Jan Husdal

Are all firms snakes?

Posted by Jan Husdal Jan 31, 2010

Is it worth it to collaborate or partner up with some of the players in your supply chain? Can you really trust them? Most likely not. If I am to judge by what Paul D Cousins wrote in 2002, there's not much hope that a collaboration attempt will take you anywhere in the long run. Really?

 

Cousins contends that

all firms are ‘snakes’; they are maximisers and satisfiers concerned with their own survival and self-interest.

I find that a rather harsh statement. That said, the issue that needs to be addressed  is perhaps not so much the problem of trusting each other, but the problem of optimally managing the self-interest of the involved parties. And in the end, competition is maybe better than collaboration, when you think about it for a while.

 

Business relationships are not complex, they are simple

Using a game theory approach, Cousins develops a model of inter-firm relationships, based on the following key points:

Partnerships do not exist, varying collaborative relationships do.
Organisations do not trust each other, decisions are based on risk assessment.
A relationship is a process, not an entity.

While I personally like to believe that this black-and-white world view on business is not the case, Cousins does make a good case for his approach.

Two strands of research

Cousins identifies two types of business relationships:

a behavioural approach – businesses can interact as humans do in their relations
an economical approach – business interactions are based on economic power

 

These two relationship approaches seem irreconcilable in that while the latter emphasizes short-term cost reductions as the (only) means to compete and survive, the former advocates long-term partnering as the surefire way to survive in the long run.

The new paradigm

Cousins develops a model of inter-firm relationships, where the level of certainty versus the level of dependency determines four types of relationships:

Independent/Uncertain – Traditional/Adversarial
Dependent/Uncertain – Opportunistic
Independent/Certain – Tactical Collaboration
Dependent/Certain – Strategic Collaboration

 

Cousins defines Dependency by these terms:

Historic – An established relationship
Economic – One-sided, market leader or technology leader vs. the other(s)
Technological – One-sided, technology supplied vs. technology required
Political – Legal or political obligations to use a certain supplier

Cousins defines Certainty by these terms:

Contractual – will either party really stick to the contract?
Competence – does either party really have the skills or capabilities required?
Goodwill – will either party really help each other out if necessary?
Political – will either party fulfill internal or external issues, related and/or unrelated?

A relationship is an ongoing process

In conclusion, Cousins argues that while collaborations may have their rightful place, it is more useful to think of relationships as a continuous process that moves between the four boxes in the figure above. Relationships are not static, they are dynamic, and dynamic here does not mean disbanding old relationships and forming new ones. rather does it mean to take existing relationships to other levels of dependency and certainty. As Cousins says in one of his final statements: ‘The issue is about choosing the correct relationship process to deliver the desired output.’

The snake

The snake citation appears in the last paragraph, in which he writes:

It must be remembered that all firms are ‘snakes’; they are maximisers and satisfiers concerned with their own survival and self-interest. If that self-interest is best served by working closely with another firm then they will do so. However, when that interest is no longer served, rest assured, they will bite you!

Two interpretations come to my mind: 1) There’s really no point in collaboration. You will lose anyway. 2) Unless a you keep your relationships under scrutiny (and change them accordingly), they may backfire before you know it. Either way, collaboration is obviously not THE way to salvation and should not (necessarily) be the first-order strategy for any business. Not according to Cousins.

Göran Svensson?

Interestingly, Göran Svensson, in his 2004 article Vulnerability in business relationships: the gap between dependence and trust, picks up a similar note, when he developed his see-saw model of dependence and trust.


COUSINS, P. (2002). A conceptual model for managing long-term inter-organisational relationships European Journal of Purchasing & Supply Management, 8 (2), 71-82

 

Some time ago I came across a very interesting article and a term I had never heard about before: structural embeddedness. Structure refers to the characteristics of a supply network, such as how many suppliers or customers a company works with and how tightly or loosely coupled its relationships are. Embeddedness refers to the state of dependence of a company on its suppliers and customers in a particular supply network structure. Why is this important? Because we need to consider how a supplier is embedded in its own networks if we want to measure the performance of the supplier.

 

Introduction

Supplier management is a key strategic consideration and supplier management strategies such as supplier evaluation and supplier selection are widely used, often based on suppliers' internal capacities, such as operational capability financial stability, technological superiority, and trustworthiness. However, more often than not, this falls short of addressing the importance of extended networks beyond the immediate dyadic relationship; it does not address how a supplier's relationship with its suppliers or other buying firms affects its performance:

Considering suppliers in isolation (e.g., evaluating one supplier at a time) may have been appropriate when large, highly vertically integrated buying companies were the norm. The buying companies bought parts from multiple parts suppliers that competed against one another. However, we now operate in an era of integrated suppliers and contract manufacturers that pull together parts from second-tier suppliers. Even some of these integrated suppliers, as they become large, are working with smaller integrated suppliers. Further, buying companies rely more on their suppliers for design activities, and often suppliers are asked to work together to arrive at optimal design solutions. In other words, today we operate in an environment where suppliers have become embedded in their supply networks. If structural embeddedness is not managed well, then the performance of the buying company may ultimately suffer.

Three theoretical foundations

  1. A buyer-supplier relationship represents a dyad, with two actors performing activities for the purpose of generating values. Each actor requires resources--the buyer needs parts and materials from its supplier, and the supplier needs contracts and payments from the buyer. Therefore, they create a link and form a dyad or a buyer-supplier relationship. But not just that: The buyer brings to this dyad its own extended business network and so does the supplier. While a buyer-supplier relationship is a dyad, it is also part of other networks  through each other's extended business relationships. For buying firms, once they establish a relationship with a supplier, they are linked, indirectly, and unwittingly, to the supplier's overall business networks.
  2. Individual actors form dyads, then triads and eventually grow into a discernable network structure on either side of the dyad. These progressive levels are "embedded" in one another, and create not only busienss networks, but also social networks. Embeddedness perspective is one of many research streams in social network research, and enables us to interpret and analyze the individual firm's behavior or interfirm interactions within the context of larger relational structures.
  3. "Structural embeddedness" then focuses on the characteristics of relational structure, the relational quality of interorganizational exchanges and the architecture of network ties. It is concerned with how economic activities are influenced by the network structure and the quality of relations. Needless to say, perhaps, but obviously, a firm's structural embeddedness will exert both positive and negative effects  on its economic decisions, behaviors, and performance.

Supplier management propositions

The concept of structural embeddedness, when applied to supplier management, helps us see our suppliers in a larger context. We begin to appreciate the value of looking beyond the suppliers to better understand their performance. A buying company needs to understand a supplier's internal capability and capacity in order to establish supplier management policies regarding that supplier. However, other companies this supplier does business with in the extended supply networks can affect the supplier's performance:

Proposition 1: Buying companies with good understanding of their suppliers' structural embeddedness are likely to perform better in both operations and finance, compared with those without such an understanding.
Proposition 2: Buying companies with good understanding of their suppliers' structural embeddedness are likely to perform better at supplier management, compared with those without such an understanding.

What is it good for?

Buying companies should develop their capability to measure their suppliers' structural embeddedness or what we might call the "network awareness" capability. This capability refers to a buying company's ability to effectively and efficiently scan the external networks of its key suppliers beyond its direct relationships with them. It entails observing other, indirect relational dynamics that might potentially lead to future concerns or opportunities. When a buying company has good network awareness, it might choose not to dismiss a supplier just because it has shown poor performance if this supplier is connected to other promising companies (e.g., technologically advanced companies). The buying company may even choose to create a new category of suppliers with whom it might continue relationships, not because of their immediate merits but because of expected benefits from other companies that they are connected to.

 

Choi, T., & Kim, Y. (2008). Structural embeddedness and supplier mangement: A network perspective. Journal of Supply Chain Management, 44 (4), 5-13

Jan Husdal

Risk Portfolio Management

Posted by Jan Husdal Jan 27, 2010

In economic theory, the principal-agent problem is a well-known issue. It is not the most discussed issue in supply chain theory, but there are some good papers on it, which I would like to present here.

 

First out is a 2008 article titled Risk assessment and relationship management: practical approach to supply chain risk managementby Bob Ritchie, Clare Brindley and Nick Armstrong. Altough they apply the principal-agent theory in their deliberations, but their main issue is the introduction of a new term: risk portfolio management.

 

Confusion, confusion, confusion

Supply Chain Risk Management (SCRM) is still in its infancy and there is still some, or rather, much divergence as to a common theme in the academic literature. More recently, SCRM appears to be moving away from the more mundane day-to-day tasks of  operations and logistics and towards strategies, corporate management and relationships. Finally, a holistic management aspect of SCRM appears to be gaining the upper hand, and today's article is a perfect example of that.

 

 

The risk portfolio

Already in the introduction the authors set out a new direction for SCRM:

 

Supply Chain Risk Management is crucially viewed as a portfolio of decisions, recognizing that supply chain decision makers manage simultaneously a multiple set of risk encounters, rather than serially addressing single dyadic interfaces.

Why is this important? Because SCRM needs to address the whole supply chain, since risk can emanate from any part of the supply chain and potentially affect the performance of the entire supply chain.

 

 

Three dimensions of risk

The authors define risk as a function of

 

The likelihood of the occurrence of a particular event
The consequences of the particular event
The sources and causal pathways leading up to the event

 

Many other authors have used the same or similar definitions of risk, e.g. Jüttner, Peck and Christopher (2003)in  Supply Chain Risk Management: Outlining an Agenda for Future Research, or Paulsson in The DRISC Model, recognizing that risk is not something that is either present or not, but needs a catalyst (a source) and an impact (consequence) in order to be fully described.

 

 

The Supply Chain Risk Management Framework

Each dyadic relationship is fed into the portfolio as follows:

 

Dyadic Supply Chain Interface
Mapping the Supply Chain
Identifying the Risk Source
Develop a Risk/Performance Measurement
Assess the Risk Negotiate
Agree on how the risk is shared

 

Portfolio of Supply Chain Interfaces
Build a Risk Portfolio
Manage the Risk Portfolio
Evaluate Risk/Performance for the Portfolio
Feed this back into Organizational Learning

 

I'm not sure whether the aggregation of individual dyadic risks into a portfolio can under-emphasize  (read: neglect or ignore) certain dyadic risks. Nonetheless, the overall balance is what is important here. Besides, the crucial part of this framework is actually the feedback loop into the organization.

 

 

Principals' and agents' perspectives

The article presents seven propositions, three for principal and agent respectively and and one shared for both:

 

  1. The principal needs to plan and manage the performance/risk portfolio in aggregate, while balancing the distribution of risk/performance and keeping in mind both the short term and the long-term perspective.
  2. The governance of the supply chain relationship requires continuous monitoring of the individual risk seen against the overall risk in the portfolio.
  3. As the relationship matures, performance measuring is replaced by relationship nurturing.
  4. The agents in managing their own performance and risk need to recognize the general needs of the principal and the approaches he employs as to monitoring and measuring their performance.
  5. Success in managing supply chain performance and risk is dependent on the ability to reach a common shared position on expected performance, risk and risk sharing.
  6. Supply chain management operates in a highly dynamic environment which must be reflected by the management structures, processes and systems.
  7. Developing sound supply chain interfaces can lessen the complexity of the supply chain and reduce the uncertainty of unpredictable risk/performance outcomes.

 

Conclusion

The authors are right in pointing out that SCRM must address the supply chain as a whole, and not only operations and/or individual supplier-buyer relationships, but must address the full portfolio of risks. That is only possible if principal and agent engage in building and maintaining an intimate relationship.


Bob Ritchie, Clare S. Brindley, & Nick Armstrong (2008). Risk assessment and relationship management: practical approach to supply chain risk management International Journal of Agile Systems and Management , 3 (3-4), 228-247

I'm sorry for not posting here as frequently as I perhaps should. I'm moving house and I've been renovating my new apartment every day after work for the past two weeks, leaving little time for much else besides work than a few hours of well-deserved and highly-needed sleep.

 

It has been a learning experience, finding new DIY-skills I did not know I had, but also discovering the lack of same skills I thought I did have. It has also taught me about making sure I have the right tools for the job, and that improvising or using makeshift tools isn't going to do the job right. There is a reason why DIY stores have such a vast array of tools for every imaginable task - you really need them. Although...while a carpenter might need that special tool every day, I only need it once, which makes it a highly expensive investment that is just wasted. Nonetheless, with the learning that has come from the successes and failures of doing my own renovation I know have enough knowledge for my next renovation, should the need arise again.

How the wrong people can ruin a supply chain

Knowledge, skills and experience is something that is acquired by learning or doing, and unfortunately for many companies, or supply chains for that matter, this knowledge stays with the person that acquires it, should the person decide to leave. That's why knowledge management is paramount when it comes to key positions in a company. People are what makes organizations work, or in some cases, not work. Just as supply chain is all about getting the right product to the right place at the right time and at the right price, the talent supply chain is all about getting the right people in the right jobs with the right skills at the right time and right price. What happens if you don’t have the right people? Well, you may have disaster waiting to happen from within.

The biggest risk is inside

In business continuity plans, many companies think of all those disastrous hings that can happen and that are out of their control…fire, flood, labour unrest, storm damage, flu pandemics and the like. But, the most serious risk that is often overlooked is not external, but internal. Gen Ford from Ithaca puts it this way in his post on DISASTER! Business Continuity Issues are Most Often Caused from Within…:

Risks … generally result from the natural way in which  organisations grow.  Ad hoc development of structure, process, new product and service creation often leads to gaps in competency, communication and function.

In essence, you are the very maker of you own downfall, by not planning your own growth. How can you make sure your organization is fit to the task, even in the face of disaster? Well, you must hire accordingly.

The Talent Supply Chain

In his post People and Talent Supply Chain Management, Jeff Ashcroft from SupplyChainNetwork says:

Just as in supply chain management you begin with an inventory of your current human resources within the firm and the skills and attributes of those people. It’s then time to do some future planning relative to what your needs will be by location in three to five years. This will become your forecast for the talent supply chain in your firm but only represents the beginning of the full application of supply chain management principles to ensure the future health and stability of your workforce.

 

Nonetheless, even if you do apply the talent supply chain, one issue still remains, the loss of key personnel or key knowledge. That's were kmowledge management comes in.

Knowledge management

Knowledge management is particularly important in today’s globalized supply chain,  where the people working for your company are spread across the globe, perhaps they are hired to do the job on temporary terms or just for this one projects, ready to move on when one project is completed. What happens then? You need to acquire the manpower and skills all over again. Somewhere on the Internet I found this excellent illustration of the pitfalls of not giving knowledge management enough thought:

 

knowledge-management.jpg

Having the wrong (=incompetent) people can certainly ruin your supply chain. Having the right people can be disastrous, too, if you have no contingency plan on how to replace them. For a couple of good articles on this issue, you may want to read my revierw of the Harvard Business Review on Crisis Management.

Jan Husdal

Supplychainisms

Posted by Jan Husdal Jan 21, 2010

What is the difference between Supply Chain Management and Logistics? Is it the same or is Supply Chain Management just a new name for Logistics? Is it perhaps possible to distinguish certain perspectives or nuances?

 

Supply Chain Management (SCM) has evolved into both a professional and an academic field  that is growing, spreading and developing offshoots in all directions. Well, not "all" directions, but at least four directions, according to the 2004 article Logistics versus Supply Chain Management: An International Survey, by Paul D. Larson & Arni Halldorson.

 

SCM times four

 

 

The article investigates how the experts themselves classify their own realms and depending on the point of view, four different strands are discernible: the Tradionalist, the Unionist, the Re-Labelist, and the Intersectionist.

 

http://www.husdal.com/wp-content/uploads/2009/06/schainist-300x195.jpg

 

Actually, there may be five, as I will return to below.

 

  • Traditionalist
    • SCM is a part of logistics, along the lines of external or inter-organizational logistics

  • Re-Labelist
    • SCM is logistics, but renamed, a form of "integrated" logistics

  • Unionist
    • Logistics is a part of SCM, reducing logistics to one of many business processes or areas

  • Intersectionist
    • SCM is a broad strategy that cuts across many if not all business areas, where logistics becomes operational decisions, SCM becomes strategic decision, and tactical decisions fall to the intersection.

Does there really exist a Supply Chain Management?

Five years have passed since this article, but has the world changed? Are there still the same divisions? Or is there now a consensus on how Logistics and SCM relate to each other? I'm not so sure, and already more than ten years ago, in 1997, LaLonde asked the same question in 'Supply Chain Management: Myth or reality?' and a similar question was asked in a PhD dissertation from Sweden: Supply Chain Management - does it exist? by Erik Sandberg from the University of Linköping. You can read more about it in my post yesterday. Sandberg claims that the management level appears to be good in how to manage, but lack the necessary focus on how to operate supply chain activities, while the logistics department handles operations as best they can, but are in dire need of strategic directions from the management level. So basically, the two, management and logistics, are living side-by-side, more or less unaware of that they need to intersect. Is that the fifth variant, the 'Desectionist'? I thought of calling it 'Separatist', but I don't think that would be politically correct.

 

Personally I would call myself an intersectionist. What kind of SupplyChainist are you?


Halldorsson, A., & Larson, P. (2004). Logistics versus supply chain management: an international survey International Journal of Logistics, 7 (1), 17-31

As a researcher in Supply Chain Risk, I often scour the Internet in search for PhD dissertations or MSc theses on issues in Supply Chain Management. This is where I more often than not dicover new literature, because the literature review section in a PhD dissertation is usually much more extensive than in an average academic journal. This is also where I find many new ideas and much inspiration for my own research.

 

Sometimes all I find is scrap metal, other times I find gold.   I'm not sure this PhD classifes as gold, but it is very interesting nonetheless. Erik Sandberg from Linköping University in Sweden, finished his PhD dissertation on The Role of Top Management in Supply Chain Management in 2007, declaring that Supply Chain Management perhaps is more of a myth than a reality in today's business world. That is a very bold claim, but after reading the dissertation I must give the guy some credit. I think he could be right.

 

Top Management Support

 

Supply chain management (SCM) has been discussed by researchers as well as business practitioners for more than two decades now, but still surprisingly little of this philosophy can be seen in today's business practices, and in his dissertation, Sandberg contends that

 

One important enabler for taking the SCM philosophy from theory into practice that is often mentioned, but not investigated in-depth, is top management support. The role top management plays in a company’s SCM practices could be an important piece of research that is not yet in place in the big SCM puzzle. The purpose of this dissertation is therefore to describe and explain the role of top management in a company’s supply chain management practices.

 

A Logistics Survey

 

Much of Sandberg's work is based on  a survey of 482 logistics managers at Swedish manufacturing companies, resulting in the follwowing findings:

 

1. existing collaborations are mainly performed at an operational level in the companies,

2. there are differences in the focal company's attitude and behaviour depending on if the collaboration partner is situated downstream or upstream in the supply chain,

3. increased intensity in the collaboration results in more positive effects,

4. top management involvement is an important driver for increased intensity of the collaboration, and

5. top management involvement in a dyadic collaboration is an important driver for increased collaboration with supply chain members on the other side of the focal company.

 

These results, he says, clearly indicate the importance of top management involvement for successful supply chain collaboration, both when it comes to increased intensity in existing collaborations and in creating.

 

A Management Survey

 

Sandberg also conducted in-depth interviews with 15 top management members resulting in a more thorough explanation of top management's role in a company's SCM practices. Six archetypes of this role are presented:  

 

1. the supply chain thinker,

2. the frame setter,

3. the process designer,

4. the relationship manager,

5. the controller, and

6. the organiser for the future.

 

Here, he says, top management, in accordance with a traditional management style, applied what Mintzberg calls a “deliberate emergent” management approach, meaning that they focus on defining the strategic boundaries, while not interfering with day-to-day logistics operations.

 

Management versus operations

 

What Sandberg comes down to is that management appears to be good in management, but lack the necessary focus on supply chain activities, while logistics handles operations as best they can, but are in dire need of strategic directions from the management level, which could give the company a sustainable competitive advantage vis-à-vis its competitors.  So basically, the two, management and logistics, are living side-by-side, more or less unaware of that they need to intersect. I find this a very strong contention, and I look forward to reading more from Erik Sandberg.

 

Download

The dissertation is available for download from the Linköping University website

 

Sandberg, E. (2007). The Role of Top Management in Supply Chain Management Practices. Unpublished PhD Dissertation, Linköping University, Linköping.

In their 2004 paper, Securing the upstream supply chain: a risk management approach, Larry C Guinipero and Reham A Eltantawy put forward and explore four propositions reflecting four situational factors that should govern supply risk management.

 

There are four situational factors that are important in supply chains, namely, the buyer, the supplier, the product bought, and the environment surrounding the purchase. Essentially, what it comes down to, is that the following factors should be considered vis-a-vis potential suppliers:

the degree of product technology


the need for security


the importance of the supplier


the purchaser’s prior experience

 

Based on this, the authors put forward four propositions:

1. High-tech markets require more extensive risk management than other low-tech markets with slower pace of technological changes.


2. Those suppliers who provide items that have high security requirements require more extensive risk management than those providing items with relatively less security needs.


3. Major suppliers of high volume, value and/or critical items require more extensive risk management than those who supply fewer or less critical items.


4. Suppliers with whom purchasers have less experience require more extensive risk management than with those there is a history of purchasing.

 

Simple combinatorics reveals that there are at 16 possible combinations of high and low for technology (T), security (S), importance (I) and experience (E). If each factor is factor is equally weighted, the summary score implies five levels of risk management:  You assignethe value of 0 (zero) to low and the value of 1 (one) to high, except for experience, where obviously high  is 0 and low is 1. The overall  added score, then, is 0 for the lowest degree of risk and 4 for the highest degree of risk. That makes five basic levels of risk: 0, 1, 2, 3, and 4.

 

Example, low-tech (TL), low need for security (SL), low importance (IL) and high experience (EH) = 0+0+0+0=1.

 

If you do this for all possible did this for all combinations, you end up with this:

 

  1. 0: TL SL IL EH
  2. 1:  TL SL IL EL
  3. 1:  TL SH IL EH
  4. 1:  TH SL IL EH
  5. 1:  TL SL IH EH
  6. 2:  TH SL IL EL
  7. 2:  TL SH IL EL
  8. 2:  TL SL IH EL
  9. 2:  TL SH IH EH
  10. 2:  TH SL IH EH
  11. 2:  TH SH IL EH
  12. 3:  TH SH IL EL
  13. 3:  TH SH IH EH
  14. 3:  TL SH IH EL
  15. 3:  TH SL IH EL
  16. 4:  TH SH IH EL

 

There's only one instance of level 0 and level 4, 6 instances of level 2, and 4 instances of level 1 and 4, suggesting a Gauss-curve for the risk distribution, with level 2 (or medium risk) as the mean value. Nothing revolutionary. But...I have to admit that it is beyond my imagination to address the implications of all possible combinations  of  risk dimensions. How does one compare TH SH IL EL to TH SL IH EL? Both have a score of 3. Any takers?

 

Giunipero, L., & Eltantawy, R. (2004). Securing the upstream supply chain: a risk management approach International Journal of Physical Distribution & Logistics Management, 34 (9), 698-713

Transportation networks are the main backbone of modern society and play an important role in supply chains. Interestingly, though, while supply chain research takes into account many sides of transportation, transportation research does not wander into the realm of supply chains too often. However, I expect that too change. One place where the change has started to take place is the Transportation Research Board Annual Meeting, held in Washington, DC, every January.

 

The TRB Annual Meeting is the meeting place for transportation professionals and academics from around the world, gathering close to 10,000 participants every year. Supply chains are not yet a major topic with the conference, but as every supply chain is dependent on the transportation system, I expect that the number of supply chain related conference sessions will increase.

 

Last time this year I presented a paper at TRB2009 on the topic of supply chain disruptions in sparse transportation networks, and this is where I came across another very interesting paper - on resilience in the freight transportation system. Why does this matter? Because the resilience of the transportation system reflects on the resilience of the supply chain.

 

Structuring a definition of Resilience in the Freight Transportation System is written by Chilan Ta, Kelly Pitera and Anne Goodchild from the University of Washington, Seattle, WA. The authors lament the lack of a thorough all-encompassing definition of resilience, citing that although resilience is a familiar concept in supply chain resilience, organizational resilience,  and also in infrastructure resilience, they are still separate concepts. In their paper, they try to bridge these concepts.

 

The paper defines resilience along three dimensions:

  • Physical Infrastructure
  • Managing Organization
  • System Users

 

Physical Infrastructure:

The system of network of nodes and links that support freight transportation and travel (roads and road structures, railwaylines, port facilities, warehouses, intermodal yards etc.)

 

Managing Organization:

The unit that oversees the construction, maintenance and performance of the physical infrastructure (and disseminates current performance data).

 

System Users:

The business enterprises that move goods using the transportation infrastructure.

Personally, I would like to add a 4th dimension:

 

Regulators:

The (governmental) units/agencies that regulate freight transport and oversee the regulations.

 

Resilience of the freight transportation system falls thus not only on the system users, but on the concerted effort of the physical infrastructure, the managing organization, the regulators, and the system users.

 

Much of the background research for this paper was done by Kelly Pitera in her Master’s thesis, where she explored and evaluated resiliency efforts currently being used by importing enterprises, focusing on goods movement within the supply chain. The thesis itself can be downloaded here: Interpreting Resiliency: An Examination of the Use of Resiliency Strategies within the Supply Chain and Consequences for the Freight Transportation System.

 

In conclusion, the paper develops a definition of resilience in the context of freight transportation systems, capturing the interactions between the physical infrastructure, the managing organizations and the system users and provides an excellent starting point from which further ideas on the resilience of freight transportation systems can be developed. What I enjoyed with this paper was the holistic approach towards resilience, including all major stakeholders. That said, resilience is still a nebulous concept at best, difficult to describe at a universal level and perhaps best understood at an individual enterprise level. An excellent source for further readings on resilience can be found on Ken Simpson's blog, a source I frequently use and link to.

 

Ta, C. and Pitera, K. (2009) Structuring a Definition of Resilience for the Freight Transportation System. Paper presented at TRB Annual Meeting, Washington, DC, 11-15 January 2009.

The four buzzwords of supply chain risk management. Wouldn't it be nice if you had a supply chain that was all-in-one: resilient, robust, flexible and agile? In this post I will try to explain the difference between these concepts, as seen from my academic viewpoint. Further reading material is included in the links.

 

The Agile Virtual Enterprisehttp://www.assoc-amazon.com/e/ir?t=giswiz-20&l=as2&o=1&a=1567202640, a 1992 book by H.T. Goranson differentiates between agility and flexibility. Flexibility is scheduled or planned adaption to unforeseen yet expected external circumstances. Agility is unplanned and unscheduled adaption to unforeseen and unexpected external circumstances.

 

In Building a secure and resilient supply network, a journal article from 2003, James B Rice and Federico Canatio focus on security and resilience by upholding flexibility and redundancy as two methods with the greatest potential to create resilience. Redundancy is capacity that may or may not be used; it is this additional capacity that would be used to replace the capacity loss caused by a disruption. Flexibility, on the other hand, entails redeploying previously committed capacity.

 

Hau Lee's now renown 2004 article, Building the Triple-A-Supply Chain, uses the three big "A"s: agility, adaptability and alignment, where agility means to respond quickly to changes (and disruptions) in supply and demand, adaptability means to adjust to shifting markets and alignment implies an equitable sharing of costs, gains, risks, knowledge and information across the whole supply chain.

 

Martin Christopher and Helen Peck from the University of Cranfield in the UK wrote Building the Resilient Supply Chain in 2004, where they contend that resilience implies agility, and go on to define supply chain agility as the ability to quickly respond to unpredictable changes in demand and supply, slightly akin to Goranson’s definition. An agile and responsive supply chain, they argue, requires agile partners upstream and downstream of the focal firm.


A conceptual model of supply chain flexibility and Supply Chain Flexibility: Building a new model are two very similar yet very different journal articles by the trio of Leslie K Duclos, Rhonda R Lummus and Robert J Vokurka, who see flexibility as a cross-enterprise undertaking composed of 6 components: 1) operations – the ability configure assets and operations according to customer trends, 2) market – the ability to customize design and build close relationship with customers, 3) logistics – the ability to receive and deliver according to locational changes in supply and demand, 4) supply – the ability to reconfigure the supply chain, 5) organization – the ability to align labor force skills with customer or demand requirements and 6) information systems – the ability information systems architectures and systems with changing information needs in response to changes elsewhere in the organization.


Yossi Sheffi is perhaps one of the more prominent proponent of the resilience movement with his 2005 book The Resilent Enterprise, much of which can be found in his 2005 article A supply chain view of the resilient enterprise, co-written with the above mentioned Rice. Sheffi sees flexibility as a way to achieve resilience, stating that instead of relying solely on supply chain redundancy, a well-managed firm should develop resilience, by building flexibility that can be used to ‘bounce back’ from disruptions. To me, that would rather be agility (in line with Goranson’s definition)  than flexibility.

 

Brian Tomlin differentiated between contingent and mitigative actions in 2006, when he wrote  On the value of Mitigation and Contingency Strategies for Managing Supply Chain Disruption Risks. Flexibility can here be seen as a contingency action, that is: actions taken in the event of a disruption. Redundancy can be seen as a mitigation action, that is: actions taken in advance of a disruption, hence incurring a cost regardless of disruption. I have tried to explain the difference between the two in my post on mitigative and contingent actions.

 

In 2006 Christopher Tang wrote an article titled Robust Strategies for Mitigating Supply Chain Disruptions, where he proposed 9 strategies for making a supply chain more robust, that is, enabling a firm to deploy disruption-specific contingency plans, thus becoming more resilient. He even presented his ideas on YouTube.

 

Resilience Management: A framework for assessing and improving the Resilience of Organisations is a 2007 research report from the New Zealand research project Resilient Organisations. Here, resilience depends on 1) keystone vulnerabilities, criticality and preparedness, 2) situation awareness, stemming from an assessment of the keystone vulnerabilities, and 3) adaptive capacity, which is nothing other than flexibility and agility. Resilience, in essence, is the ability to survive disruptive changes despite severe impact.

 

Finishing off closer to home, in 2008, Bjørn Egil Asbjørnslett from the Norwegian University of Science and Technology contributed a chapter  on Assessing the Vulnerability of Supply Chains to a book on Supply Chain Risk by George Zsidisin and Bob Ritchie. In the chapter, largely based on his previuos works and his PhD on the vulnerability of production systems, he sees flexibility  as the inherent capability to modify a current direction to accommodate and successfully adapt to changes in the environment, whereas robustness refers to the ability to endure such changes without adapting. Resilience is the ability to survive despite withstanding a severe and enduring impact.

 

So, is it possible to make some definitions from the above? Yes:

 

  • Flexibility: the planned and/or scheduled adaptation to expected changing circumstances
  • Agility: the unplanned and/or unscheduled adaptation to unforeseen and unexpected changing circumstances
  • Robustness: the ability to withstand and endure changing circumstances without adaptation
  • Resilence: the ability to survive changing circumstances despite suffering severe impact

 

This figure is a good illustration:

 

flexibility-agility-robustness-resilience.jpg

 

Flexibility or agility, robustness and resilience are different sides of the same coin, yet at the same time distinctively different animals. Note that there is a distinct notion of different severity in each of these definitions.  The ability to survive (resilience) is likely to be more important in a business setting than the ability to quickly regain stability (robustness) or the ability to change course (flexibility or agility).

Close calls and near misses are not unusual in the business world, but how do companies deal with them? The Harvard Business Review on Crisis Management is not the newest book on this subject, being published in 1999, but old wisdom never dies, so we say here in Norway. Actually it was the demise of SAAB is a major crisis by all standards, and is a fitting reminder that this 10-year old book will never go out of date. Why and how do some companies survive, and some not? This book sheds some light on this.

 

As with all books in the Harvard Business Review Paperback Series, there are eight separate essays or chapters, each devoted to a certain aspect of crisis management, written by the preeminent thinkers and the emerging experts of the field.In this book.This book contains three stories told by those who lived to tell how they survived a major crisis, three fictional crisis cases, where different management consultants weigh in on the options available and finally, two articles on strategic advice on how to and how not to manage closes calls and near misses.

 

I love reviewing books and research papers and I'm not ashamed to admit that I always spend some time on Google digging into to the background of the authors of the books and papers I review. That is I discovered that Susan Wetlaufer, who authored an essay on a fictional case of mismanaged downsizing and of a defecting manager taking with him a seizable number of employees, has had her own share of crisis management to deal with. She is now Susan Welch...does that ring a bell? No? Well, in early 2002 she was forced to resign from the Harvard Business Review after admitting to an affair with the then-married Jack Welch, the former chief executive officer of General Electric, while preparing an interview with him for the magazine.

 

To me, one article stands out:

 

Right Away and All at Once: How We Saved Continental by Greg Brenneman is a fascinating account by the then COO of Continental Airlines, describing first-hand the five lessons of how he and the new team at Continental transformed the company:

 

1) File your flight plan and track your progress:

Find your action plan, stick to it, and monitor your performance.

2) Clean your house:

The people who brought the business in to the crisis are NOT the ones who are likely to bring the business out of the crisis, so sweep out the old. It’s brutal, but it works.

3) Think “money in” not “money out”:

Cutting costs lessens money out, but it never brings money in. Find ways to generate revenue, do not seeks ways to minimize losses.

4) Ask the customer the right questions:

What is it that they would actually be willing to pay for to use your services rather than your competitors’.

5) Let the inmates run the asylum:

Engaging your employees in making work fun does not run counter to strong, firm and directing leadership. Treat their ideas and suggestions with respect.

 

Every manager should read that essay. I certainly know more about the inner workings and real challenges of crisis management than I did before, and thus, can apply it to the case studies and surveys I will conduct in my research.

 

In conclusion, the Harvard Business Review Paperback Series are not written for us academics and researchers, but for the professional manager seeking executive perspectives and solutions.  Nonetheless, as an inherently curious researcher I always find it highly interesting to know what the industry is concerned with in order to focus my research accordingly. So, even for an academic like me, the Harvard Business Review Paperback Series is a great resource, not that I intend to have a go at all 73 of them, but here are three of my reviews:

 

The Harvard Business Review on Supply Chain Management

The Harvard Business Review on Managing External Risk

The Harvard Business Review on Crisis Management

Does having Small and Medium-sized Enterprises (SMEs) in your supply chain constitute an increased exposure to supply chain risk? Particularly if these SMEs occupy business-critical positions in the supply chain? That’s the question Peter Finch asks in his 2004 article simply (or boldy?) titled Supply Chain Risk Management.

 

According to Finch, yes and no. Many SMEs are not used to or trained in wide-ranging risk assessments to the same degree as large corporations are, and corporate supply chains my thus increase their exposure to risk by taking in SMEs, who in turn increase their own risk exposure to risks that are essentially outside of their control. However, all SMEs are capable of understanding and appreciating their own set of risks, and the risks they bring into the supply chain, as well as the overall corporate risks and the role they play in the wider perspective, if this is communicated clearly enough.

 

What I do find interesting is the framework for supply chain risk analysis that Peter Finch uses. Bandyopadhyay et al. (1999) relates to risk analysis for IT systems in organizations, and not to risk in supply chains. However, since IT systems do have a business continuity mission, this framework is far from inapplicable:

 

  • Application level  
    • technical failure, affecting local functions
  • Organization level  
    • strategic failure, affecting all functions
  • Inter-organizational level  
    • network failure, affecting suppliers and customers

 

Add to that, it does resemble the three-level structure seen in Jüttner et al. (2003), where risks can originate from within the organization, from within the supply chain, and from within the external environment.

 

Back to Finch's article, his list of risks is rather short and succint, and lacking the wider perspective, but for SMEs I suppose it is just right:

 

  • Natural disaster
    • flood, strom, lightning strike, disease/epidemic
  • Accidents
    • poorly designed, constructed or maintained system, facilities, or procedures, coupled with human error, e.g. a fire getting out of control
  • Deliberate acts
    • theft, vandalism, sabotage, counterfeiting
  • Data security issues
    • hacking, viruses, denial of service
  • Management issues
    • decision making, acquisistion and retention of skilled personell
  • Legal risks
    • violation of rights and intellectual property
  • Strategic decision making risks
    • Lack of investment in the future, competitors actions, suppliers' bargaining power
  • Networking risks
    • weak or inneffective control over suppliers' or customers' policies and procedures

 

The best thing about this article though is that there is very little, if any, academic discussions. It is all hands-on, example after example, and extremely operational; any corporate CEO all SME manager will be able to relate to the issues described, take the conclusions and put them into practice immediately.

 

If you look at the list above, under "Management issues", what I haven’t found much about in the supply chain risk literature so far, is the importance of knowledge management, .i.e. hiring and keeping skilled personnel. That is a risk that is perhaps too often overlooked, and it's a good to see that Finch brings this up to the surface. For further reading, the Harvard Business Review on Crisis Management has a couple of good cases on the same subject.

 


Finch, P. (2004). Supply chain risk management Supply Chain Management: An International Journal, 9 (2), 183-196

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