

The paper employs a survey design. Participants of the survey were manufacturing companies based in China.

Because of China’s size and economic diversity, we strategically selected five cities representing different stages of economic development.

Overall 4569 companies were contacted, 1356 questionnaires were distributed with a result of 617 usable replies.
Figure 1 shows profiles of the responding companies.

Company Profiles
Figure 1: Company Profiles

The authors suggest the following hypothesis.

  • H1a. Internal integration is positively related to the operational performance of the manufacturer within a supply chain.
  • H1b. Internal integration is positively related to the business performance of the manufacturer within a supply chain.
  • H2a. Customer and supplier integration are positively related to the operational performance of the manufacturer within a supply chain, given the relationship between internal integration and operational performance.
  • H2b. Customer and supplier integration are positively related to the business performance of the manufacturer within a supply chain, given the relationship between internal integration and business performance.
  • H3a. Customer and supplier integration will moderate the relationship between internal integration and operational performance.
  • H3b. Customer and supplier integration will moderate the relationship between internal integration and business performance.
  • H4. An emergent taxonomy of manufacturers can be developed, based on their patterns of supplier, internal and customer integration.
  • H5a. The patterns of SCI are related to the operational performance of the manufacturer within a supply chain.
  • H5b. The patterns of SCI are related to the business performance of the manufacturer within a supply chain.


Results

The analysis of the survey offers several interesting results, these are the main points:

  • We found that most of our hypotheses were supported or partially supported, broadly indicating that SCI is related to performance.
  • Internal integration was directly related to both business and operational performance and that customer integration was directly related to operational performance.
  • Although supplier integration was not directly related to either type of performance, the interaction of supplier and customer integration was related to operational performance.
  • Our findings indicate that supplier integration is important to performance, but in a different way than internal and customer integration are.
  • Since the objective of SCI is to provide maximum value to the customer, the measurement of operational performance is necessarily customer-oriented.
  • Overall, the contingency approach reveals that internal integration forms the foundation upon which customer and supplier integration build. This suggests that companies should begin SCI with internal integration, laying the foundation for customer and supplier integration.
  • The configuration approach showed that the overall SCI construct was related to both operational and business performance.
  • The configuration approach also reveals that the effect of SCI is cumulative, providing significant insight for companies in implementing it.


Conclusion

The study shows that all three dimensions of supply chain integration are important for the performance of a manufacturing firm across industries. And China as the modern manufacturing hub is a great place to do research on this topic.

Reference: 

Flynn, B., Huo, B., & Zhao, X. (2010). The impact of supply chain integration on performance: A contingency and configuration approach Journal of Operations Management, 28 (1), 58-71 DOI: 10.1016/j.jom.2009.06.001



Originally posted by Daniel Dumke at http://scrmblog.com/review/the-impact-of-supply-chain-integration-on-performance-in-china
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An ongoing debate in supply chain management is about the degree to which companies should collaborate with their supply chain partners. In business and research the concept is called supply chain integration and may also be a useful strategy for reducing certain risks. And of course it is an often used strategy in supply chain management in general
Analyzing the effect of supply chain integration on performance therefore is an important issue in SCM research.

Supply Chain Integration

In the case of this study supply chain integration ( SCI) can be defined as

the degree to which a manufacturer strategically collaborates with its supply chain partners and collaboratively manages intra- and inter-organization processes. The goal is to achieve effective and efficient flows of products and services, information, money and decisions, to provide maximum value to the customer at low cost and high speed.

The authors split SCI in three dimensions: customer, supplier and internal integration.

Internal integration and external integration play different roles in the context of SCI. While internal integration recognizes that the departments and functions within a manufacturer should function as part of an integrated process, external integration recognizes the importance of establishing close, interactive relationships with customers and suppliers.

Methodology

The paper employs a survey design. Participants of the survey were manufacturing companies based in China.

Because of China’s size and economic diversity, we strategically selected five cities representing different stages of economic development.

Overall 4569 companies were contacted, 1356 questionnaires were distributed with a result of 617 usable replies.
Figure 1 shows profiles of the responding companies.

Company Profiles
Figure 1: Company Profiles

The authors suggest the following hypothesis.

  • H1a. Internal integration is positively related to the operational performance of the manufacturer within a supply chain.
  • H1b. Internal integration is positively related to the business performance of the manufacturer within a supply chain.
  • H2a. Customer and supplier integration are positively related to the operational performance of the manufacturer within a supply chain, given the relationship between internal integration and operational performance.
  • H2b. Customer and supplier integration are positively related to the business performance of the manufacturer within a supply chain, given the relationship between internal integration and business performance.
  • H3a. Customer and supplier integration will moderate the relationship between internal integration and operational performance.
  • H3b. Customer and supplier integration will moderate the relationship between internal integration and business performance.
  • H4. An emergent taxonomy of manufacturers can be developed, based on their patterns of supplier, internal and customer integration.
  • H5a. The patterns of SCI are related to the operational performance of the manufacturer within a supply chain.
  • H5b. The patterns of SCI are related to the business performance of the manufacturer within a supply chain.


Results

The analysis of the survey offers several interesting results, these are the main points:

  • We found that most of our hypotheses were supported or partially supported, broadly indicating that SCI is related to performance.
  • Internal integration was directly related to both business and operational performance and that customer integration was directly related to operational performance.
  • Although supplier integration was not directly related to either type of performance, the interaction of supplier and customer integration was related to operational performance.
  • Our findings indicate that supplier integration is important to performance, but in a different way than internal and customer integration are.
  • Since the objective of SCI is to provide maximum value to the customer, the measurement of operational performance is necessarily customer-oriented.
  • Overall, the contingency approach reveals that internal integration forms the foundation upon which customer and supplier integration build. This suggests that companies should begin SCI with internal integration, laying the foundation for customer and supplier integration.
  • The configuration approach showed that the overall SCI construct was related to both operational and business performance.
  • The configuration approach also reveals that the effect of SCI is cumulative, providing significant insight for companies in implementing it.


Conclusion

The study shows that all three dimensions of supply chain integration are important for the performance of a manufacturing firm across industries. And China as the modern manufacturing hub is a great place to do research on this topic.

Reference: 

Flynn, B., Huo, B., & Zhao, X. (2010). The impact of supply chain integration on performance: A contingency and configuration approach Journal of Operations Management, 28 (1), 58-71 DOI: 10.1016/j.jom.2009.06.001



Originally posted by Daniel Dumke at http://scrmblog.com/review/the-impact-of-supply-chain-integration-on-performance

With this article I’d like to wrap up the week for myself and share the most interesting articles I read in the last seven days. This week the World Economic Forum in Davos started, with more references to supply chain risk management tasks than I expected. So maybe there might be the start for a new emphasis on these risks also in the board rooms.

Articles
  • I finally came around to read the report on “New Models for Addressing Supply Chain and Transport Risk” published by the World Economic Forum. If you haven’t had a look yet, you can still do so (for free). ( WEForum)
  • Jan Husdal summarizes another report by the WE Forum on Global Risks, which can be found here. ( husdal.com)
  • Supply chain risk management is also an issue on governmental levels: “Obama Orders Strategy for Protecting Nation’s Supply Chain”. ( Bloomberg)
Already tweeted

There are also some article I already tweeted during the week. You can follow me on twitter.

  • A view by Ken Simpson on two different risk reports: … perception risk (where you stand determines what you see). http://t.co/CHSin9am
  • Are you a + member with the SCM Review? Then you might be interested in the article “Risk Management: Welcome to the New Normal” http://t.co/gV2qnnMP
  • Davos: World needs better supply chain risk management http://t.co/g0DVzyTg

Hope you enjoy your weekend!



Originally posted by Daniel Dumke at http://scrmblog.com/content/world-economic-forum-this-week-in-supply-chain-management-4-2012
Thumbnail Paper

Probably most companies source at least some parts for their products from global sources. This could be the steel from Australia, electronics from Taiwan or cloth from India. The reasons for international sourcing usually include cost and quality, which might be superior compared to local sources.
On the other hand longer shipment ways and less direct access and control may also increase the risks of quality failures, delays or even disruptions.
So at the moment a lot of companies struggle to find the right balance between increased risks and reduced cost in international sourcing. This study gives an inside view into fifteen companies and how they handle risks related to global sourcing, and therefore this overview is a good example for current practices in the field of supply chain risk mitigation.

Method

The authors still see a gap in the knowledge about how other companies analyze their sourcing related risks and how these risks are mitigated by them.
Therefore they use a multiple case study approach with 15 cases / companies within seven industries. In each company several information sources were tapped, including expert interviews.

Afterwards the authors compared the individual results in a cross case analysis.

Sourcing globally

But first the authors start with a literature analysis to analyze the reasons and risks of global sourcing.
Figure 1 shows their results regarding the advantages and risks of sourcing globally.

Sourcing Globally: Advantages and Risks
Figure 1: Sourcing Globally: Advantages and Risks (Christopher et al., 2011; click to zoom)

From this the authors extract a risk classification for global sourcing risks (figure 2).
Fig.1: Dies ist ein tolles Bild
Figure 2: Sourcing Globally: Risk Classification (Christopher et al., 2011; click to zoom)

Risks in global sourcing

Building on this literature review the authors conduct their case study. The cross-case analysis reveals risks in the following industries:

  • retail,
  • fashion retail and wholesale,
  • consumer electronics,
  • oil/gas,
  • mechanical and electrical equipment,
  • fast moving consumer goods (food and drink), and
  • aerospace.


The risks are shown in figure 3.

Risk Overview - Sourcing Globally
Figure 3: Risk Overview (Sourcing Globally) (Christopher et al., 2011; click to zoom)

Strategies for risk mitigation

The identified risks are handled very differently by each of the companies. Figure 4 shows the different approaches to identify and manage the risks.

Risk Management Strategies and Tools
Figure 4: Risk Management Strategies and Tools (Christopher et al., 2011; click to zoom)

Overall the authors find:
bq. The study proposes four generic strategies for managing global sourcing risk: network re-engineering, collaboration, agility and a risk management culture. Evidence of each of these strategics was found in the case studies although no single company was applying all of them.

The study also shows that even though many managers were aware of the risks their companies were exposed to, risk management strategies were not implemented in a systematic and holistic manner.

Conclusion

It is not possible to generalize these results for any company, due to the specific exploratory nature of the method used. But I find the findings quite interesting and I think they could be used as a foundation to build your own mix of mitigation strategies.

Research Blogging: 

Christopher, M., Mena, C., Khan, O., & Yurt, O. (2011). Approaches to managing global sourcing risk Supply Chain Management: An International Journal, 16 (2), 67-81 DOI: 10.1108/13598541111115338



Originally posted by Daniel Dumke at http://scrmblog.com/review/managing-global-sourcing-risk
Summary: 
Development of quantitative analysis in supply chain risk management.
Category: 

I just finished another chapter of my dissertation. Now, there are only two chapters left comprising the major parts of the work… so those can take some time to finish. But I am really looking forward to starting with this next part of the work.

News
  • Together with Volkswagen AG, other German companies and the Fraunhofer Institute for Material Flow and Logistics a collaboration was formed to improve the transparency and pro-activeness within the supply chain. ( Supply and Demand Chain)
  • This week apple released its “Supplier Responsibility Report” for 2012. Not only does it contain details about the many breaches of their supplier agreements, but also a 99%-complete listing of their suppliers. ( atrisk)
Articles
  • Richard Howells talks about his ten supply chain predictions in 2010. I don’t really like those prediction lists, but he has some interesting links to other articles supporting his points. ( Forbes)
  • Supply Chain Digest looks back into 2011 and tries to answer the question if supply chain management changed or will change due to the many disasters last year. ( SCDigest)
  • This week the risk monitor talks about the cultural aspects of risk management. A topic which I touched for example here and there). ( Risk Management Montior)
  • Also have a look at the report by Accenture on “The Rise of SCM Quants: How Finance and Risk Management are Transforming Supply Chain Strategy and Execution”. ( accenture)

I wish you a nice weekend!



Originally posted by Daniel Dumke at http://scrmblog.com/content/quants-this-week-in-supply-chain-management-3-2012

Psychological research shows that risk is never a objective matter ( 1, 2). This is made even more obvious by the fact that demographics play a huge role in the decisions made by supply chain risk managers.

But how could one integrate these findings into a more general framework?

Problem

In business uncertainty is a problem of perception. As the name “uncertainty” implies there is no certainty about a business or in this case supply chain performance property. So the amount of uncertainty has to be estimated or guessed and since most of the estimation is done by mangers, guessing is a matter of how the problem is perceived by them.

In the process of analyzing a supply chain problem (well, any problem indeed) there are several psychological effects working mostly against a rational decision.
The process within the mind could be modeled as two competing thought processes:

The first branch of thought processes initially addresses the problem with a quick intuitive answer, and the second branch monitors and adjusts the proposed answers.

The authors admits that even though he supplies a long list of psychological biases, there are still many more so these points should be seen as what they are – an excerpt:

  • One of the heuristics we use to simplify decision making is to assume that “one thing is like something else”.
  • “Among the problems that have been observed based upon representativeness is the misrepresentation of the role of chance in events.”
  • The frequency of the presentation of an issue and the manner in which it is presented influences the way we think about it, so “in the supply risk realm, major disasters are likely to color managerial perceptions of the frequency of major disruptions.”
  • “Overconfidence […] is typical in assessment of uncertain quantities. In the context of supply risk management such overconfidence is likely to arise when a particular manager who has substantial experience infers (e.g., makes an intuitive judgment) about the probability of some event, such as the probability of supply disruptions associated with various suppliers, without collecting and utilizing performance data.”


Example case: The issue of having multiple suppliers

After the attacks on the World Trade Center in September 2001 there was an increase in the average number of suppliers deployed and similar effects can be noticed in other large disruptions, especially if the media coverage is large.

Thus, unless we actually collect the data and calculate the frequencies, the odds are good that we will confound the two terms in our algebra of the supply risk associated with major events, since as a short cut to understanding the risk, we substitute the extent of damage for how representative such an event is of daily experience.

First, there are rational reasons to increase the supply base to reduce / diversify the risks across multiple (hopefully, independent) suppliers.
So, after an event like this we think of the decision problem in a certain way, and decide to do a risk benefit analysis and
bq. we might decide that the seemingly small risk of more relationship issues is more than offset by the benefits as we add more suppliers. Note that this is a risk versus benefit comparison. By contrasting risk compared with benefits, we have framed the decision in one way.

But one could also reframe the problem to a risk-risk-analysis comparing on the one hand the risk of being subject to disruptions and on the other hand risks of inadequate coordination, due to too many suppliers.

This example should show two things. First, we generally add suppliers to reduce risk, but we trade reductions of risk that is relatively rarely experienced (but catastrophic when it is observed) for risk that is relatively frequently experienced. Second, there is tremendous value to actually knowing how your suppliers are performing in the form of how frequently you experience disruptions that require intervention, because this is the only way that you can really understand what you are trading off.

Management implications

Smith draws several management implications from his analysis:

  1. “The first step in addressing any potential challenge is awareness”, not only an objectified view of the risks around us, but especially of the decision processes which lead to certain decisions for or against lean supply chains or backup suppliers.
  2. Group decisions might be a way to improve this decision making, if common problems with it (e.g. group think are prohibited.
  3. “We have already seen that statistical thinking and training can be valuable in overcoming the shortcuts that we can end up taking in the face of difficult decisions. In supply risk management it is important that the probability of potentially negative events be determined as accurately as reasonably possible, so that both the extent of the risks, and the potential for avoiding the negative consequences of the realized risk can be soundly assessed.”
  4. “Finally, as was illustrated here, reframing represents a valuable approach to overcoming some of the biases associated with decision making under uncertainty.”


Conclusion

Smith highlights an often neglected aspect when talking about supply chain risk management. But this aspect is not only neglected by researchers, but also managers alike.
Psychological issues like those mentioned above have been discussed for decades, but only few businesses employ them or even think about employing them.
So on the one hand side one should ask: Do we need more risk mitigation measures to ensure sustainable profits?
But, also: How do our cost reduction measures affect our risk-exposure?



Originally posted by Daniel Dumke at http://scrmblog.com/review/psychological-foundations-of-supply-chain-risk-management

The new blog design seems to be accepted quite well, at least nobody complained ;-).
But there is one objective measure of site performance: Since switching to Drupal and the new design the site speed should have increased by about one third. I hope you enjoy the new site, let me know if you have any comments or suggestions!

Figure 1: The faster Content Management System and lighter Theme leads to reduced load times.
Blogs

This week have a look at these articles!

  • Supply chain risks have been a high-level topic in many companies for several years now, but Maxwell Murphy argues that the catastrophes 2011 reinforced the urgency of the problem. But companies still fight for the right trade-off between cost savings and resilience. ( WSJ )
  • The US Pharmacopeial Convention suggested some best-practices for pharma supply chains, focussed on mitigating the risks of counterfeit drugs and medical devices. ( atrisk)
  • Enterra Insights posted and commented on some longer excerpts from the 2008 paper by Wagner and Bode on “An Empirical Examination of Supply Chain Risk Performance along Several Dimensions of Risk” (which I reviewed here) they reach the conclusion, that:
    The bottom line I reached from reading their study is that a company must know every aspect of its business and the environment in which it operates if it is going to make informed choices about how to deal with supply chain risks.
    ( Enterra Insights)
  • Ken Simpson presents a report about new concerns by the Chatham House (a UK think tank) that the just-in-time credo might put companies at risk… I can only agree with Ken: “finally!” ( Contemplating)
Category: 
Tags: 


Originally posted by Daniel Dumke at http://scrmblog.com/content/new-credo-this-week-in-supply-chain-management-2-2012

Not only earthquakes and terrorist attacks can lead to supply chain disruptions. Supply chains are also subject to behavioral risks, meaning that participants of the supply chain could exhibit behavior which might be consistent with their goals, but contrary to the goals of the supply chain’s other participants.

And so one has to ask: How should a company mitigate behavioral risks? And this is what Seiter did and his work was published as chapter 15 of another great book on supply chain risks (Supply Chain Risk by Zsidisin and Ritchie), which can be bought at amazon.com, if you are interested in reading more.

Methods

Seiter starts with the assumptions of the “principal agent theory(Wikipedia: Principal Agent Problem)”:http://en.wikipedia.org/wiki/Principal–agent_problem : Interactions between individuals which are built on asymmetric information may lead to problems for either or both parties. Figure 1 shows the principal-agent relationships in a supply chain.

Principals and agents in a supply network
Figure 1: Principals and Agents in a Supply Chain (Seiter, 2009)


Next, a preliminary study was conducted to gather information on the strategies which are employed in practice. Ten companies were interviewed and the following strategies were found to be the most frequently used:

  • Communication: Communication is the formal and informal exchange of information between the partners within the supply network. There are many different forms of communication, e.g., oral communication or written communication. All forms of communication have in common that they reduce the degree of asymmetric information. But, the size of this effect depends on the frequency and quality of the communication.
  • Partner selection: Partner selection is the examination of the match between the potential partners in a supply network (Das and Teng 2003). From a sequence perspective the selection of appropriate partners is the first instrument to prevent the opportunistic behaviour of suppliers. The literature suggests many recommendations concerning the selection criteria to use (for an overview see Seiter and Isensee 2007). By using a set of criteria the partner selection process seeks to ensure partner “fit”. There are different types of fit, e.g., strategic fit, and resources fit (Das and Teng 1999). However, the most important fit is the fit of the partners’ objectives. Only if all partners in the supply network can reach their goals simultaneously, will dysfunctional behaviour become unlikely (Das and Teng 1999).
  • Inter-organizational cost accounting: A typical form of opportunistic behaviour a supplier can practice is the abuse of the information asymmetry. For example, to pretend that costs are higher and accordingly seek a higher price. In practice different forms of inter-organizational cost accounting may be implemented to avoid such behaviour. The forms vary from partial approaches to full approaches like open-book accounting (Kajüter and Kulmala 2005).
  • Inter-organizational planning: Another way to prevent opportunistic behaviour is to reduce the extent of asymmetric information by sharing planning data. Several concepts have emerged in practice like “collaborative planning, forecasting and replenishment” or “supply chain planning”. The diffusion of inter-organizational planning is also supported by a great variety of software solutions that support the structured planning along the supply network.
  • Sanctions: Sanctions, in the event of the occurrence of opportunistic behaviour, are one of the first instruments mentioned by each interviewee. Normally, sanctions are defined in the formal bilateral contracts between buyer and supplier (Wuyts and Geyskens 2005). Especially, in cases where product-specific information is shared in the partnership between buyer and supplier, the contracts include paragraphs preventing the abuse of this information. This is more often the case when it comes to international supply networks.


As a second step the influence of these strategies is tested using a qualitative survey.
Figure 2 shows the proposed hypothesis. It considers not only direct effects on the opportunistic behavior but also indirect effects, which support the build-up of asymmetric information.

Conceptual model Asymmetric information
Figure 2: Hypothesis for direct and indirect Influence of the proposed Strategies (Seiter, 2009)
Results

The author finds some clear results regarding communication and inter-organizational cost accounting, which both significantly help to reduce opportunistic behavior within the supply chain. But, “no significant effects regarding possible sanctions and inter-organizational planning systems were found.” Furthermore, there was a positive correlation between partner selection efforts and opportunism was found indicating that higher efforts could lead to higher opportunism.

To explain the non-significant results, the author conducted a focus group discussion which lead to the following plausible explanations for the findings:

  • The group came to the conclusion that sanctions cannot provide perfect protection as all future circumstances would have to be anticipated and planned for accordingly.
  • The absence of the anticipated effect of inter-organizational planning could be grounded in the construct itself. In practice several different types of planning systems do exist, some very simple and others very complex types. The effective operationalization of this construct may require the indicators to be more specific about the specific types of planning systems used.
  • [Regarding the positive correlation between partnerselection and opportunism:] The survey captures only the initial partner selection effort but not whether partners are tested continuously. Therefore, this unexpected result may possibly be due to the need to define the indicators more closely to include this possibility.


Finally the author concludes, that “communication seems to be the central factor for preventing opportunistic behaviour in supply networks. For this reason the improvement of communication should be a primary objective.”

Conclusion

I liked the study design due to its concise structure and the extensive elaboration on the study methods. The results show, that there still is room for improvement. A more detailed model might have lead to more significant results with the other strategies employed.

Category: 


Originally posted by Daniel Dumke at http://scrmblog.com/review/behavioral-risks-in-supply-networks

Welcome to the “Year of Renewal”.
The first week in 2012 is nearly over and I restarted writing on my chapter on supply chain risk management from a practitioner’s perspective. Hopefully finishing by the end of the month.

Year of Renewal

2012 is my year of renewal and I just started with a new website design. I do not think it needs a lot of explanation, so I just used Skitch to create a graphical howto.

There are still some things not as I’d like them to be. This morning I had to make some fixes for those who still use the Internet Explorer with versions below 8. It is still not perfect, but I will continue to work on some aspects anyway.

News

There weren’t many news during the last days, but I found two articles with some new thoughts on 2011’s hot topics.

  • The Bangkok Post summarizes the local issues during the flooding. The Thai Industry Association summarizes the situation as follows: “The private sector has no clue how to react when a devastating natural disaster occurs”. Thereby, highlighting the massive failure to account for the regional risk structure by many global companies. ( Bangkok Post)
  • Boing is finally conducting a more in depth analysis of their supply chain to find sources for the long delays of its new 787 Dreamliner. ( Strategic Sourceror)
Blogs

Bloggers never sleep. And I would like to highlight the following articles:

  • Jan Husdal concluded 2011 with some nice statistics. The last article from 2011 was about the “Estimation of disruption risk exposure”, with “the most complete estimation of disruption risks” available. ( Jan Husdal)
  • @risk also published two interesting articles during the two weeks. First, on a study that Japanese companies are shifting their sourcing focus to other countries, due to high local risks. Second, the US Department of Energy ( DOE) released his second “Critical Materials Strategy” report, forecasting a decreasing long term risk in supply disruptions. ( Japan Critical Materials)
  • There are many projections out there for 2012 I found the “red herrings” at the Risk Management Monitor very entertaining. Also click the linked list with the full listing as well. ( RMM )
Learning and research
  • SCM Operations reviews an online supply chain management which is offered by the University of San Francisco. ( SCM Operations)
  • Already published in 2009 but still interesting: The Big Picture published an (video) interview with Robert Shiller (Yale Professor) on evaluating risk. ( The Big Picture)
Category: 


Originally posted by Daniel Dumke at http://scrmblog.com/content/Year-of-Renewal-This-Week-in-Supply-Chain-Management-1-2012

CoverI have read several articles by Mark Daskin (also reviewed another one here). So with him on the author list of today’s paper I think one can expect a clearcut research question, some kind of mathematical model, a fitting solution method and a definite answer to the underling problem. Well, let’s have a look!

Topic and method

The goal of this research is to analyze disruptions with a regional effect (as opposed to local, single facility disruptions). An example for a regional disruption may be an earthquake, storms or floods. The results should show how to better handle disruptions which are not locally limited and exhibit contagious tendencies.

The authors approach the problem by modeling three separate sub-models, namely the Defender Problem, the Attacker Problem and the User Problem.
The basic assumptions are:

  • each facility has a fixed capacity,
  • the capacity is affected by a disruption,
  • a defense strategy can be defined for selected facilities, it protects the facilities against the disruption


Defender Problem:
“The objective of the defender is to minimize the impact of the disruption by optimally choosing Q facilities to protect. Constraints states that no partial protection of a facility is possible.”

Attacker Problem:
“The objective of this program is to strike the system as hard as possible by identifying the worst-case set of exactly R facilities chosen among those which are not protected (6).2 Finally, no partial interdiction is possible.”

User Problem:
“The user level problem deals with the minimum cost assignment of customer demands to facilities. The total cost is given by the cost for the service provided, plus the penalties paid for the demand which is not met.”

Correlation Matrix:
“The correlation matrix represents the interdependence among the facilities when an attack occurs or, in other words, the extent to which other facilities are affected when a target facility is disrupted.

2009 L’Aquila earthquake map, main shock peak acceleration map (in %g) (USGS)
Figure 1: Map of the 2009 earthquake in L’Aquila, Italy (Liberatore, et al. 2012; USGS)

Continue reading "Hedging against Disruptions with ripple Effects in Location Analysis"

Originally posted by daniel.dumke@scrmblog.com (Daniel Dumke) at http://scrmblog.com/archives/339-Hedging-against-Disruptions-with-ripple-Effects-in-Location-Analysis.html

I have read several articles by Mark Daskin (also reviewed another one here). So with him on the author list of today’s paper I think one can expect a clearcut research question, some kind of mathematical model, a fitting solution method and a definite answer to the underling problem. Well, let’s have a look!

Topic and method

The goal of this research is to analyze disruptions with a regional effect (as opposed to local, single facility disruptions). An example for a regional disruption may be an earthquake, storms or floods. The results should show how to better handle disruptions which are not locally limited and exhibit contagious tendencies.

The authors approach the problem by modeling three separate sub-models, namely the Defender Problem, the Attacker Problem and the User Problem.
The basic assumptions are:

  • each facility has a fixed capacity,
  • the capacity is affected by a disruption,
  • a defense strategy can be defined for selected facilities, it protects the facilities against the disruption


Defender Problem:
“The objective of the defender is to minimize the impact of the disruption by optimally choosing Q facilities to protect. Constraints states that no partial protection of a facility is possible.”

Attacker Problem:
“The objective of this program is to strike the system as hard as possible by identifying the worst-case set of exactly R facilities chosen among those which are not protected (6).2 Finally, no partial interdiction is possible.”

User Problem:
“The user level problem deals with the minimum cost assignment of customer demands to facilities. The total cost is given by the cost for the service provided, plus the penalties paid for the demand which is not met.”

Correlation Matrix:
“The correlation matrix represents the interdependence among the facilities when an attack occurs or, in other words, the extent to which other facilities are affected when a target facility is disrupted.

2009 L’Aquila earthquake map, main shock peak acceleration map (in %g) (USGS)
Figure 1: Map of the 2009 earthquake in L’Aquila, Italy (Liberatore, et al. 2012; USGS)
Solution and Case

The authors develop a solution method, to optimize the given problem.
Data from the 2009 earthquake in L’Aquila, Italy was used to test the model.
Figure 1 shows a map of the area.

The dataset represents the Abruzzo region, a seismically active region of Italy, where L’Aquila is located. The set of the demand nodes, N, includes all the 305 towns and cities in the region and the associated demands, ai, correspond to the number of inhabitants as at beginning of April 2009 expressed in thousands of citizens. The set of initial facilities, F, represents the 35 hospitals of the region.

The model is solved for different parameters in two steps: first calculating the optimal defense program and second calculating the “optimal” attack, also calculating the incurred cost and correlated disruptions.

Figure 2 shows the example for two different solutions:
The buildings represent the available hospitals, stars mark the defended locations and the colored circles represent the disruption, which causes the worst effects.

 Fortification and interdiction sets for the instance with Q1⁄42, R1⁄42, and B1⁄40.0. Legend: the black line represents regional borders, buildings represent hospitals, stars represents fortifications, and interdictions are represented by concentric (colored) seismic impact areas. (a) RIMF solution. Fortifications: L’Aquila (west) and Sant’Omero (north). Interdictions: Pescara (east) and Avezzano (south-west). (b) WaveRIMF solution. Fortifications: Pescara (east) and Teramo (north). Interdictions: Citta Sant’Angelo (next to Pescara) and Sant’Omero (next to Teramo). (For interpretation of the references to color in this figure legend, the reader is referred to the web version of this article.)
Figure 2: Two solution Results (a and b). Buildings representing Hospitals, Stars protected Locations, Circles worst possible Disruption Effects (Liberatore, et al. 2012)
Conclusion

The attacker (in this case an earthquake) always looks for the place where it can hit hardest, so the focus is on the worst case scenario: How can one fortify a system so that even in the worst case it still performs at a desired level?

But keeping that in mind also leads to the conclusion that this system might not be for everyone: What if the earthquake does not hit at the worst point? Or not at all? As a rule of thumb, I would say the investments suggested by this model are magnitudes higher than those of an “optimal” (in terms of money) solution. So when do you use such a model?
I think there are two cases: Either if one is dealing with critical infrastructure, like water, food or possibly military installations and (I know its related) if one has to decide how to safe lives: As in the case study itself, where the optimal hospital location has to be found.

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Originally posted by Daniel Dumke at http://scrmblog.com/review/Hedging-against-Disruptions-with-ripple-Effects

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