Managing Risks of Supply-Chain Disruptions: Dual ... - CiteSeerX

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judge and test their crisis-preparedness plans.However, managers must be careful not too pay too much attention on exceptional events andneglect smaller risks that have however a high frequency and can hurt as much. Small disruptionscan be very severe if they are too numerous and lead to stock-out and lost customers.MIT research group on “Supply Chain Response to Global Terrorism” (2003) have shown thatfirms usually focus on the type of disruption and not its source in order to know how to prepareagainst risks. What is important is the type of “failure modes, i.e the limited ways in which thedisruption affects the supply-chain”. A disruption in supply for example can be caused by a strike,an earthquake or a terrorism action and in each case will have the same impact. The teamdistinguishes 6 different types of failure modes (see Table 2.1) that are: “Disruption in supply,Disruption in Transportation, Disruption at facilities, Freight breaches, Disruption incommunications, and Disruption in Demand.”Failure ModeDisruption in supplyDisruption inTransportationDisruption atFacilitiesFreight breachesDisruption incommunicationsDisruption indemandTable 2.1: Supply-Chain Failure ModesDescriptionDelay or unavailability of materials from suppliers, leading to a shortage ofinputs that could paralyze the activity of the company.Delay or unavailability of the transportation infrastructure, leading to theimpossibility to move goods, either inbound and outbound.Delay or unavailability of plants, warehouses and office buildings,hampering the ability to continue operations.Violation of the integrity of cargoes and products, leading to the loss oradulteration of goods (can be due either to theft or tampering with criminalpurpose, e.g. smuggling weapons inside containers).Delay or unavailability of the information and communicationinfrastructure, either within or outside the company, leading to the inabilityto coordinate operations and execute transactions.Delay or disruption downstream can lead to the loss of demand,temporarily or permanently, thus affecting all the companies upstream.Source: MIT research group on “Supply Chain Response to Global Terrorism”, Sheffi, Rice, Fleck andCaniato (2003)“Don’t ignore a risk just because you can’t quantify it”.18
2.3 Secure the Supply-ChainThere are 3 types of initiatives that are undertaken to secure the supply-chain: “physical security,information security, and freight security.”Lee and Wolfe (2003) argue that it is possible to improve the security without destroying the actualsupply-chain effectiveness. Their argument relies on the “quality management” movement thatapplies to products and claims that it is possible to reduce defects (or increase quality) withoutincreasing costs. Thus, firms must “promote measures that also increase supply-chain flexibility”.Applying the principles of this theory to supply-chain security, the authors argue that firms need tofocus on prevention rather than inspection and have an advanced process control. It is notreasonable for example to increase too much the inspection rate as this may increase security butalso dangerously lowers efficiency.1) Prevention at the source. As the quality movement puts it: “an investment in preventionpays off handsomely because it drastically reduces the cost of inspection and the number ofproduct failures.” Firms need to adopt processes “that prevent tempering a containerbefore, during, and after the loading process.” This requires checking thoroughly thepersonnel who handle the products and enter the facilities. Firms should also watchcarefully over the flow of materials, and the handling processes.C-TPAT is a program developed by U.S Customs that targets this area. It promotescollaboration between companies and US customs services. The objective is for companies(manufactures, carriers...) to become know and trusted entities to the government; thusthey will cross faster the border and add value to their customers.2) Inspection and process control. US Customs use different techniques to select theshipments that will be checked. First the Automated Targeting System checks historicaldata about shipments, and inspects only those that present some anomalies. The 24-hournew rule requires that detailed and complete information arrive 24hours before thecontainer is loaded. Another level of screening is non-intrusive inspection and consists indevices that can scan for certain anomalies such as an abnormal density of the container.To increase effectiveness the Container Security Initiative (CSI) tries to move inspectionsin originating ports. This would increase not only security but also “business efficiency”:shipments would be safer during transportation and this would reduce the possibility of19
Page 1: Managing Risks of Supply-Chain Disr
Page 4 and 5: AcknowledgementsI would like to exp
Page 6 and 7: 4.2.5 Conclusions .................
Page 8 and 9: List of FiguresFigure 1.1: Strategy
Page 11 and 12: Chapter 1Introduction.Modern supply
Page 13 and 14: - Levels 2 and 3--between these two
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Page 21 and 22: 1) Firms need to build a resilient
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market share from its competitor.7.
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= 0.99 * ($100) + 0.01* (-$200)= $9
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Table 7.1: Assumption on Parameter
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7.2.4 Exploit at maximum real optio
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developed “ a general simulation
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(13) Lee, H.L., Wolfe, M. (2003),
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and Supply Management Course.(38) Z
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to reserve for the future, by maxim
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APPENDIX B: PARAMETER VALUES USED T
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normal or in disruption.The program
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% Probability of going from (m,k,j)
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elsevalue.DecOneNormal=3;end-------
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