Complete a vulnerability analysis of supply chain systems, processes and components. In Vulnerability Analysis Report, you have to cover all factors leading to supply chain vulnerability for processes and systems operating in your industry.
SUPPLY CHAIN VULNERABILITY
Introduction
Modern supply chains are very complex, with many parallel physical and information
flows occurring to ensure that products are delivered in the right quantities, to the
right place in a cost-effective manner. In fact, supply networks may be a more accurate
term than supply chains. In this brochure, the terms supply chains and supply networks
are used with the same meaning
The shift towards leaner supply networks during recent years has resulted in these
networks becoming more vulnerable. In particular, there often tends to be very little
inventory in the system to “buffer” any interruptions in supply and, therefore, any
disruptions can have a rapid impact on the supply network.
These disruptions can arise from several sources, for example
natural disasters (e.g. the Kobe earthquake, which affected supply networks across the
globe, or, more recently, foot and mouth disease, which has affected the livestock
haulage industry, the tourist industry, etc);
terrorist incidents (e.g. events in the USA on 11′ September 2001)
industrial or direct action (e.g. the fuel price protest of September 2000, which very
rapidly impacted on almost every supply network in the U.K.);
accidents (e.g. a fire in a component supplier can have such a serious impact on
manufacture that they are forced to shut down operations, such as Toyota in 1997
due to problems at its supplier of brake-pressure proportioning valves);
operational difficulties (e.g. production or supply problems at one supplier can impact
every organization in the supply network).
Owing to the close interrelationships between many supply networks, the impact of such
disruptions can be far-reaching.
Companies have been aware of the need for disaster recovery and emergency planning
for some considerable time, particularly in areas such as information technology and
production plants. Business risk is now receiving increasing attention by companies (and
their insurers) particularly as regards the loss of market share and the time, and cost, of
re-entering a market atter a significant disruption to supply.
The robustness of supply networks is thus recognized as being critical both for individual
organizations and for the economy as a whole. The purpose of this brochure is to present
initial research led by the Canfield School of Management, in consortium with Heriot-Watt
University and the Business Continuity Institute, into this area. This research aimed to examine the business requirement, the state of knowledge, the tools that may be
appropriate and “best”.
or “current”. practice in the school chain vulnerability area
Background to Supply Chain Vulnerability
The concept of the supply chain as a network of inter-related entities that combine to
enable the satisfaction of customer demand is well established. Various definitions of
supply chain management exist and the one that we have adopted for this
report IS:
“The management of upstream and downstream relationships with
suppliers and customers to create enhanced value in the final
marketplace at less cost to the supply chain as a whole.
For many, if not the majority of ultimate consumers, their knowledge and understanding
of supply chains are limited. Even amongst those who work in industry and commerce.
unless their responsibilities lie within the specific functions that are touched upon by the
supply chain, that knowledge is usually only sketchy.
This lack of knowledge is not surprising given the complexity of today’s typical supply
chain. Yet, as we will argue, the complexity of the chain – which is tending to increase
rather than diminish – brings with it higher levels of risk and hence vulnerability.
Supply chains that comprise hundreds or possibly thousands of companies, extending
over several tiers, present numerous risks. Broadly, those risks can be classified into two
types: risks arising within the supply chain and risks external to it.
Risk within the supply chain arises from the interaction between constituent organizations
across the supply chain. It iS caused by sub-optimal interaction and cooperation between
the entities along the chain. Such supply chain risks result from a lack of visibility, lack
of’ ‘ownership’, self-imposed ‘chaos’, just-in-time practices and inaccurate forecasts.
External risks arise from interactions between the supply chain and its environment.
Such interactions include disruptions caused by strikes, terrorism and natural
catastrophes. Any disruption at any stage in a supply chain that can be linked to
environmental causes is ascribable to external risks.
Together, supply chain risks and external risks impact the vulnerability of the supply
chain. In addition, although both supply chain and external risks have independent
sources. simultaneous occurrence of both risks and interactions between them intensifies
the damage to the supply chain. Thus, supply chain vulnerability can be defined as ‘an
exposure to serious disturbance, arising from risks within the supply chain as well as
risks external to the supply chain”.
Consequently, supply chain risk management aims at identifying the areas of potential
risk and implementing appropriate actions to contain that risk. Therefore it can be
defined as: “the identification and management of risks within the supply chain and risks
external to it through a co-ordinated approach amongst supply chain members to reduce
supply chain vulnerability as a whole Factors contributing to supply chain risk
Whilst risk has always been present in the process of reconciling supply with demand,
several factors have emerged in the last decade or so which might be
considered to have increased the level of risk. These include:
A focus on efficiency rather than effectiveness
The globalization of supply chains
Hocussed factories and centralized distribution
The trend to outsourcing
Reduction of the supplier base
Volatility of demand
Lack of visibility and control procedures
These factors are considered below in more detail.
A focus on efficiency rather than effectiveness
The prevailing business model of the closing decades of the twentieth century was very
much based upon the search for greater levels of efficiency in the supply chain.
The experience highlighted that there was a significant opportunity in many sectors of industry
to take out significant costs by focusing on inventory reduction. Just-in-time (JIT)
practices were widely adopted and organizations became increasingly dependent upon
suppliers. This model, whilst undoubtedly of merit in stable market conditions, may
become less viable as volatility of demand increases. The challenge in today’s business
environment is how best to combine *lean practices with an agile response.
The globalization of supply chains
There has been a dramatic shift away from the predominantly ‘local for local’
manufacturing and marketing strategy of the past. Now, through offshore sourcing,
manufacturing and assembly, supply chains extend from one side of the globe to the
other. For example, components may be sourced in Taiwan, sub-assembled in Singapore
with final assembly in the USA tor sold in world markets.
Often the motivation for off-shore sourcing and manufacturing is cost. However, that
definition of cost is typically limited to the cost of purchase or manufacture. Only rarely
are total supply chain costs considered. The result of these cost-based decisions is often
higher levels of risk as a result of extended lead-times, greater butter stocks and
potentially higher levels of obsolescence – particularly in short life-cycle markets. A
further impetus to the globalization of supply chains has come from the greater increase
in cross-border mergers and acquisitions that we have witnessed over the last decade or
Focused factories and centralized distribution
One of the impacts of the implementation of the Single Market within the European
Union and the consequent reduction in the barriers to the flow of products across borders
have been the centralization of production and distribution facilities. Significant scale
economics can be achieved in manufacturing if greater volumes are produced at fewer
sites. In some cases, companies have chosen to ‘focus’ their factories – instead of
producing the full range of products at each site they produce fewer products exclusively
at a single site. As a result, production costs may be lower but the product has to travel
greater distances, often across many borders. Incidentally, at the same time, flexibility
may be lost because these focused factories tend to be designed to produce in very large
batches to achieve maximum scale economics.
Simultaneously with this move to fewer production sites is the tendency to centralize
distribution. Many fast-moving consumer goods manufacturers aim to serve the whole of
the Western European market through new distribution centres, for example, one in
north-west Europe and one to the south
The trend to outsourcing
One widespread trend, observable over many years, has been the tendency to outsource
activities that were previously conducted within the organization. No part of the value
chain has been immune from this phenomenon, companies have outsourced distribution,
manufacturing, accounting and information systems tor example. In some cases, these
companies might accurately be described as virtual companies. There is a strong logic
behind this based upon the view that organizations are more likely to succeed if they
focus on the activities in which they have a differential advantage over competitors. This
is leading to the creatiorganizationsk organizations’; whereby confederations of firms are
linked together – usually through shared information and aligned processes – to achieve
greater overall competitiveness. At a practical as well as a theoretical level this idea has
many attractions, for example, the supermarket chains run parallel own-account and
third-party distribution systems partly to spread the risk of disruption, particularly from
industrial action. However, in reality, outsourcing also brings with it several risks,
not least being the potential loss of control. Disruptions in supply can often be attributed
to the failure of one of the links in the chain and, by definition, the more complex the
supply network the more links there are and hence the greater the risk of failure
Reduction of the supplier base
A further prevailing trend over the last decade or so has been a dramatic reduction in the
number of suppliers from whom an organization typically will procure materials,
components, services, etc. In some cases this has even extended to “single sourcing :
whereby
one supplier is responsible for the sole supply of an item.
_Severa well-
documented cases exist where major supply chain disruptions have been caused because
of a failure at a single source. Even though there are many benefits to supplier base
reduction it has to be recognized that it brings with it increased risk
