Risk Mitigation Strategies under disruptions

1. Supply Chain Risk Mitigation
Strategies
Dr. Abhay K Srivastava

2. Introduction
• While it is impossible to completely eliminate risks and
consequent vulnerabilities from a supply chain, they can be
reduced if an organization is proactive and prepared (Faisal
et al. 2006 ).
• Risk management is the process in which decisions are
made to accept a known or assessed risk and strategies are
developed that reduce the probabilities and impact of
negative events and/or their consequences in case they
occur (Cohen and Kunreuther 2007 ; Manuj and Mentzer
2008b ).
• Depending on the assessment of risks, different strategies
can be deployed to manage the risks: risk reduction or
mitigation, risk avoidance, risk-taking or acceptance and
risk sharing or transfer (Norrman and Jansson 2004 )

3. Strategies based on moment of time
• A Proactive strategy, can help a company to avoid or
decrease the negative effects of certain disturbances types
(Sourcing, for example, can be used to proactively cope
with the disturbance effects) (Muckstadt et al., 2003; Rice
and Caniato, 2003a; Norrman et al., 2004; Herroelen and
Leus, 2005; Kleindorfer and Saad, 2005; Hendricks and
Singhal, 2005a; Hendricks et al, 2008; and Ji and Zhu, 2008)
• A Reactive strategy, can reduce the disturbance effect
(Outsourcing, for example, can be used by organizations to
react to an unexpected lack of capacity) (Hsieh and Wu,
2008; Kara and Kayis, 2004; Pitty et al., 2008).

4. RESILIENCE
• Resilience has been defined in supply chain terms as “the adaptive capability of
the supply chain to prepare for unexpected events, respond to disruption and
recover from them by maintaining continuity of operations at the desired level of
connectedness and control over structures and function” (Ponomarov and
Holcomb 2009 :131).
• An often-cited example in the context of supply chain resilience is a fire at a Philips
Electronics plant in Albuquerque, New Mexico in March 2000 which
simultaneously affected Nokia and Ericsson (see e.g., Norrman and Jansson 2004 ;
Sheffi and Rice 2005 ), who accounted for 40 % of the plant’s shipments
(Mukherjee 2008 ).
• Both competitors were solely dependent on Philips for the chips they produced
(Sheffi and Rice 2005 ). The two companies reacted differently to the supply chain
disruptions. Nokia was better able to deal with the disruption than Ericsson,
displaying the adaptive capabilities that allowed the organization to quickly
discover and effi ciently recover from the disruptive event (Blackhurst et al. 2011 ;
Pettit et al. 2010 ). Ericsson on the other hand, had to quit the mobile-phone
business as a result of the disruption, leaving Nokia to reinforce its position as the
European market leader

5. ACHIEVING RESILIENCE
• Redundancy
• The organization could hold extra inventory,
maintain low capacity utilization, have many
suppliers, etc. Yet although redundancy can
provide some breathing room to continue
operating after a disruption, typically it is a
temporary—and very expensive—measure.
• A company must pay for the redundant stock,
capacity, and workers; moreover, such excesses
are likely to lead to sloppy operations, reduced
quality, and significant cost increases.

6. ACHIEVING RESILIENCE
Flexibility: To achieve built-in flexibility, a company should take the following actions:
• Adopt standardized processes. Master the ability to move production among plants by using
interchangeable and generic parts in many products, relying on similar and even identical plant
designs and processes across the company, and cross-training employees. Interchangeable parts,
production facilities, and people allow a company to respond quickly to a disruption by reallocating
resources where the need is greatest.
• Use concurrent instead of sequential processes. Employing simultaneous rather than sequential
processes in such key areas as product development and production/distribution speeds up the
recovery phase after a disruption and provides collateral benefits in improved market responses.
• Plan to postpone. Design products and processes for maximum postponement of as many operations and
decisions as possible in the supply chain. Keeping products in semi-finished form affords flexibility to move
products from surplus to deficit areas. It also increases fill rates and improves customer service without increasing
inventory carrying costs, because the products can be completed when more accurate information about what the
customer wants becomes available
• Align procurement strategy with supplier relationships. If a company relies on a small group of key suppliers, it
must maintain a deep relationship with each. Such suppliers are so vital to an enterprise that the failure of any
among them can have a catastrophic effect on that enterprise. By knowing each trading partner intimately, a
company can better monitor the group to detect potential problems—and rely on them for help to deal in
unforeseen circumstances

7. ACHIEVING RESILIENCE
Cultural change; the factor that clearly distinguishes those companies that
recover quickly, and even profitably, from disruption is corporate culture
• Continuous communication among informed employees. They keep all
personnel aware of the strategic goals, tactical factors, and day-by-day and
even minute-by-minute pulse of the business.
• Distributed power, so that teams and individuals are empowered to take
necessary actions.
• Passion for work. Successful companies engender a sense of the greater
good in their employees. Southwest Airlines CEO Herb Kelleher recounts
the words of one of his managers: “The important thing is to take the
bricklayer and make him understand that he’s building a home, not just
laying bricks.”
• Conditioning for disruptions. Resilient and flexible organizations are
apparently conditioned, as a result of frequent and continuous “small”
operational interruptions, to become innovative and flexible in the face of
HILP disruptions.

8. Agility
• Agility is approached as a disturbance management initiative that enables an organization to
• respond rapidly to marketplace changes, as well as anticipated and actual disturbances in the SC. In
supply chain, agility is desired to stay competitive and react to an ever-changing industry and
market.
• To become agile, organizations should focus on following three issues:
• Accuracy and Speed to analyze Demand: Demand sensing technologies should be able to give
clear and accurate picture of future demand. Robust optimization has been developed in several
areas characterized by uncertainty and risk. Considering the uncertainty market demand, some
authors developed stochastic models, applying linear programming (Wu, 2006) and multi-period
mixed integer nonlinear programming (You and Grossmann, 2008).
• Integration of channel partners – like all tiers of suppliers, contract manufacturers, warehouses,
Third party service provider etc. This is the foundation that gives companies a complete, end-to-
end picture of the current status of the supply chain, the comprehensive visibility that they use to
understand what is happening and react to it
• Utilizing Technology To Gain Visibility: As technology advances and the Internet of Things
(IoT) continues to evolve the logistics industry, there are more tools to achieve visibility from
concept to cash. Supply chain technology can help shippers become more agile by predicting or
notifying stakeholders of changes or possible disruptions. This past year, 75 percent of companies
experienced at least one major supply chain disruption5. Having technology in place can provide
the visibility to prevent disruptions or have the resources synchronized to respond rapidly if
disruptions do occur.

9. Visibility
• The visibility based supply mitigation strategy class encloses several strategies,
namely, Advanced Electronic Data Interchange (EDI) (Christopher and Lee, 2004;
Christopher, 2002), Collaborative Forecasting and Replenishment (CPFR) (Tang,
2006a; Wilson, 2007), Sharing information (Grabowski and Roberts, 1997; Ji and
Zhu, 2008; Ritchie and Brindley, 2007), and Vendor Management Inventory (VMI)
(Tang, 2006a; Wilson, 2007).
• The using of the CPFR strategy allows a better integration of information flows and
improves the SC visibility on theirs vulnerabilities among all SC entities (Kleindorfer
and Saad, 2005).
• The organizations need to be more open in sharing information related to
disturbances with SC partners and to accept risk jointly instead of individually.
Enhance visibility in a SC can reduce the vulnerability to disturbances that can
affect any SC entity, and to reduce the bullwhip effect. With greater visibility
between the SC levels, an organization can anticipate a problem at a supplier or
customer that may affect them (Stecke and Kumar, 2006), and improve the SC
responsiveness to market (Ji and Zhu, 2008).

10. Page 10
The importance of supply chain event
management
Supply chain visibility to enable potentially
disruptive events to be identified as they happen –
or even before they happen.
Work as a supply chain community to define the
business rules and exceptions that need to be
monitored.
Use shared information across the extended supply
chain in as close to real time as possible to create
supply chain intelligence.

11. References
• Chopra, S., M. Sodhi. 2004. Managing risk to avoid supply chain breakdown. Sloan Management
Review, 46(1) 53-62.
• Christopher, M. 2003. Understanding supply chain risk: A self-assessment workbook. Cranfield
University. School of Management
• Kleindorfer, P.R., G.H. Saad. 2005. Managing disruption risks in supply chains. Production and
Operations Management, 14(1) 53-68.
• Kull, T. 2008. The risk of second-tier supplier failures in serial supply chains: Implications for order
policies and distributor autonomy. European Journal of Operational Research, 186(3) 1158-1174.
• Manuj, I., J. Mentzer. 2008. Global supply chain risk management strategies. International Journal
of Physical Distribution & Logistics Management, 38(3) 192-223.
• Pitty, S.S., W. Li, A. Adhitya, R. Srinivasan, I.A. Karimi. 2008. Decision support for integrated refinery
supply chains. Part 1. Dynamic simulation, Computers and Chemical Engineering, 32(11) 2767-2786
• Ritchie, B., C. Brindley. 2007. Supply chain risk management and performance. A guiding framework
for future development, International Journal of Operations & Production Management, 27(3) 303-
322
• Tang, C. 2006a. Perspectives in supply chain risk management. International Journal of Production
Economics, 103(2) 451-488.
• Tang, C. 2006b. Robust strategies for mitigating supply chain disruptions. International Journal of
Logistics: Research and Applications, 9(1) 33-45.
• Tomlin, B. 2006. On the value of mitigation and contingency strategies for managing supply chain
disruption risks. Management Science, 52(5) 639-657.
• You, F., I. Grossmann. 2008. Design of responsive supply chains under demand uncertainty.
Computers and Chemical Engineering, 32(2008) 3090-3111.