1.1 Background
Frequently supply chains are exposed to several risks that cause disruptions.
A Supply Chain Disruption is defined as an unplanned event that might affect the normal, expected flow of materials, information and components (Skipper & Hanna, 2009; Son & Orchard, 2013). Some sources of disruptions are natural disaster, plant shutdowns, port lockouts, political and labor unrest, IT system failure, industrial accidents, social-economic-political instability, war, terrorism among others (Son, 2013; Zegordi and Davarzani, 2012).
It’s known these events have low probability of occurrence, but can produce large losses. The consequences of disruptions on the companies can be losses of revenue, market share and consumer trust; recovery cost, bankruptcy, delay of material and information. (Zegordi & Davarzani, 2012).
In recent years many types of unpredictable natural disasters occurred. For example, on September 1999 Taiwan Earthquake, 2004 Tsunami in South East Asia, the hurricanes Katrina and Rita in 2005, Haiti earthquake in 2010, April 2010 the eruption of a volcano in Iceland, March 2011 the Tohoku earthquake resulting tsunami in Japan and the severe flooding experienced in Thailand between June and December 2011. The 9/11 terrorisms attacks in 2001 was a manmade disaster who also affects in large scale the supply chains.
The earthquake and the following tsunami occurred in Japan on 2011 caused a disruption on the upstream and downstream global supply chain because Japan is a major supplier and also produce many end products in different industries as manufacturing and chemical industries. The economic damages were 210 billion
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United States Dollars (USD), automobile production declined 47.7 % and electrical component production 8.25%. Not even affect Japan, but also the consequences in the automobile production and electrical components were reflected among other countries in the region (Thailand, Philippines, Indonesia and Malaysia). Figure 1 shows a graphic of the impact spill over from Japan earthquake. (Ye & Abe, 2012)
Figure 1. Disaster impact spill-over from Japan earthquake Source: Ye & Abe, 2012
As presented in the example above, the consequences of disruptions are expanded along the whole supply chain; for this reason it is necessary be prepared to face the impact of those events. In addition, due to the increment of disruptions around the world, in the recent years the concept resilience have been popular, resilience is understand as the ability of a material to return to its original state after an alteration or deformation (Stewart, Kolluru, & Smith, 2009); resilience is not only the ability to back to the original condition, but also is the ability to move to a new and more desirable state after being disturbed (Christopher & Peck, 2004).
On the other hand, some authors have utilized the term resilience in the supply chain context. For example, (Falasca, Zobel, & Cook, 2008) described supply chain resilience as the ability of a supply chain system to reduce the probabilities of a disruption, the consequences of those disruptions once they occur and the time to recover normal performance; (Harrington, 2014) define it as the ability of reduce and recovery from risks, additionally anticipates, rapidly adjusts and take advantage of unanticipated supply chain events. However, in this study the concept of supply
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chain resilience will be used as the ability of a supply chain system to reduce the recovery time and the effects resulting from an unexpected incident.
As mentioned before, natural disasters can occur at any moment result in economical and physical damages to persons and companies. Although companies known the potential risks their business are exposed, many of them are not prepared to respond to demand during a disruption in their supply chain, neither intend to invest in create or redesign their supply chain to be resilient against those events.
Previous research has been studied disruptions in supply chain and suggests strategies to mitigate their effects and improve the resilience on the supply chain.
To analyze the resilience capacity of the presented distribution supply chain it will apply the push and pull systems. In general, push is described as a speculative process because anticipate the customers’ orders based on long term forecast and the pull process is defined as the reactive process based on customer orders (Chopra & Meindl, 2007). The purpose of a push based supply chain is take advantage of economies of scale in manufacturing and transportation, while a pull based supply chain seeks to decrease lead time, system inventory, system variability and increase customer service levels (Ahn & Kaminsky, 2005).
For research purposes a virtual supply chain will be simulated in the Distribution Software developed by Avraham Y. Goldratt Institute, in which a disruption will take place in the production plant of a company that may be located in a city. This company has regional warehouses situated in different cities that are responsible for supplying the retailers on each area. The company simulated manufactures six different products. Through running different tests the performance of push and pull supply chain systems will be observed. Results are going to be analyzed and it will help to conclude which of the systems is the most qualified to satisfy the customers demand when disruption occurs.
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1.2 Purpose of Study
In real life, also in semiconductor manufacturing companies, in each stages of the supply chain system it has an inventory of products to respond to fluctuations on customers’ demands in a short period. The level of inventory that holds each stage depends of the way that the supply chain system is set. This study seeks to support the assumption that the whole supply chain system keeps enough inventories to face a disruption during a short period, and by running our supply chain by pull system it is possible to meet the demand with the existing inventory and the time to recover the normal inventory levels will be less compared with a supply chain push system.
In general, push is described as a speculative process because anticipate the customers’ orders based on long term forecast and the pull process is defined as the reactive process based on customer orders (Chopra & Meindl, 2007). The purpose of a push based supply chain is take advantage of economies of scale in manufacturing and transportation, while a pull based supply chain seeks to decrease lead time, system inventory, system variability and increase customer service levels (Ahn &
Kaminsky, 2005).
To analyze the performance of both systems under a disturbance, this research employed the Distribution Simulator Software developed by Avraham Y.
Goldratt Institute, which attempts to create a disruption in the manufacturing plant of a company which interrupts the normal flow of finished goods through the supply chain. Running the simulator will be compared the behavior of the supply chain during the disruption and the following time using push-based and pull-based supply chains systems, focusing in the distribution between manufacturing plant, regional warehouses and retailers in order to meet the customers demand during the disruption up to restored to a normal state. Additionally, compare the recovery time and economic consequences in each situation. The results will show if the assumption presented about the pull based supply chain system is the best option of a supply chain design in order to handle supply side disruptions.
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1.3 Thesis Structure
This research is organized in 5 chapters. Chapter 1 includes background with the description of the system and also the purpose of this project; the Literature review about disruptions and Supply Chain Resilience will be address in Chapter 2.
The Chapter 3 presents the decision making scenario where the system and the different scenarios will be described and Chapter 4 shows the results of the experiments from the distribution simulator. The final chapter, conclude with the knowledge acquire after the research and ultimately the direction for future researches.
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