The Private Sectors Dimension

The approaches of mitigating the supply chain disruptions can be divided into the two broad categories of proactive and reactive response from the corporate enterprise perspective.

A reactive response has minimal redundancies as supplies are acquired and delivered only in real time and a proactive response is based upon building ex ante capacity (Knemeyer, et al., 2009). Most researches place emphasis on proactive rather than reactive actions because

‘prevention is better than cure’. (Weichselgartner, 2001, Kleindorfer & Saad, 2005)

We then classify the proactive and reactive response strategies as following:

Proactive response:

The aim of proactive response is to reduce the probabilities of a disruption and reduce the consequences of those disruptions once they occur. If the firm takes the proactive action in advance of a disruption, it incurs the cost of the action regardless of whether a disruption

occurs. (Tomlin, 2006) It is called the mitigation approach in the study of Tomlin (2006) and Colicchia et al. (2008).

There are some manners as following.

1. Supply chain network engineering

This method is kind of risk assessment measure. Through risk assessment exercise, business can find the vulnerabilities of critical nodes and links in the network. Business uses mapping tool to help in identification of ‘pinch point’ and ‘critical paths’. Pinch points are defined as bottlenecks where there is a limit of capacity and where alternative options may not be available. For example, ports capable of taking large container vessels or central distribution facilities which if they were to become unavailable would place a heavy strain on the rest of the system. Critical path in the supply chain network may have the characteristics like long lead-times, poor visibility and high levels of identifiable risk.

(Christopher & H. Peck, 2004)

2. Supply management (1) Flexible supply base

Single sourcing, where one supplier is responsible for the supply of a specific item, is dangerous in terms of resilience, although it will enable a firm to reduce cost. It may be desirable to have a lead supplier, but possible alternative sources should be available wherever. (Christopher & Peck, 2004) A flexible supply base not only enables a firm to handle regular demand fluctuations, it can also be used to maintain continuous supply of materials when a major disruption occurs. (Tang, 2006)

(2)Make-and-buy strategy

A supply chain is more resilient, if certain products are produced in-house while other products are outsourced to other suppliers. When a supply disruption occurs, the make-and-buy strategy offers flexibilities that allow firms to shift production quickly.

(Tang, 2006)

3. Product management (1) Postponement

Postponement strategy utilizes product or process design concepts such as standardization, commonality and modular design, to delay the point of product

differentiation. (Tang, 2006) It enables a firm keeps products in semi-finished in generic form and customizes them until the demand information is more accurate. (Sheffi,2005) In the context of disruption recovery, the postponement strategy offers a cost-effective and time-efficient contingency plan that allows a supply chain to use a slightly different component from other suppliers for the generic products and reconfigure them quickly in the event of supply disruption. (Tang, 2006)

(2) Strategic stock

Traditionally, a firm considers carrying additional inventories of certain critical components to keep the supply chain from a disruption in supply. In the “just-in-time” era, a firm may consider storing some inventories at certain “strategic” locations (warehouse, logistics hubs, distribution centers) to be shared by multiple supply chain partners

(retailers, repair centers, etc.). This strategy can deal with regular demand fluctuations problem. When a disruption occurs, the shared inventories at strategic locations will allow a firm to deploy these stocks quickly to the affected area as well. (Tang, 2006)

4. Supply chain collaboration from upstream to downstream (visibility) Due to the increased globalization of supply chains and the prevalent use of subcontract manufacturing and offshore sourcing, the members of supply chain and the length of time took to complete all the works are increased. (Christopher &Lee, 2004) The situation leads supply chain to the lack of visibility and to explore in the risk, like demand fluctuation, because the member of a supply chain has no detailed information of what goes on in other parts of the chain.

Visibility implies a clear view of upstream and downstream inventories, demand and supply conditions, and production and purchasing schedules for example. It is the ability that makes supply chain respond rapidly to unpredictable changes in demand or supply.

(Christopher & Peck, 2004)

On the other hand, the achievement of supply chain visibility is based upon collaborative working across supply chain members. The underlying principle of

collaborative working is sharing the information to mitigate risk. Further, the information sharing can aid the creation of supply chain resilience to identify the sources of risk and uncertainty at each node and link in the supply chain. (Christopher & Peck, 2004)

5. Process improvement

Companies can achieve the aim of reducing the likelihood of disruption occurrence based on the analysis of the processes. (Colicchia et al., 2008) Sheffi (2005) suggests that a company can adopt standardized processes to increase supply chain flexibility. The method is to move production among plants by using interchangeable and generic parts in many products, relying on similar and identical plant designs and cross-training employee.

It allows a company to respond quickly to a disruption by reallocating resources to the greatest need place.

Another measure is simplified processes by reducing the number of stages or activities involved, perform these activities in parallel rather than in series and e-based rather than paper-based. At the same time these simplified processes are designed around minimal batch sizes. The emphasis is on flexibility rather than economies of scale.

(Christopher & Peck, 2004) Company also can inspect the non-value adding time from a customer perspective to simplify processes.

6. Enhance transportation resilience

Chen and Miller-Hooks (2011) depict that pre-event actions can reduce the time and

(1) Creating the robust network : adding additional links to the network.

(2) Building ex ante capacity : ordering spare parts or backup equipment; prepositioning resources in anticipation of potential recovery activities.

(3) Assistant with technologies: implementation of advanced technologies.

7. Organization culture

Organization culture is a factor that clearly distinguishes those companies that recover quickly from those that falter after a disruption. (Sheffi, 2005) There is a requirement to create a risk management culture within the business today.

(1) Deliver the information to the leader

As in every case of culture change at an organizational level, nothing is possible without leadership from the top of the organization. A supply chain risk management team should be created within the business and charge with the regularly updating supply chain risk register to report to the main Boardroom through the supply chain director on a least a quarterly basis. The team will need to be cross-functional and to be able to audit risk using the frameworks and tools. (Christopher & Peck, 2004)

(2) Continuous communication among informed employees

Organization keeps all personnel aware of the strategic goals, tactical factors, and day-by-day pulse of the business. When a disruption takes place, employees know the company’s status and can make better decisions in the face of the unforeseen. (Sheffi, 2005)

(3) Distributed power to the team and individual

Make teams and individual be empowered to take necessary action before a potential disruption is visible. The organization can respond risks quickly, significantly enhancing the chances of reducing the damage. (Sheffi, 2005)

(4) Conditioning for disruptions

Resilient and flexible organizations will regard disruption as normal situation.

(Sheffi, 2005)

Reactive response:

In generally, the reactive response that business usually gets after a disruption is the contingency plan. In the supply chain, it is viable only if suppliers have volume flexibility, that is, the ability to temporarily increase their processing capacity. (Tomlin, 2006)

Christopher and Lee (2004) propose to define contingency plans in case shipment schedules are deviated from plan. In the explorative study of Norrman and Jansson (2004), they describe how Ericsson has implemented a supply chain risk management process and define the contingency plans as business continuity management plans. In other words, the contingency plans are plans and actions which provide alternative modes of operation for those activities or business processes which might bring a damaging or loss to the supply chain if the processes are interrupted. However, Craighead et al. (2007) have different views on contingent plan. He depicts that a contingent response operates in a proactive mode for low values of disaster intensity, and activates a reactive response if the intensity exceeds a certain threshold. In the pertinent literature, we find that contingency plan approach is generally considered a reactive response in order to manage catastrophic risks rather than minor impact risks. (Kleindorfer & Saad, 2005) Thus, we will identify the contingency plan as the proactive response in our research.

Norrman and Jansson (2004) further divide contingency plans into:

 response plans (immediate reaction to a problem),

 recovery plans (actions needed to resume the essential parts of a process or a business)

 restoration plans (starting up the whole organization from scratch).

demand management and transportation strategy.

1. Customers demand management

Sometimes business decreases the risk of disruption relying on influencing the customers demand. We also can use these methods to deal with the customers demand when the

disruptions occur. Tang (2006) introduces two strategies:

(1) Revenue management

Revenue management via dynamic pricing and promotion can be an effective way to manage demand when the supply of a particular product is disrupted. Specifically, a retailer can use pricing mechanism to entice customers to choose products that are widely available. For example, when Dell was facing supply disruptions from their Taiwanese suppliers after an earthquake in 1999, Dell immediately deployed a contingency plan by offering special “low-cost upgrade” options to customers if they chose similar computers with components from other suppliers.

(2) Assortment planning

The assortment planning means how to decide the set of products on display, the location of each product on the shelves and the number of facings for each product. The retailers usually used it to influence consumer product choice and customer demand.

When certain products are facing supply disruptions, companies can utilize assortment planning to entice customers to purchase products that are widely available.

2. Transportation recovering strategy

Another method to quickly return system’s capability to original state in reactive manner is to implement potential transportation strategies. Nair et al. (2010), for example, propose a quantitative measure to determine the best set of post-disaster recovery actions to improve security at nodal facilities in an IM network. These potential recovery activities include reconstruction of damaged section and rent big ship for example.

Tang (2006) also provides three basic approaches to add more flexibility to the transportation system.

(1) Multi-modal transportation

To prevent the supply chain operations from coming to a halt when disruptions occur in the ocean, in the air, on the road, some companies prepare multiple modes of

transportation in advance to maintain a flexible logistics. For example, Lee (2004) presents the Seven-Eleven Japan’s case study, able to assure supply continuity through the use of different modes.

(2) Multi-carrier transportation

Companies can form an alliance to ensure continuous flow of materials.

Various air cargo companies such as Aeroméxico Cargo, KLM Cargo, Delta Air Logistics, Air France Cargo, CSA Czech Airline Cargo, Korean Air Cargo, etc. have formed an alliance called SkyTeam Cargo that will enable them to switch carriers quickly in the event of political disruptions (landing rights, labour strikes, etc.). Moreover, this alliance has enabled SkyTeam Cargo to provide low-cost global deliveries to 500 destinations in 110 countries.

(3) The alternative routes

We also can implement the alternative routes so as to increase the efficiency of the transportation and ensure smooth material flows along the supply chains. For example, due to long delays at the west coast ports and heavy traffic jams along various west coast freeways, some east coast companies are encouraging shippers to develop new routes in addition to the traditional route. Specifically, after the west coast ports were shut down for 2 weeks in 2002, some shippers considered shipping various manufacturing goods from Asia to east coast ports via Panama Canal. (Tang, 2006)

Some studies compare the proactive action with reactive actions with regard to the cost that companies pay. There are discussions below.

Proactive costs include investment in building an adequate level of inventory and storage facilities, and investment in a robust infrastructure. However, proactive response may result in underutilized resources if the disasters are not frequent or if the demand is volatile. In contrast, the real-time (reactive) response requires agility, implying rapid response and flexibility.

Although the utilization of resource in reactive response is high, the cost of procuring resources at a short notice and in a chaotic environment can also be very high. (Chakravarty, 2011)

Thus, there is a trade-off between efficiency and redundancy.

Conventionally surplus capacity and inventory have been seen only as ‘waste’ and are therefore undesirable. However, the strategic disposition of additional capacity and/or inventory at potential critical points can be extremely beneficial in the creation of resilience within the supply chain. The trade-offs inevitably involve the judgemental balancing of the cost involved in maintaining slack capacity and inventory, against the probability and likely impact of a negative event. (Christopher & Lee, 2004) Christopher & Lee (2004) consider that company doesn’t need to save the days of buffering every stage in the supply chain with safety stock or excess capacity. They suggest the strategic and selective use of ‘slack’ to increase supply chain resilience. The cost of proactive decisions must be balanced with the cost of reactive decision. (Chakravarty, 2011)

However, Weichselgartner (2001) thinks the approaches of mitigating natural disasters must place emphasis on pro-active rather than reactive actions. But other scholars like Colicchia et al. (2008) and Tomlin (2006) believe that a firm is not limited to choosing a single tactic. An effective risk management strategy should consider a combination of tactics.