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Drivers of supply chainvulnerability: an integrated
frameworkHelen Peck
The Resilience Centre, Cranfield University, Cranfield, UK,
andThe Royal Military College of Science, Shrivenham, UK
Abstract
Purpose This paper aims to report on findings of a cross-sector
empirical study of the sources anddrivers of supply chain
vulnerability.
Design/methodology/approach The research was undertaken in
accordance with the realisttradition. It begins with a descriptive
exploratory stage involving an in-depth exploratory case studyof
aerospace industry supply chains, validated through in-depth
interviews with managersrepresenting other critical sectors of the
UK economy. This is followed by an explanatory theoreticalstage.
The work is supported throughout with reference to relevant
literature sources.
Findings The findings highlight the absence of any widespread
understanding of the scope of anddynamic nature of the problem,
which should be considered from multiple perspectives and at
fourlevels of analysis: value stream/product or process; asset and
infrastructure dependencies;organisations and inter-organisational
networks; and social and natural environment.
Research limitations/implications The paper is normative rather
than positive, so focuses onunderstanding why supply chains are
vulnerable to disruption, rather than presenting itself as
aprescription for management. The paper does not investigate
academic definitions or existingtaxonomies of risk.
Practical implications The work provides some useful insights
for practising managers andpolicy makers.
Originality/value The paper reports on empirical research, then
draws as appropriate on networktheory and complex systems
perspectives to produce a conceptual model of a supply chain as
ininteractive adaptive system.
Keywords Supply chain management, Risk management, United
Kingdom
Paper type Research paper
IntroductionSupply chain vulnerability is a relatively new and
unexplored area of managementresearch, though one that is in the
ascendancy (Svensson, 2002). In the UK, the economicimpact of fuel
protests in 2000, followed by the outbreak of Foot and Mouth
Diseaseearly the following year, focused the minds of policy makers
on the need to understandmore about the vulnerability of commercial
supply chains. As a result, the UKGovernment commissioned a
programme of research, sponsored by the Department forTransport to
investigate the phenomena. The ultimate aim of the research is to
providethe insight by which to improve the resilience of the
nations supply chain networks.This paper draws on the findings of a
significant portion of the work.
The term supply chain can be interpreted in many ways, but is
defined here in itsbroadest sense, as the network of organisations
that are involved, through upstream
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www.emeraldinsight.com/0960-0035.htm
IJPDLM35,4
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Received August 2003Revised December 2004Accepted February
2005
International Journal of PhysicalDistribution & Logistics
ManagementVol. 35 No. 4, 2005pp. 210-232q Emerald Group Publishing
Limited0960-0035DOI 10.1108/09600030510599904
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and downstream linkages, in the different processes and
activities that produce valuein the form of products and services
in the hands of the ultimate consumer(Christopher, 1998). The work
involves an exploratory, empirically grounded, study ofsupply chain
risk and resilience, so common usage dictionary-based definitions
wereadopted for other key terms. Academic definitions of risk and
resilience werepurposefully avoided because grounded research of
this sort necessarily begins withlay definitions before moving to
technical descriptions (Blaikie, 1993). The term riskis therefore
used here in the sense that something a product, process,
organisationetc. is at risk i.e. vulnerable; likely to be lost or
damaged (Collins EnglishDictionary, 2000). Resilience is defined as
the ability of a system to return to itsoriginal [or desired] state
after being disturbed. The definition is rooted in ecology
(thestudy of the relationships between living organisms and their
environment) and wasadopted because it sits comfortably with the
view of supply chains as interactingnetworks. The notion of
flexibility is inherent in the definition and, given that
thedesired state may be different from the original, adaptability
is also implied.
MethodologyThe research presented here was undertaken in
accordance with the realist tradition(Bhasker, 1979; Blaikie,
1993), beginning with a descriptive exploratory stage
usingempirical data. This is followed by an explanatory theoretical
stage involving theconstruction of hypothetical models, to produce
a rational explanation of the patternsfound in the empirical study.
Further research is then advised to check critically whatis thought
to be known. The intertwined literature review presented in this
paperrepresents part of this latter phase.
The core of the research was an in-depth exploratory case study
of commercialsupply chains engaged in the manufacture and assembly
of high performance militaryaircraft (Haywood, 2002). The case
method was used because it is recommended forstudies of
contemporary phenomena in real-life contexts (Yin, 1989), and in
particularfor exploratory research into industrial networks
(Easton, 1995).
The context for the case procurement and production of military
aircraft represents an extreme risk environment, with national
security as well as commercialsensitivities, which pre-9/11 had
been inaccessible to the research team. It is acommercial
environment characterised by extreme levels of technological,
financial,product safety and political risk. As such it met the
criteria set by Yin for a single casestudy i.e. it represented a
unique, extreme or revelatory situation.
Few grounded studies of supply chain risk/vulnerability have
been published todate. Those that have tend to follow the design of
more general supply chainmanagement research, constraining the
scope of the problem by adopting either avertical or horizontal
design. Horizontal studies usually examine a given issue
eitherwithin the bounds of a single firm or between a focal firm
and adjacent organisations.These would typically survey perceptions
of supply chain related risk in anorganisations purchasing
department or its first tier supplier base (e.g. Svensson,2000,
2001, 2002). In contrast, vertical studies (e.g. Harland and
Brenchley, 2001) arelikely to involve the mapping and analysis of
one or more representative productlines or value streams through a
series of consecutive activities and/or organisations.While both
approaches have yielded useful insights, it was felt that there was
a dangerthat designs of this sort may reduce the scope of the
research to the point where the
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very phenomena that could be undermining resilience may be
excluded. Consequentlythis research used a design that was both
horizontal and vertical in scope.
To guide the researcher and ensure the reliability of the
research and its viabilityas the basis for further work careful
consideration was given to data collectionmethods and handling
procedures (see case study protocol in the Appendix, Figure
A1).Data collection involved semi-structured interviews with 47
managers, representingfive tiers of the network involved in the
production of four distinct aircraft types.Interviewees were
selected using snowball sampling (Jankowicz, 1995). The
managersconcerned performed a range of supply chain management
related roles, as shown inTable I. They were drawn from across the
aircraft programs (product lines/families) ofthe prime contractor
(the assembler), its first- and second-tier suppliers,
industryassociations including one representing small and medium
sized enterprises andcustomers in the UK Ministry of Defence.
Among the issues each manager was invited to discuss was: What
are the sourcesor consequences of risks affecting your supply
chain?. Owing to commercialsensitivities, interviews were conducted
on a one-to-one basis with assurances given toinformants that their
anonymity would be protected. Where possible the interviewswere
supplemented by archival evidence and published sources. The
conversationswere recorded with the interviewees permission. The
tapes were later transcribed andsummarised for analysis using
thematic coding. In many instances verbatim quoteswere retained to
preserve their richness and meaning. The results of
subsequentanalysis were validated through a return to the
literature, academic peer andpractitioner reviews[1]. To ascertain
whether the findings were transferable to othercontexts (Lincoln
and Guba, 1985) or simply industry-specific, two-hour
longinterviews were conducted with 27 senior supply chain managers.
The intervieweeswere drawn from leading companies or public sector
agencies with manufacturing,distribution or retailing expertise in
critical sectors of the UK economy (see Table II).
The findings of this latter phase of the research provided the
impetus for thedevelopment of a multi-level framework, which allows
managers and policy makers to
Number ofinterviewees
Number oforganisations/business units
Intervieweeroles/responsibilities
MoD (customer) 4 2 Supply chain managementPrimecontractor
31 8 Business developmentProgramme managementRisk
managementSupply chain managementSupply chain planning
Tier 1 suppliers 6 4 Business developmentManaging
directorOperations managementSupply chain management
Tier 2 suppliers 3 2 Supply chain
managementIndustryassociations
3 2 National/regional associationrepresentative
Total 47 18
Source: Adapted from Haywood (2002)
Table I.Aerospace case study interviewee profiles
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break out the issues of supply chain vulnerability in a
relatively simple and structuredway. Given the desire to produce
grounded research, an extensive literature reviewfollowed rather
than preceded the development of the framework. It draws on
thesupply chain management literature and as Stock (1997) suggests,
appropriate workfrom related disciplines.
The usefulness and relevance of the framework has since been
validated through focusgroup discussions and workshops involving
groups of practitioners drawn from thedefence industry, the armed
forces, cross-sector commercial industry associations,national
emergency planning committees, and international humanitarian
relief agencies.
Interim findings aerospaceSeveral clear themes emerged from the
initial case study. First, when asked about thesources of risk in
their supply chains, the aerospace managers did not refer to
specific
SectorNumber of
interviewees
Number oforganisations/business units Interviewees
roles/responsibilities
Food and drink 5 2 Director of distributionBusiness cont.
managerSupply chain strategySupply chain operationsSupply chain
planning
Personal care and cleaningproducts
3 2 Supply chain strategySupply chain planningSupply chain
operations
Health care andpharmaceuticals
2 2 Process evaluation managerPortfolio (purchasing) manager
Automotive spares 3 1 Purchasing managerInternational
distribution managerDistribution operations manager
Electrical and electronics 1 1 ConsultantOil and petrochemicals
8 2 Business continuity manager
Director of distributionSupply chain business analystsChange
design leaderSupply chain integrationSales and operations
planning
Transport and logistics 4 3 Managing directorDistribution
operations managerAssistant director (policy)International
distribution manager
Packaging 5 1 Head of purchasingSupply chain managerEuropean
logistics managerVice president supply chainMaterials and inventory
controllerOEM parts supply
Total 27a 10a
Note: a Some individuals and their organisations are active in
more than one sector
Table II.Critical sector validation
interviewee profiles
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high profile events such as earthquakes or 9/11, nor did they
refer to generictaxonomies used by some academics, e.g. accidents,
intentional acts or nature(Helferich and Cook, 2002). Instead they
referred to often unanticipated side-effects orconsequential risks
to supply chain processes, arising from specific
managerialdecisions, requirements or industry trends. Demands for
shorter lead-times,outsourcing and increasing use of global
sourcing and supply, as well as off-set(politically determined
counter trade agreements) were among the legitimate
andwell-intentioned measures identified by interviewees as sources
of risk to supply chainperformance. The constraints imposed by the
safety-critical nature of the products,supply chain complexity and
industry structure were also identified as contributoryfactors:
An example of relationship risks, complexity and loyalty
occurred with one of the RoyalOrdnance factories, which had
supplied components to us for 50 years. They used to beMinistry of
Defence until they were privatised and [the prime contractor]
bought them. Thenthree years ago [the prime contractor] did a deal
with the South Africans for aircraft and allsorts of other stuff.
Somewhere inside that deal was a deal to transfer the prime
contractorscontracts to South Africa, which made this particular
Royal Ordnance factory an unviableproposition, so they shut it.
Well of course buried in the factory, about 10 per cent of
theirturnover probably, was this 50-year-old component supply
business that was critical to us. Theprime was completely oblivious
to this link and when we pointed the fact out, and that it
woulddisrupt our deliveries to them, they couldnt have been more
surprised (Tier 1 supplier).
The network relationship risks get worse where supplier loyalty
is divided. For example,were buying a piece of equipment from a
major US organisation and we are actually a verysmall part of that
particular area of business they have some pretty big US
aerospacecustomers as well you see. Its clear that theyre not very
interested in the relationship andconsequently were having issues
with kit in the field. Theyre not investing in the softwarechanges
that need to be done and when they do make software changes it
encompasses lots ofother customers changes as well, which has a
knock on effect on how the kit works on theaircraft (Customer, UK
Ministry of Defence).
Second, interviewees frequently described how efforts to improve
performance againstone measure (e.g. cost or quality) often
inadvertently reduced performance andincreased risk associated with
one or more of the others (e.g. schedule adherence orrelationship
management):
An aero engine manufacturer had a requirement for repair work to
a very old engine. Thismaterial had to conform to their quality
approvals, as did the original melt source. We had tobuy 20,000 of
raw material, the minimum order quantity for the mill, just so the
companycould have 100 components from us. In the end we made 500
for them, but it took four to sixmonths to do it all. Although
there was something similar in use by another aero
enginemanufacturer, they werent completely sure it would be right
and they couldnt take the risk.So paying the 20,000 became cheaper
than doing the research into the compatibility of thisalternative
source (Tier 2 supplier).
The collective impact of all these factors irregular demand
patterns, measuresintroduced to reduce costs, changes and upgrades
to product specifications, customerdetermined network
reconfigurations meant that even the supply chains forestablished
products were characterised by high levels of uncertainty and
constantchange[2].
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Findings from cross-sector validationManagers from the other
sectors studied were invited to consider the same
questionsregarding the vulnerabilities and sources (or drivers) of
risk affecting their own supplychains. These interviewees readily
offered opinions on when and why their supplychains (as they
understood them) were most vulnerable. They also
highlightedproblems of conflicting performance measures. For
example:
There is no common language other than cost . . . I see evidence
of this at least once a week,particularly with material brought in
from the Far East. Purchasers go for the lower unitcosts, which
usually mean bigger order quantities, longer lead times, lower
responsivenessand worse customer service (Automotive parts
manufacturer and 4th party logisticscompany).
The practitioners also confirmed that higher-level strategic
choices and many of theother extraneous factors previously
identified by aerospace managers were presentwithin their own
sectors. With the exception of one industry (oil refining),
intervieweesreported that their own supply chains were longer than
ever before. All were becomingleaner.
Furthermore, managers from each sector echoed the beliefs of
their aerospaceindustry counterparts, who claimed that their supply
chains never reached a balancedstable steady state, where mature
products and information flowed throughoptimised channels,
supported by reliable systems, allowing inputs to be balanced
withdemand:
Issues of supply chain maturity are poorly understood. The
supply chains we support rarelyget the chance to mature into a
mid-lifecycle steady state . . . 15 years after the [foodretailers]
last network reorganisation, suppliers are still shaking out
problems and dealingwith the successive shock waves (Transport and
4th party logistics company).
Changes in product specifications, continuous improvement
initiatives, outsourcing,internal network redesigns, IT upgrades,
changing process technology, supplierrationalisations and industry
consolidations all contributed to the uncertainty ofoperations:
Its when the supply chain is supposed to be in the established
steady state that it is mostvulnerable, because thats the point
when its most susceptible to external effects. Thatswhen most
people are trying to optimise and reduce control limits to reduce
the variability ofthe process, but external risks may have changed
the original scenario...The model of supplychain management in
academia is one that we need to get away from, we need to think
aboutfuzzy limited time interlocking networks (Consultant,
electronics manufacturing).
Ongoing regulatory changes and the practicalities of managing
across different legal,cultural and environmental settings made
supply chain management a far morecomplex set of activities than
some felt was recognised elsewhere within their
ownorganisations[3]. The complexity of the task also left managers
struggling to findappropriate ways to tackle supply chain risk
management:
We know supply chain vulnerability is important, we know that,
but its such an amorphousmass that we dont know how to break it
down . . . we have to break it down so we can start todeal with it
(Manager, food and personal care products manufacturer).
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The remaining sections of this paper address the problem of
breaking down supplychain risk into its constituent parts, without
losing the contextual dynamic of causeand effect.
Supply chain risk in a networked worldSome aspects of supply
chain management, such as just in time (JIT), have been
widelyresearched, but the conceptual basis for supply chain risk in
the sense that it is appliedhere i.e. vulnerability is immature
(Svensson, 2002). Academics striving toimprove conceptual clarity
in the study of supply chain risk have latterly sought tomake
distinctions between sources, drivers and outcomes or consequences
ofrisk (Juttner et al., 2003). However the managers interviewed for
this research did notmake such distinctions. They responded with
tales of cause and effect. In this respectthe findings concur with
Zsidisin (2003). In his endeavor to establish a groundeddefinition
of supply risk Zsidisin also found risk to be perceived by
practitioners asa multi-dimensional construct.
The wider findings of this research suggest that the issues
identified by thepractitioners interviewed are symptomatic of
conflicts between the process-basedsupply chain goals and
performance measures and the realities of
complexinter-organisational networks.
In the supply chain management literature, writers take quite
differing positions onthe most appropriate way to address supply
chain risk. For example, Towill (1999)focused on process design. He
drew on the principles of cybernetics when identifyingthe removal
of complexity as a central pillar of supply chain (re)engineering
and as anexplicit risk management objective.
Christopher and Lee (2001) acknowledge the inherent complexity
ofinter-organisational supply chain networks, promoting the virtues
of visibility,velocity and control as key elements of risk
management. They argue that greatervisibility and control improves
quality and allows managers to make their supplychains more
responsive and manageable, thus preventing an undesirable
accumulationof slack in the form of inventory buffers or additional
safety time built into logisticslead-times. More specifically,
Christopher and Lee advocated careful monitoring of thesupply chain
for deviations from schedules or business plans to allow
appropriateparties to be alerted and corrective actions to be
taken. In this sense risk managementhas parallels to statistical
process control and contemporary lean Six Sigmamethodologies
(George, 2002).
Simons (1999) also favoured interactive control systems, which
force managers toengage in conversations about strategic
uncertainties i.e. enforced cooperation,visibility and awareness.
However, Braithwaite and Hall (1999) pointed out
thatinter-organisational networks are so complex that monitoring
them is beyond thecapabilities of any single organisation and
control is far from complete.
Drawing on systems theoryBraithwaite and Halls observations in
turn reflect the central theme of a long-standingdebate within
management science. In particular it represents a fault-line
thatseparates proponents of engineering-derived hard systems
managerial approaches,and those who argue the case for
effectiveness based on open, social or soft systems
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perspectives (Checkland, 1994). Checkland (1994, p. 80) makes
the following intellectualdistinction between the two:
Hard systems thinking assumes that the world is a set of systems
(i.e. is systemic) and thatthese can be systematically engineered
to achieve objectives. In the soft tradition, the world isassumed
to be problematic, but it is also assumed that the process of
inquiry into theproblematic situations that make up the world can
be organised into a system.
The hard systems perspective advances with the action-orientated
aim to improvereal-world problematic situations. The latter is a
methodology for inquiry that strivestowards understanding of those
situations and why they occur.
Systems thinking, in both guises, has made significant in-roads
into organisationaltheory, including the study of
inter-organisational networks (Morel and Ramanujam,1999). Soft
systems views underpin the largely descriptive studies by members
of theInternational Marketing and Purchasing (IMP) Group (e.g.
Hakansson and Snehota,1989; Axelsson and Easton, 1992). The studies
analyse the structures, processes andinteractions of
markets-as-networks including industry and macro economicgovernance
forms (Williamson, 1985; Thorelli, 1986; Moller and Halinen, 1999).
Incontrast, the managerially-oriented, normative
organisations-as-networksperspective found in much of the strategic
management literature (e.g. Miles andSnow, 1986; Byrne et al.,
1993) errs in the direction of scientific management and thehard
systems view.
Supply chain management draws on both branches of systems theory
(Naim et al.,2003). However the emphasis on process (re)engineering
and the search for optimised(often technology-enabled) least-cost
solutions, to predetermined goals, suggests thatthe hard systems
view remains the dominant paradigm. It is reflected in the
prevalenceof positivist supply chain management research and a
tendency to focus on solvingnarrowly defined problems, as indicated
by the gap between performance andrequirement, within what is often
assumed to be a closed system or stable steadystate
environment.
Other systems theorists working in branches of the natural
sciences (e.g. vonBertalanffy, 1973) and social sciences (Rittel
and Webber, 1973) have long arguedagainst the reductionist
tendencies of engineering and scientific management research.They
have urged researchers to adopt holistic, interdisciplinary
perspectivesaddressing problems in context. Together with more
recent proponents of openadaptive complex systems thinking, working
in the fields of economics (Arthur et al.,1997) and social policy
(Allen, 1997), they reject the very idea that open systemsoperate
in an equilibrium steady state. By implication, they also reject
the notion of auniversal optimised solution. The multiple choices
available to each individual ororganisation within the system,
together with the results of interactions with the widerenvironment
mean that predetermined solutions are always likely to fail. Taking
thisline of logic into the supply chain arena, Demchak (1996)
writing in the context of warfighting and military logistics, made
the same point.
Demchak (1996) argued that those promoting the vision of
efficient and reliableoutcomes, through technology enabled
monitoring and control, tend to overlook a widevariety of
organisational and environmental issues. Furthermore, she
emphasises how,under the lean paradigm, slack has become waste. Yet
slack, in the form of physicalresources and particularly the
specialist knowledge of individuals, is essential ifcomplex systems
(engineered or organisational) are to remain effective. Without
the
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slack of redundant capability and capacity, supply chains
struggle to cope with theunpredictable effects of consequential
problems.
Consequential problems or risks have no definitive solutions.
They are by theirnature unknown before they emerge. Nevertheless,
managers should strive tounderstand why and how they might arise.
To that end Rittel and Webber (1973)suggested that more questions
should be asked about the likely impacts or outputs ofactions. They
go on to suggest that problems should be considered within
valuativeframeworks, where multiple and differing perceptions are
retained. Such frameworksrecognise problems as the links tying open
systems into large and interconnectednetworks of systems, and that
the outputs from one become the inputs from another.This paper
draws on that advice.
The findings of the initial case study, and the results of the
subsequent interviewswith managers from each of the other critical
sectors were analysed by thematiccoding, based initially on the
component parts of Christophers (1998) broad definitionof supply
chain. Other categories were added as required until each component
of thesupply chain and each source of vulnerability identified by
interviewees could bepositioned within the framework.
A multi-level framework for analysisThe findings of this
research suggest that the sources and drivers of supply chain
riskoperate at several different levels as shown in Figure 1. These
are inextricably linkedas elements of a system, but for the purpose
of clarity are described here within fourdiscrete levels of
analysis:
(1) Level 1 value stream/product or process.
(2) Level 2 assets and infrastructure dependencies.
(3) Level 3 organisations and inter-organisational networks.
(4) Level 4 the environment.
Together these levels cover elements of a supply chain and the
environment withinwhich they are embedded, though each level
reflects quite different perspectives.
Figure 1.An integrated model of asupply chain as anadaptive
system
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Each is discussed here with reference to relevant sources in the
supply chainmanagement literature.
Level 1 value stream/product or processAt level 1 supply chain
vulnerability is examined from the prevailing
processengineering-based supply chain management perspective. It is
a view that is in keepingwith lean manufacturing and demand-driven
logistics concepts. The approachaspires to a perfect flow of
information and materials facilitated by all supply chainpartners
thinking and acting as one (Geary et al., 2002). Supply chains are
thereforeseen in terms of the contents of a logistics pipeline
flowing through and betweenorganisations in the network. The
emphasis is on the efficient, value-based, design andmanagement of
processes relating to workflows and their accompanying
information(usually by product or product class). Supply chains
carry one or more of these valuestreams (Childerhouse and Towill,
2003).
Risks are principally the financial or commercial consequences
of inefficiencies orsub-optimal supply chain performance, including
the inability to react swiftly tovolatility in demand and the
changing needs of the market place. Christopher and Lee(2001) refer
to the latter as market risk i.e. the risk of inertia. The agile
paradigm,with its roots in short-life cycle products has explicitly
sought to address market risk(Christopher and Towill, 2001).
The availability of credible and reliable information is central
to this processmanagement perspective and is in turn dependent on
the willingness of the parties toshare demand and process
monitoring data. It is widely acknowledged that thisrequires a high
level of trust and cooperation between adjacent organisations;
itselfevidence of a heightened sense of shared enterprise and
shared risk.
Geary et al.s (2002) analogy of a supply chain as a perfect
seamless logisticspipeline represents the supply chain process
management ideal. It is a usefulmetaphor, but in the context of
supply chain vulnerability it can be a deceptivelyseductive one. It
reinforces the notion of simplicity by promoting the vision of a
stable,controllable, linear, self-transporting flow, hermetically
sealed from disruptiveenvironmental forces. In reality supply
chains are rarely fixed, discrete,self-propelling or
self-protecting. Moreover, the adoption of lean and agile
practices(particularly JIT delivery) has made them increasingly
reliant on the existence of areliable, secure and efficient
communication, transport and distribution infrastructure.Level 2
represents supply chains in terms of these asset and
infrastructuredependencies.
Level 2 asset and infrastructure dependenciesLevel 2 represents
supply chains in terms of the assets and infrastructure needed
toproduce and carry the goods and information flows in level 1. The
nodes are fixedcommercial assets, sites or facilities (e.g. fields,
factories, distribution centres, retailoutlets or perhaps
hospitals). The same facilities may house IT assets
(hardware,processing, and communications/service centres), which
are nodes in communicationsnetworks. These are in turn connected
through the nodes and links of national andinternational
communications infrastructure (e.g. cables, radio masts and
satellites).They are also connected through the links and nodes of
the transportation/distributioninfrastructures. Here the links are
pipelines, power grids, roads, rail and waterways,
Drivers ofsupply chainvulnerability
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shipping lanes and flight paths. The nodes themselves may also
be railtermini/stations, ports and airports. Then there are the
mobile assets that must notbe overlooked (the trucks, trains, boats
and planes, etc.) that ply the links intransportation networks.
At level 2 the resilience of the network should be assessed in
terms of theimplications of the loss of links, nodes and other
essential operating assets not leastskilled workers. Maintaining or
retaining them is likely to be the responsibility offunctional
managers, in manufacturing operations, IT, logistics and personnel.
It isalso the territory of business continuity planning and
disaster recovery specialists.
The threat of Y2K did much to raise awareness of business
continuity issues. Lossof IT, site and skills as well as product or
service-related health and safety scares (somewith implications for
reverse logistics) may all fall within its remit. A 2002
survey(Chartered Institute of Management, 2002) showed that loss of
IT capacity was themost widely recognised threat to business
continuity, followed by loss of site. However,loss of skills ranked
first in the list of actual problems experienced by companies in
theprevious year. Clearly each of these scenarios could disrupt
supply chain operations.Nevertheless, other recent research linked
to this study suggests that organisationscontinue to undertake
business continuity planning on the basis of a single site orsingle
firm (Peck and Juttner, 2002; Starr et al., 2003). The managers
interviewed forthis study focused on risks to manufacturing and
retail sites, others on transport andinfrastructure related risks.
The emphasis tended to reflect the profile of theirorganisations
own assets and activities.
Despite supply chain managements emphasis on the substitution of
information forinventory, and business continuity managements
preoccupation with IT, physicaldistribution remains an essential
element of effective integrated supply chainmanagement. Transport
disruption is therefore a potential source of vulnerability to
all(McKinnon, 2004). In terms of impact on level 1 performance, it
can be classified intothree broad groups: damage, loss and delay
(Christopher et al., 2002). All can have asignificant impact on
service levels, with the first two also causing discrepancies
indemand and stock availability data.
The choice of transport mode will automatically determine
immediatetransportation asset related risks, e.g. shortages of
heavy goods vehicle drivers inthe UK, or world-wide seasonal
shortages of shipping capacity. It will also
determineinfrastructure dependencies. As with everything else in
this networked world,elements of infrastructure are interconnected
through commercial and technologicallinks. Back in May 1998 a
malfunction in a satellite cut off 90 per cent of all US
pagers,affecting business transactions and emergency services
(Robinson et al., 1998). Thesame authors reported that the
frequency and impact of events of this kind isincreasing. In the
summer of 2003 a localised power cut knocked out British
Airwaysbaggage handling system, preventing the airline from meeting
security requirements.The failure effectively closed Heathrow
Airport, disrupting flights for days. A strike byaggrieved check-in
staff had a similar effect.
Level 3 organisations and inter-organisational networksLevel 3
steps back further to view supply chains as inter-organisational
networks. Itmoves supply chain vulnerability up to the level of
corporate risk management,business strategy and microeconomics.
Here the nodes in the networks are the
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organisations commercial and public sector that own or manage
the assets andinfrastructure, through which the physical goods and
information flow. The linksbecome trading relationships,
particularly the power dependencies betweenorganisations.
The principles of integrated approaches to supply chain
management (as set out inlevel 1) rely on the premise that strong
organisations will not abuse their position ofpower vis-a`-vis
weaker ones. Additionally, that information and risk will be
sharedselflessly for the good of all. While supply chain managers
may work tirelessly toachieve this objective, other higher-level
factors can work against them.
The expectation that a host of organisations can be harnessed to
act as one, for asingle common good has been criticised in the
literature for two reasons (Lonsdale,2001). First because the
paradigm was put forward by proponents of leanmanufacturing, who
borrowed practices from Japanese motor manufacturing,transplanting
them to the West without due regard for cultural, behavioural
andcontextual differences. Second, that integrated supply chain
management draws on theidealised view of market behaviour as set
out by classical economists. Williamson(1985) and numerous others
studying transaction cost economics have challenged thisassumption.
A review of the recent supply chain risk literature suggests
thatWilliamson is right and that opportunism is alive and well in
the Western businessenvironment. Examples abound of powerful
customers using contractual means topush risk associated with
inventory management, technology or new productdevelopment back up
the chain to weaker suppliers who are less able to shoulder
theburden (e.g. Cook, 2001; Burtonshaw-Gunn, 2002).
Where dominant organisations have the power, capabilities, and
the will to managetheir supply chains in an open and collaborative
way, we have seen the emergence ofextended enterprises. However,
establishing and monitoring close cooperativepartnering
relationships is resource-intensive. Consequently, large
sophisticatedcustomers have reduced the number of direct suppliers,
often opting for single sourcing(usually by product line) as the
lowest cost way to develop, manage and monitor theirsupplier base.
The downside of this is that it has given rise to one of the most
widelyrecognised causes of supply chain disruptions; the failure of
a single source supplier(Latour, 2001; Houghton et al., 2003). All
of the commercial organisations involved inthis research were
rationalising the number of suppliers and increasingly
movingtowards single sourcing. Some, including healthcare and
packaging manufacturerswere aware that this would increase their
supply-side vulnerability to supply chaindisruptions, but were
content to trade the risks associated with occasional
supply-sidedisruptions for the benefits of reduced inventory,
better quality control andcollaborative forecasting.
Suppliers may of course choose to improve their own strategic
position vis-a`-viscompetitors, customers or their own suppliers
through mergers, acquisitions orstrategic alliances. These high
level consolidations increasingly operating on aglobal scale can
change the balance of power in customer-supplier
relationshipsovernight. They can leave customers with fewer
switching options. Worse still, anorganisation may suddenly find
that a sole supplier is now the property of acompetitor.
Consolidations whether horizontal or vertical, can herald
further networkreconfigurations and disruptions at level 2. The
likely post-merger removal of
Drivers ofsupply chainvulnerability
221
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excess capacity may subsequently improve suppliers margins, but
it can also reduceits ability to cope with unexpected surges in
demand. This was apparent in thefindings of the research, for
example when a healthcare company manager describedhow vaccine
production had been constrained by a shortage of packaging
materials.Demand for vaccine was surging at the time as armed
forces prepared for the 2003invasion of Iraq. The cause was a
shortage of high quality glass, caused by aproduction failure at
the only suppliers plant. The healthcare company is one of
thelargest in the world, but is only a small volume customer of the
glassmaker, which wasobliged to supply its high volume and high
value customers including severalbrewers first.
Managers representing several sectors involved in this study
including groceryretailing, food processing, pharmaceuticals,
transportation as well as aerospace also provided examples of
supply chain networks being reconfigured at the request ofpowerful
customers. The customers were demanding the reconfigurations to
enablecost savings to be made in their own operations. The danger
here is that byattempting to optimise part of the system for their
own interests, customers canunwittingly strip vital volume out from
existing suppliers networks, underminingtheir viability.
Unlike many of the scenarios above, strategic outsourcing is
likely to be an electivereconfiguration determined by the
organisation itself. From a level 1 perspective, lossof visibility
and control are the most obvious risks. However, in the
strategicmanagement literature the outsourcing debate has been
dominated by the corecompetence concept, encouraging organisations
to focus on their core value addingactivities. High on the list of
non-strategic activities ripe for divestment or outsourcinghave
been transport and information systems management (Anderson and
Delattre,2002). While these activities may not be seen as core
activities by business strategistsin manufacturing and retailing,
they are nevertheless the backbone of integratedsupply chain
management.
Similarly, from a corporate governance perspective, outsourcing
may beundertaken as a risk mitigation strategy. Indeed the transfer
of responsibility fora known risk (e.g. labour disputes) is an
acknowledged method of risk management.In practice though
outsourcing may exchange liability for known risks for exposureto a
host of unknown ones. When an event or near miss then highlights
apreviously unrecognised or consequential risk, responsibility for
managing it maynot be clearly defined. The lack of role clarity and
fragmentation of ownership canin turn lead to a situation where
serious risks are orphaned. The refusal of anyorganisation to
accept responsibility for failures in rail safety following
thepiecemeal privatisation of the British Rail network (a level 2
disruption) is one suchexample.
The issue of role clarity for commercially owned infrastructure
had however beenrecognised by a US presidential commission in 1998
(The White House, 1998). Theresearch highlighted the need for
greater clarity between public agencies and privatesector
organisations if infrastructure vulnerabilities were to be managed
effectively. Atthe time 85 per cent of the USAs national
infrastructure was under private ownership.The same report
concluded that private industrys investment in protecting it could
bejustified only from a business perspective (Robinson et al.,
1998).
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Level 4 the environmentThe fourth and final level is the wider
macroeconomic and natural environment withinwhich organisations do
business, assets and infrastructure are positioned and valuestreams
flow.
Factors for consideration are the political, economic, social,
and technologicalelements of the operating environment (including
legal and regulatory issues), as wellas natural phenomenon
geological, meteorological and pathological. All can affect asupply
chain at each of the first three levels of the framework.
Disruptions emanatingat this level are likely to be beyond the
direct control of supply chain managers andbusiness strategists.
Nevertheless the susceptibility of the networks to knownphenomena
can often be assessed in advance, thus enabling informed decision
to bemade regarding the merits of specific risk avoidance or
mitigation strategies.
Technological developments have already been addressed
indirectly in this paper.They can affect demand for existing
products, cause uncertainty with the launch ofnew ones, or
facilitate better supply chain cooperation and visibility, as well
as openingup new channels or business models. They are creating new
or increased dependenciesbetween supply chains, organisations and
their supporting infrastructures.
Socio-political disruptions e.g. protests, strikes or regulatory
changes rarelyhappen without warning, so routine scanning of
industry and general news servicesshould identify threats of this
kind. For example, in 2003 drinks manufacturers andpackaging
suppliers were well aware of scheduled changes to
environmentallegislation affecting soft drink containers in
Germany. Nevertheless, the packagingmanufacturer who participated
in this study described how its customers (and theirretail
customers) ignored the likelihood that whole categories of products
would haveto be withdrawn if the legislation could not be derailed.
Delaying tactics failed, theproducts had to be removed from the
shelves until new packaging was developed.
The collapse of the former Soviet Union, consolidation and
expansion of theEuropean Union, and the rapid emergence of China as
an economic superpower afteryears of isolationism, continue to have
a profound effect on international trade. Thegeopolitical changes
behind them have opened the way for truly global sourcing
andsupply. Supply chains are being redesigned accordingly. However,
the emergence of apost-communist new world order has brought many
new uncertainties. The terroristattacks of September 11, 2001 have
done more than anything to raise awareness ofsupply chain
vulnerabilities (Sheffi, 2001; Aichlmayr, 2002; Harrington,
2003).Subsequent military action in the Middle East, raised
uncertainty over oil prices andsome uncomfortable questions about
the future cost-effectiveness of global supplychains (New,
2003).
Macroeconomic vacillations whether due to war worries, currency
fluctuations orother cyclical downturns have far reaching
consequences for levels of demand,pricing, and purchasing policies.
As New (2003) points out, contemporary patterns ofpurchasing and
procurement policies have been established on the premise of
lowinflation and macroeconomic stability. If conditions change
possibly due as a resultof another 1970-style oil crisis two
elements of purchasing and procurement policywould become
increasingly difficult to manage: the design of robust contracts
and themeasurement of purchasing performance. Purchasing practices
such as target costing,applied in situations of high inflation or
economic volatility, could mean morebankruptcies and swift shifts
in power-dependencies.
Drivers ofsupply chainvulnerability
223
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Moving on finally to the forces of nature, the great tsunami of
2004 remindedeveryone how devastating they can be. There were
already numerous well-documentedexamples of how natural phenomena
such as earthquakes, hurricanes, floods, etc. havedisrupted JIT
supply chains (McGillivray, 2000; Helferich and Cook,
2002).Meteorological and geological susceptibilities are
identifiable, though exactly whenand where disruptive events occur
is less predictable. Pathological phenomena aredifferent. They are
perhaps the most difficult to predict of all, and potentially the
mostdisruptive because they are mobile. Threats of this kind,
whether Foot and MouthDisease, SARS, or the man-made computer
viruses that mimic them, highlight howefficient consolidated
seamless distributions systems can becomes victims of their
ownsuccess.
This point brings the discussion back to the events that
triggered this research the fuel protests of 2000 and the UK Foot
and Mouth epidemic. Both provoked anational crisis affecting many
of organisations involved in this research, but theeconomic
disruptions they caused were not due to ineffective supply
chainmanagement, quite the reverse. The UK livestock and fuel
supply chains exhibitedall of the characteristics of efficient lean
distribution systems. It was the very efficiencyand the reliability
of the fuel distribution system, plus the fact that the UK is so
heavilydependent on road transport that made the effects of the
industrial action so rapid andfar reaching.
The Foot and Mouth outbreak tells a similar story. The UKs
livestock rearingindustry has gone through the same process of
vertical disaggregation andspecialisation as almost every other
business sector, simultaneously moving from alocal to a regional
and international industry. Bovine Spongiform Encephalopathy(BSE),
also known as Mad Cow Disease, had previously surfaced as a threat
to thelivestock and meat processing industries; so new regulations
were introduced. Bettervisibility (British cattle became
traceable), and tighter process controls inslaughterhouses were
brought in to manage this known risk. The measures addedcost into
the slaughtering process, which together with retail-driven demands
fortighter quality controls led to a consolidation of the livestock
supply chain networks.What become apparent later was that these
same measures had increased thevulnerability of the system to
another risk, Foot and Mouth. Foot and Mouth had beenknown in the
UK, but the disease is not endemic. Decades had passed
betweenoutbreaks. Over the years, expertise was lost indeed the
very success of the stateveterinary service in disease suppression
arguably led to its own dismantling. So wheninfected sheep
(exhibiting no visible symptoms) entered the system, the
newlyconsolidated livestock network together with the velocity of
the distribution systemspread the disease more rapidly and
efficiently than anyone presently working in thefield had
anticipated.
Summary and conclusionsThis paper has taken the findings of
exploratory research into sources and drivers ofsupply chain
vulnerability and, drawing on systems theory, developed a
multi-levelframework for analysis, providing the basis of a model
(Figure 1) to explain the scopeand dynamic nature of supply chain
risk. The paper emphasises the point that aresilient network
involves much more than the design and management of robustsupply
chain processes. It concludes that if we accept the notion of
supply chains as
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inter-organisational networks, embedded within an environment
characterised bymany uncontrollable forces, then we must also
accept that complexity and limitedmanagerial control are facts of
life for supply chain managers. Nevertheless themanagers and the
organisation that employ them are contractually, morally and
oftenlegally obliged to identify, manage or mitigate the effects of
known or knowablerisks. It is therefore important for managers to
recognise that in taking action to reduceknown risks, they are
changing the risk profile for that organisation and for others
inthe network. This in turn highlights a second major finding from
this research, afrequent disconnection between the functional goals
of supply chain management andhigher-level changes in
organisational structure and business strategy. Feworganisations
have supply chain management specialists in their
boardrooms;consequently, the supply chain implications of strategic
decisions are often notrecognised until serious problems
emerge.
Supply chain vulnerability and indeed resilience is wider in
scope than integratedsupply chain management, business continuity
planning, commercial corporate riskmanagement or an amalgamation of
all of these disciplines. There are political andpublic policy
dimensions too. In the UK and elsewhere, governments are
increasinglylooking to the private sector to reduce costs and
deliver efficiency improvements in themanagement of national
infrastructure and public services. In doing so they areintroducing
new commercial pressures, often without an explicit understanding
of thelikely impact on network resilience. Even when there is
recognition, they and theirprivate sector counterparts may choose
to accept the risks as they see them, decidingthat the perceived
benefits of the proposed changes outweigh the potential costs
ofmanaging or mitigating the effects of a disruption if and when it
occurs.
Of course truly informed judgments can only be made for known
risks, not hithertounrecognised ones hence the need for greater
understanding of why consequentialproblems and risks can emerge at
any or all of the levels identified in this paper.Related to this
is the case for the de-vilification of slack. Least cost
optimization is allwell and good, in a stable and controllable
environment, but in an uncertain worldsatisficing may a better way
forward. The dynamic and evolving nature of supplychain risks means
that no supply chain strategy is ever likely to be risk-free, and
nosystem, however well managed, is invulnerable. Therefore, it
seems that slack in thesystem, whether in the form of inventory,
capacity, capability and even time, plusconstant awareness and
vigilance are needed if supply chains are to become andremain truly
resilient.
Limitations and further researchIt would have been desirable to
conduct in-depth multi-tier case studies in each of thesectors used
to validate the findings of the aerospace case study, immediately
after theinitial study was undertaken. Unfortunately this was not
possible due to time andresource limitations. However two other UK
government departments have expressedan interest in extending the
study further in the defence and food sectors. Similarstudies
undertaken in these and other industries by scholars in other parts
of the worldwould clearly provide useful comparators.
In relation to the academic debate on the integration of supply
chain risk andconventional risk management concepts and taxonomies,
this is an area ripe for further
Drivers ofsupply chainvulnerability
225
-
development. Further research is underway to position
established definitions andtaxonomies of risk in relation to
respective units or levels of analysis.
Finally, the work presented here is normative in nature, leaning
towards the softsystems agenda. It focuses on understanding why
supply chains are vulnerable todisruption rather, then the hard
systems how to agenda of procedural action plans.Nevertheless, it
provides a starting point for skilled complex systems modellers
who, ifgiven access to appropriate data, can begin the task of
developing more completepredictive simulations of the likely
effects of specific actions on dynamic supply chainnetworks. These
models would provide more positive assistance for managers
andpolicy makers at all levels.
Notes
1. For additional examples of verbatim extracts from the
interviews, along with further detailsof the case methodology,
including interviewee profiles, processes employed for
datacollection, analysis and validation see Haywood (2002).
2. For further details and discussion of the issue of constant
change in the aerospace networkssee Haywood (2002); or Haywood and
Peck (2003)
3. Detailed summaries of the findings from each of the critical
sectors, including examples ofsupply chain failures are presented
in Peck et al. (2003).
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(The Appendix follows on the next page.)
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Appendix
Figure A1.
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Figure A1.
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Figure A1.
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