MBA Dissertation Thesis

Supplier Disruption Risk Management and Resilience in Complex
Global Supply Chains
Santosh Reddy Hardageri
A dissertation thesis submitted in part requirement for the degree of
Master of Business Administration
University of Glasgow
School of Business and Management
September 2011

ii
Table of Contents
Abstract............................................................................................................................................................v
Acknowledgements........................................................................................................................................vi
Table of Figures .............................................................................................................................................vii
Chapter One: Introduction......................................................................................................................1
1.0 Introduction...............................................................................................................................................1
1.1 Aim and Objectives of the research.........................................................................................................1
1.2 Scope of the research...............................................................................................................................1
1.3 Structure of the report .............................................................................................................................2
1.4 Research Problem.....................................................................................................................................2
1.5 Research Questions ..................................................................................................................................3
1.6 Summary....................................................................................................................................................3
Chapter 2- Literature Review: Supply Chain Management .....................................................................4
2.0 Introduction...............................................................................................................................................4
2.1 Defining Supply Chain Management (SCM)............................................................................................4
2.2 Evolution of Supply Chain Management (SCM)......................................................................................4
2.3 SCM in comparison with Porter’s Value Chain .......................................................................................6
2.4 Trend towards globalization in supply chain...........................................................................................7
2.5 Outsourcing ...............................................................................................................................................8
2.6 Supply Chain Complexity........................................................................................................................10
2.7 SCM, Logistics and Purchasing...............................................................................................................11
2.8 Changing Trends in the Automotive Manufacturing Industry.............................................................14
2.9 Summary..................................................................................................................................................16
Chapter 3 - Literature Review: Supply Chain Risk Management...........................................................17
3.0 Introduction.............................................................................................................................................17

iii
3.1 Supply Chain Risk Management (SCRM)...............................................................................................17
3.2 Supply Chain Risk Mitigation Strategies................................................................................................21
3.3 Cost Benefit Analysis...............................................................................................................................28
3.4 Resilience and Business Continuity Management................................................................................29
3.5 Summary..................................................................................................................................................32
Chapter 4 - Research Design and Methodology....................................................................................33
4.0 Introduction.............................................................................................................................................33
4.1 Research Objectives................................................................................................................................33
4.2 Hypotheses..............................................................................................................................................33
4.3 Rationale for chosen Research Strategy................................................................................................34
4.4 Data Collection Methods........................................................................................................................35
4.5 Data Analysis ...........................................................................................................................................36
4.6 Summary..................................................................................................................................................38
Chapter 5- Case Studies ........................................................................................................................39
5.0 Introduction.............................................................................................................................................39
5.1 Case Study 1: A major Indian Automotive OEM...................................................................................39
5.2 Case Study 2: Nissan ...............................................................................................................................42
5.3 Case Study 3: Toyota...............................................................................................................................47
5.4 Summary..................................................................................................................................................51
Chapter 6 – Findings and Results ..........................................................................................................52
6.0 Introduction.............................................................................................................................................52
6.1 Context of Interviewee profiles .............................................................................................................52
6.2 Data Structure of Findings......................................................................................................................53
6.3 Hypothesis Evaluation ............................................................................................................................66
6.4 Cross Comparison of Case Studies.........................................................................................................69

iv
6.5 Summary..................................................................................................................................................71
Chapter 7: Conclusion and Future Recommendation............................................................................72
7.0 Introduction.............................................................................................................................................72
7.1 Literature Reviewed................................................................................................................................72
7.2 Case Studies Reviewed ...........................................................................................................................73
7.3 Empirical Findings Reviewed..................................................................................................................74
7.4 Managerial Implications.........................................................................................................................75
7.5 Implications for Academia......................................................................................................................76
7.6 Limitations and Scope for Further Research.........................................................................................76
7.7 Summary..................................................................................................................................................77
References............................................................................................................................................78
Appendix A: Interview Schedule...........................................................................................................86
Appendix B: Interview with Interviewee 1 of Auto-OEM1....................................................................88
Appendix C: Interview with Interviewee 2 of Auto-OEM1....................................................................91
Appendix D: Interview with Interviewee 3 of Auto-OEM1....................................................................95
Appendix E: Interview with Interviewee 4 of Auto-OEM1 ....................................................................98
Appendix F: Interview with Interviewee 5 of Firm 2...........................................................................102
Appendix G: Interview with Interviewee 6 of Firm3 ...........................................................................105
Appendix H: Interview with Interviewee7 of Firm 4 ...........................................................................108
Appendix I: Interview with Interviewee8 of Firm 5.............................................................................111
Appendix J: Interview with Interviewee 9 of Firm 6............................................................................114
Appendix K: Interview with Interviewee 10 of Firm 7.........................................................................117
Appendix L: Interview with Interviewee 11 of Firm 8 .........................................................................120

v
Abstract
The very complexity and globally outsourced nature to today’s supply chains combined with the practice
of optimization techniques such as lean and just-in-time manufacturing in order to improve efficiency
has increased the supply chain vulnerabilities to even minor disruptions. Among the several types of
supply disruptions, most severe are those that have a relatively low probability of occurrence with a
very high severity of impact when they do occur. While such risks cannot be eliminated, however, its
severity can be reduced.
The key objective of this research is to provide a deep insight into the supply disruption risk
management practices in global supply chains with a focus on supply chains of automotive
manufacturing companies. This has been accomplished by using (a) a comprehensive literature review
highlighting the risk management process along with several risk mitigation strategies with special
emphasis on resiliency and business continuity and (b) through a critical analysis of three unique case
studies. From the findings of these, the hypotheses developed from literature have been tested and
validated thereby establishing a cause-effect relationship between the entities - supply chain length and
complexity, risk mitigation capability of organizations and severity of impact due to supply disruptions.
From the empirical findings of the research, eight key themes have emerged. While findings from
themes 1 and 2 describe the main factors that contribute to severity of supply disruptions, findings from
themes 3 and 4 discuss the disruption discovery mechanisms. Findings from Themes 5 and 6 explore the
disruption recovery mechanism which includes assessing the risks and applying risk mitigation
strategies. Theme 7 relates to redesigning supply chain to mitigate risks while theme 8 discusses the key
impediments to recovery of supply chains.
Finally, based on the literature reviewed, empirical findings, secondary data findings and the hypotheses
several key implications have been presented both for managers and academia along with
recommendations for further research.

vi
Acknowledgements
I would like to thank my supervisor Dr. Geoff Southern, who has provided guidance and support on the
subject matter throughout the research process. Through our regular discussions held prior to
commencement and during the dissertation period, he provided several insights and the required
direction that helped me to get a clearer picture of the research topic for which I am deeply indebted.
I would also like to thank all the interviewees most of whom are at the senior executive level for taking
time to participate in the research. The information provided by them has proved to be crucial to my
research.
Finally, I would like to thank and express my sincere gratitude to my Mum, Dad, and family members
especially my grandmother, who have all been very supportive throughout the MBA course. Without
their support, I would have never accomplished this arduous task.
- Santosh Reddy Hardageri

vii
Table of Figures
Chapter 2- Literature Review: Supply Chain Management .....................................................................4
Figure 2.1: Structure of a typical supply chain..............................................................................................5
Figure 2.2: Activities and firms in a supply chain..........................................................................................6
Figure 2.3: Porter’s Value Chain.....................................................................................................................7
Figure 2.4: Types of supply chain relationships ..........................................................................................10
Figure 2.5: Perspectives of Logistics vs. SCM ..............................................................................................12
Figure 2.6: Categorization of Purchasing process.......................................................................................13
Figure 2.7: Evolution of Manufacturing from mass-production to mass-customization.........................15
Chapter 3 - Literature Review: Supply Chain Risk Management...........................................................17
Figure 3.1: Disruption risk management.....................................................................................................18
Figure 3.2: Likelihood and impact of supply chain disruptive events........................................................20
Figure 3.3: Supply Chain Risk Mitigation Strategies ...................................................................................23
Figure 3.4: Scenario Planning and Risk Mitigation......................................................................................25
Figure 3.5: Supply Chain Disruption Discovery and Recovery....................................................................27
Figure 3.6: Framework for Risk Mitigation..................................................................................................28
Figure 3.7: Creating Resilient Supply Chains...............................................................................................31
Chapter 4 - Research Design and Methodology....................................................................................33
Figure 4.1: Research Design Structure.........................................................................................................36
Chapter 5- Case Studies ........................................................................................................................39
Figure 5.1: Illustration of Supply Chain of Auto-OEM.................................................................................40
Figure 5.2: Nissan’s Smyrna vehicle assembly plant at Tennessee in US..................................................45
Figure 5.3: The Automotive Supply Chain ...................................................................................................48
Chapter 6 – Findings and Results ..........................................................................................................52
Figure 6.1: Background information of Interviewees.................................................................................52

viii
Figure 6.2: Data Structure of Findings.........................................................................................................54
Figure 6.3: Findings from theme 1...............................................................................................................55
Figure 6.10 : Findings from theme 8............................................................................................................66
Figure 6.11: Theoretical Synthesis of Hypotheses......................................................................................69

Supplier Disruption Risk Management and Resilience in Complex Global Supply Chains 1
Chapter One: Introduction
1.0 Introduction
The main purpose of this chapter is to define the aims and objectives of research, discuss the structure
of report highlighting the research methodology employed, the research problem, the main research
questions and finally the automotive manufacturing industry upon which the research has been
conducted.
1.1 Aim and Objectives of the research
Aim: To explore the supplier risk management practices followed by organizations with global complex
supply chains and to test the hypotheses that are developed based on literature.
Objectives:
 To discuss the supply chain risk management process in general.
 To explore the various external supply disruption risks that could disrupt the entire supply chain.
 To discuss and examine the various supply disruption risk mitigation strategies employed by
organizations within the automotive manufacturing sector.
 To examine the extent to which organizations consider logistics and supply disruption risks in
their business continuity planning.
1.2 Scope of the research
The scope of this research is limited to the external risks encountered by firms on the supply side (i.e.,
upstream activities) of the supply chain, especially the disruptions that occur due to natural disasters
such as tornados, earth quakes, tsunamis, etc and man-made or accidental disasters such as fire,
terrorist attacks, etc. Other risks that occur on the demand side of the supply chain (i.e., downstream
activities) are out of scope of this research. For the purpose of this research, the manufacturing industry
has been considered with a focus on the automotive sector.

1.3 Structure of the report
The report is organized into seven chapters as below:
Chapter 2 discusses the background literature related to the basics of supply chain management
beginning from the evolution of the term SCM to how globalization and outsourcing trends have
changed the global production environment.
Chapter 3 begins with a discussion on the basics of supply chain risk management and further discusses
the risk management process in general, the risk mitigations tools and strategies with an emphasis on
supply chain resiliency and business continuity management.
Chapter 4 discusses the research methodology employed in this research, the rationale for choosing the
particular approach and the data analysis technique used for analyzing the research findings.
Subsequently, the hypotheses developed based on the existing literature have been discussed.
Chapter 5 discusses factors such as structural characteristics of supply chains, supply chain risk
management practices, etc using three case studies – Auto-OEM 1, Nissan and Toyota. Findings from
the case of Auto-OEM1 are based on the primary research whereas findings from other two cases are
based on secondary data sources. These findings are used to validate the hypotheses in the subsequent
chapter to facilitate data triangulation
Chapter 6 discusses and analyses the findings of the research. The various categories and themes that
have emerged due to the data collected have been discussed. The hypotheses that were developed
based on literature are validated using empirical findings. Further, the three cases are critically analyzed
and cross-compared to further validate the hypotheses.
Chapter 7 summarizes results of the research and presents conclusions that specifically address the
research questions. Further, the implications for managers and academia are discussed based on the
research findings and finally suggestions for future research are discussed.
1.4 Research Problem
Although, the concept of risk management, its practices, techniques and tools have been widely used in
the financial sector for many years, risks with respect to a company’s supply chain have only recently

begun to receive attention propelled by industry’s need for increasing supply chain efficiency,
effectiveness and agility. The nature and increasing complexity of supply chains makes them particularly
vulnerable to risks and the vast number of links between disparate members in the supply chain implies
that risks are transmitted throughout the chain.
A worrying trend has managers increasing the efficiency of supply chains by reducing the buffer stock to
a minimum level – and inadvertently increasing the supply chain risks. For instance, by using the JIT
approach, although companies increase efficiency by minimizing inventory levels, it also increases the
supply chain vulnerability to even minor disruptions. The magnitude of impact due to external risks
could be so intense that it could bring the entire supply chain to a standstill. Recent research conducted
suggests that although companies are becoming increasingly aware of supply disruption risks due to the
apparent threat it poses to business continuity, many do not take the required actions to mitigate it
(Juttner, 2005).
1.5 Research Questions
 How do organizations with complex global supply chains manage the risk of supply disruptions
in their supply chains? – Case of “Automotive Manufacturing” industry.
 How are the structural characteristics and risk mitigation capabilities of a supply chain related to
the severity of impact due to supply disruptions?
 Do organizations consider logistics and supply disruption risks in their business continuity
planning?
1.6 Summary
This chapter gives a brief overview of the report and begins by discussing main objectives and the aim
for conducting research. Subsequently, the research scope followed by structure of report, which
provides a brief introduction to each chapter, has been discussed. Finally, this chapter concludes with a
brief description of research problem and research questions that have emerged from the literature.

Chapter 2- Literature Review: Supply Chain Management
“Business practices of the future will be defined in a new unit of analysis: the supply chain (not the
individual organization) [...] will become the effective unit of competition.” (Handfield, 2002; Done,
2011)
2.0 Introduction
This chapter gives a broad overview of supply chain management by defining it, describing its evolution
and the various functions involved in it. Since understanding the factors that have led organizations to
go global and outsource their activities is crucial to better understand supply chain risk management in
global supply chains, this aspect has been discussed in detail highlighting both the merits and demerits.
2.1 Defining Supply Chain Management (SCM)
Literature suggests that the term supply chain management has been defined using different
terminologies by various researchers over the past decades. For instance, Christopher (1998) defines
supply chain as”...a network of organizations that are involved, through upstream and downstream
linkages, in the different processes and activities that produce value in the form of products and services
in the hands of the ultimate customer". Alternatively, Scot and Westbrook (1991) and New and Payne
(1995) define SCM as “the chain linking each element of the manufacturing and supply process from raw
materials through to the end user, encompassing several organizational boundaries” and Baatz (1995)
further expands the definition of SCM to include the activity of “recycling”. While these differences in
terminologies and perspectives can become a source of confusion for researchers and practitioners in
the field of supply chain management (Mentzer et al., 2001, Croom et al., 2000), on the contrary,
Saunders (1995) argues that the pursuit for a single universal definition for SCM might not be necessary
as this “may lead to unnecessary frustration and conflict” (Saunders, 1995, Croom et al., 2000).
2.2 Evolution of Supply Chain Management (SCM)
2.2.1 Supply chain literature
Croom et al. (2000) argue that although the origin of the concept of SCM is unclear, its development can
be traced back down the line to “physical distribution and transport, using the techniques of industrial
dynamics" (Croom et al., 2000). They also emphasize the fact that various subject literatures such as

logistics and transport literature, purchasing and supply chain literature, organizational behavior
literature, marketing literature, transaction cost economics literature, etc have contributed to the
evolution of supply chain management in different perspectives. However, Oliver and Webber (1992)
argue that the term supply chain management was used initially in the early 1980s wherein it referred
to managing materials within the functional boundaries of the organization, but soon extended beyond
the organizational boundaries to include upstream production activities and downstream distribution
activities (Womack and Jones, 1996; Womack et al., 1990). Figure 2.1 presents the structure of a typical
supply chain.
Figure 2.1: Structure of a typical supply chain (Waters, 2007)
The figure 2.2 below shows the upstream and downstream activities and the firms involved in the supply
chain as depicted by New and Payne (1995). It begins with the extraction of minerals or raw materials
from the Earth through various stages of manufacturing, wholesalers, retailers and finally to the
consumers. After the useful life of the product, it goes backward the supply chain through the process of
recycling, (Tan, 2000) and is commonly referred to as reverse logistics.

Figure 2.2: Activities and firms in a supply chain (New & Payne, 1995; Tan, 2000)
2.3 SCM in comparison with Porter’s Value Chain
Porter (1985) defines the chain of activities performed by an organization in order to increase the buyer
value as the “value chain” (Porter, 1985,1990). He argues that value is created in every activity that a
product or service passes through and the product or service gains more added value through the chain
of activities rather than the sum of added values of individual activities (Porter, 1985, 1990).
Since the focus of SCM lies in integrating the various activities involved in the chain, it is closely
associated to Porter’s value chain. According to Porter, every firm in the supply chain can be
represented as a value chain and each value chain divides the firm into strategic activities. These
activities can be further divided into primary and secondary activities, which are interdependent since,
for example, by using superior quality raw materials, the production cost may rise, however, by
producing superior quality products the after-sale service costs will decrease. As shown in figure 2.3,
while primary activities are mainly related to the production and distribution of products, secondary
activities support the primary activities through cross-departmental functions and influence the
performance of entire organization. However, it is the firm’s strategy that guides the organization,
execution and performance of these activities based on which the firm can attain competitive advantage
(Porter, 1985).

Figure 2.3: Porter’s Value Chain (Porter, 1985, 1990)
The value chain of a firm can be considered as a system of upstream and downstream value chains of
other firms involved in the supply chain. Since the main goal of a value chain is to reduce the costs
associated with each process and to eliminate processes that do not add value, when all firms in the
value chain integrate and work as a single entity, the performance of the overall supply chain and all the
participating firms increases. In a fully integrated supply chain, the consumers pull the products from the
value chain rather than manufacturers pushing them to the end consumers (Porter, 1985; Tan, 2000).
2.4 Trend towards globalization in supply chain
Over the past few decades, one of the major trends in logistics and supply chain management is
globalization. As the trade barriers between nations continue to reduce, firms are extending their supply
chains beyond national boundaries due to the apparent benefits it brings. Globalization can be defined
from a supply chain perspective as “the cross-border movement of goods and the emergence of global
competitors and opportunities across competing supply chains within an industry” (Mentzer et al, 2006).
Today, every company either sources globally or sells globally and competes with some firm at a global
level. Although the complexity of managing a cross-border supply chain is much greater than managing

in a single country, the main reason why companies are going global is that global supply chains are a
main source of “competitive advantage” to firms enabling them access to cheaper labor, raw materials,
larger market segments, finance opportunities, and additional benefits provided by national and state
governments such as tax incentives in order to attract foreign investments (Waters,2008; Manuj &
Mentzer,2008; Kogut & Kulatilaka,1994).
However, along with the benefits that lure firms to go global, are the risks and complexities due to
inherent uncertainties that managers have to face in global supply chains. Although, the concept of risk
has been acknowledged and well researched as it is evident from the literature and also being practiced
by most multinational enterprises, research on risk management particularly in global supply chains has
gained momentum only recently (Christopher & Lee,2004; Manuj & Mentzer,2008; Spekman &
Davis,2004; Zsidisin, 2003; Zsidisin et al.,2004). According to Waters (2008), the three common sources
of risks in supply chains due to globalization are – the risks that are associated with working in a less
familiar remote location, which is far off from the firm’s country of operation, risks associated with
moving materials over lengthy supply chains, and the risks associated with occurrence of unpredictable
events (Waters, 2008).
2.5 Outsourcing
The trend towards outsourcing is ever increasing; it is not only the procurement of raw materials and
components but also services, which were once provided within the organization, that are being
outsourced. This increased level of outsourcing in global organizations has also increased the level of
complexity and risks associated with their supply chains. The rationale for outsourcing is that firms are
more likely to succeed if they concentrate on those activities in the value chain wherein they have a
distinctive advantage over their competitors i.e., the core competencies of the business, while letting
others to focus on their non-critical activities of the business. Also, by outsourcing, businesses leverage a
healthy competition for their procurement needs fostering an environment for innovation, while
increasing the efficiency levels. For example, Boeing’s 777 jet airplane was originally manufactured using
132,500 components sourced from 545 global suppliers. The reason why Boeing chose to outsource its
manufacturing operations to so many global suppliers is due to the fact that these suppliers are the best
in world at performing their particular activities, and Boeing’s focus was to produce a high-quality final
product while minimizing the overall production costs (Jones & George,2011)

The phenomenon of outsourcing has led to the development of “network organizations” (Waters, 2007)
wherein the various firms linked in the supply chain through shared information systems and processes
form a synergy in order to accomplish an increased overall competitiveness.
2.5.1 Transaction Cost Based Framework of Network Organizations
The concept of transaction cost economics (TCE) explains the various networking activities such as
outsourcing, off-shoring and in-sourcing that a firm involves itself in to improve the efficiency of its
supply chain and hence gain a competitive advantage (Kylaheiko, 1999). Coase (1934) asserts that a firm
benefits by organizing a transaction outside the firm (i.e., outsourcing) when the transaction costs of
using the markets are lower than the costs of using the company’s management. He argues that in the
absence of transaction costs, companies should use markets (i.e., outsource activities) as the preferred
option as it helps to exploit economies of scale, thus increasing organizational efficiency and
profitability. However, Williamson (1991) argues that transaction costs represent organizational failures
due to environmental and human factors and that higher the dependency of a company on its suppliers
or consumers, higher will be the transaction costs associated with it (Hallikas & Virolainen, 2004).
Teece (1984, 1986) argues that factors such as technological knowledge and innovation help to decide
on the governance structure i.e., outsource or manufacture in-house, of the organization. This strategic
decision helps to reduce the transactional and management costs thereby increasing the profitability.
He also states that transaction costs depend on the nature of the new knowledge (i.e., tacit or explicit)
and the protection mechanisms (Patents, Trademarks, etc) that exist to safeguard the knowledge. When
the knowledge is more tacit and legally well protected, the transaction costs associated with it will be
minimal thereby increasing the opportunities for networking or outsourcing (Hallikas &
Virolainen,2004).
Although firms receive tremendous benefits by outsourcing and going global, they also face the risk of
uncertainties due to disruptions. According to Barry (2004), “An enterprise may have lowest over-all
costs in a stable world environment, but may also have the highest level of risk – if any one of the
multiple gating factors kink up an elongated global supply chain!” (Manuj & Mentzer, 2008). Increased
outsourcing increases the supply chain vulnerability to supply disruptions. Since the company may not
have a total control over its global operations, it may become vulnerable to disruptions from one of its
suppliers and this may delay the recovery process. For instance, Boeing, inspired by the success of its

777 airplane’s outsourcing program, increased its reliability on its suppliers and involved them right
from the initial design phase for its new 787 Dreamliner airplane. However, due to design and quality
issues from one its components suppliers, the airplane manufacturer had to delay deliveries of the plane
by almost two years, which has proven to be very expensive to the company both in terms of reputation
and financially (Jones & George, 2011).
2.6 Supply Chain Complexity
Supply chain complexity level varies depending on its structural characteristics. Mentzer et al., (2001)
categorize supply chain complexity into three levels - a basic supply chain, in which the firm has a single
supplier and a single customer linked directly by one or more upstream and downstream flow of
products, services, information or finances (Figure 2.4), an extended supply chain, in which the firm’s
supplier has one or more suppliers and the firm’s customer has one or more customers and all are linked
directly by upstream and downstream activities, and finally, an ultimate supply chain, which includes all
firms involved in the upstream and downstream activities of the supply chain, including those that are
involved in market research, providing finance, third party logistics (3PL), etc, from the initial supplier to
the final customer.
Figure 2.4: Types of supply chain relationships (Mentzer et al, 2001)

Modern automotive supply chains are very complex in nature. This is due to the huge number of parts
required for producing each vehicle and the also the increasing dependency of firms on a complex
network of global suppliers with a focus on cost reduction in order to deliver the right quantity at the
right place at the right time (Karningsib, Kayis, & Kara, 2007).
Daft (1989) and Price (1972) define organizational complexity in relation to the structural differences
and varieties that exist between organizations. They propose a more tangible way of measuring the
structural complexity of an organization by categorizing it into three types – “vertical, horizontal and
spatial”. While the vertical complexity refers to the “number of levels in the system”, which corresponds
to the number of tiers of suppliers in the supply network, the horizontal complexity refers to the
“number of entities in the same level”, which represents the number of suppliers in each tier and finally
the spatial complexity refers to “the degree of dispersion within members in the system”, which
corresponds with the average distance between the supplying and buying firms. By measuring these
three attributes, the complexity level of a supply chain can be determined. However, other intangible
factors that exist between the firm and suppliers such as supplier relationships, which also add to the
complexity, cannot be measured using this method (Choi & Hong, 2002).
2.7 SCM, Logistics and Purchasing
From the available literature, it is evident that SCM is a large area that encompasses several functions
within the organizational context. However, logistics and purchasing functions have been chosen to be
discussed in more detail since they are closely related to SCM and also since they are often a subject of
debate amongst researchers and practitioners.
2.7.1 Logistics
Literature suggests that the term logistics originally emerged from military practice, used extensively
during the Second World War and concerned with military’s need to organize the movement, lodging
and supply of troops and equipment. Subsequent to this, the term has been used in business context as
defined by Cavinato (1982) as “.....the management of all inbound and outbound materials, parts,
supplies, and finished goods” (Cavinato ,1982; Lummus et al.,2001).
According to the Council of Supply Chain Management Professionals (CSCMP), logistics management is
"that part of supply chain management that plans, implements, and controls the efficient, effective

forward and reverse flow and storage of goods, services and related information between the point of
origin and the point of consumption in order to meet customers' requirements" (CSCMP, 2011).
From the above definitions, it can be stated that logistics is a small part within SCM. However, this
argument is not universal and contradicted by many researchers in the literature. The link between SCM
and logistics is discussed briefly in the section below.
2.7.2 Logistics and SCM
The ambiguity in defining the relationship between SCM and logistics has often been a matter of
confusion. In relation to this, Larson & Halldorsson (2004) propose four different perspectives of SCM
relative to logistics - traditionalist, relabeling, unionist, and intersectionist (Figure 2.5), based on the
available literature.
Traditionalist perspective views SCM as a small part of the bigger logistics function. Relabeling
perspective views the relationship as simply a renaming from logistics to SCM. Unionist perspective
reverses the traditionalist’s view and considers logistics as a small part within SCM, with other functions
such as marketing, operations, and purchasing as part of the SCM. The intersectionist perspective views
logistics and SCM as two different entities, with similarities in a few areas (Larson & Halldorsson,2004).
Figure 2.5: Perspectives of Logistics vs. SCM (Larson & Halldorsson, 2004)
The view of unionists is in agreement with the view of the Council of Supply Chain Management
Professionals, which defines logistics as a function that is part of the supply chain (CSCMP, 2011) and
hence for the purpose of this research the unionists view has been adopted.

2.7.3 Purchasing
Arnold (1991) defines purchasing as the process of buying a good or service and whose main task
involves obtaining “the right material, in the right quantities with the right delivery from the right source
and at the right price” (Arnold, 1991). Literature suggests that managing the purchasing and supply
functions in an organization have gained prominence over the past decades due to their relative
importance to organizational performance and hence have attained a strategic role in managerial
decision making (Quayle, 2006). Dobler (1990) describes the key activities specific to purchasing function
as “participation in the development of requirements and their specifications; managing value analysis
activities; conducting supply market research; managing supplier negotiations; conducting traditional
buying activities; administering purchase contracts; managing supplier quality; and buying inbound
transportation”.
Rushton et al. (2000) argue that the purchasing activities can be categorized into four broad categories
based on the level of priority to business and the annual purchase i.e., critical items, strategic items,
routine purchase and commodity purchase (Figure 2.6). While routine purchases have a low annual value
and are less business critical, they can easily be purchased through online catalogues with minimal
transaction costs; commodity purchases, on the other hand, have a high annual purchase value and
hence require formal processes such as tenders to select suppliers. Due to the high level of criticality to
business, critical items can be purchased through approved suppliers and finally the items that are
strategically important to the business and are both business critical and have a high purchase value are
best to source via strategic partnership with the suppliers.
Figure 2.6: Categorization of Purchasing process (Rushton et al., 2000)

2.8 Changing Trends in the Automotive Manufacturing Industry
According to Leeuw et al (2010), the mass production concept introduced by Henry Ford during the early
19th
century with the launch of his model T automobiles, changed the face of manufacturing industry, in
particular the automotive sector. The traditional business concept was more of a push strategy wherein
the manufacturer makes the choice of product and could produce as many products as possible with the
only constraint being that of factory’s capacity. The finished goods are pushed to the wholesaler, retailer
and then finally to the customer and the goods that did not sell are held in warehouses or dealer
showrooms.
However, Over the past few decades, the manufacturing trend has changed and tends to be more
customer-centric, wherein companies manufacture, distribute and retail by customer demand. Malone
(2007) argues that such a pull strategy is associated with factors such as how good, how new and how
quickly the product is available in the market, in contrast to a push strategy, which focusses on how
many products are manufactured. Since the driving force of a pull strategy is customer demand,
organizations that adopt this strategy will have a long-term global business advantage.
One of the examples of a pull strategy is Toyota Production System (TPS), whose fundamental principle
is process stability and is a combination of two powerful manufacturing approaches – JIT and jidoka.
While JIT is associated with supply chain and focuses on moving goods from source to destination “on-
time”, jidoka focuses on maintaining “highest quality” levels in each step of manufacturing and
distribution activity and also on managing the exceptions that arise during the process thereby ensuring
that the system produces not only great products but also satisfied customers (Malone, 2007).
The figure 2.7 below shows migration from traditional manufacturing strategies to that of a mass-
customization strategy. Although most companies today follow a make-to-order concept, and
incorporate customization as per the needs of the customer into their process (Crandall & Crandall,
2008; Malone, 2007), research shows that a majority of companies display poor performance in
responding to customer requirements and hence depend on incentives and discounts to sell their
products (Holweg & Pil, 2004).

Figure 2.7: Evolution of Manufacturing from mass-production to mass-customization (Crandall &
Crandall, 2008)
Holweg & Pil (2004) argue that despite the progress made in improving the operational efficiencies of
manufacturing companies through approaches such as JIT, lean, TQM, and six sigma, the automobile
distribution and sales strategies have not changed significantly in the industry because a majority of
automobiles are still manufactured based on build-to-forecast and make-to-stock rather than build-to-
order. The evidence from the research conducted suggests that although many companies in different
industries have begun adopting approaches such as JIT and lean since the early 1990’s, there has been
no drop in the overall finished goods inventory levels. Chen et al. (2005) argue that a majority of
industries, including automotive, have infact witnessed an increase in the overall finished goods
inventory levels (Leeuw et al, 2010). Consequently, the finished goods are sold from the inventory
stockpile of the dealers.
In relation to this, manufacturing firms holding high inventory levels face the risk of obsolescence due to
which they eventually have to sell the goods at highly discounted prices (Leeuw et al, 2010), thereby
decreasing the overall profitability. However, on the positive side, such a make-to-stock strategy helps in
maintaining the capacity utilization high and stable at the assembly plant of the manufacturer, thus
reducing the manufacturer’s vulnerability to market demand volatility (Malone, 2007).

2.9 Summary
This chapter began by defining supply chain management from various perspectives and then describing
the evolution of supply chain as a management field. Subsequently, after describing the structure and
activities involved in a supply chain, a comparison of supply chain is made with Porter’s value chain.
Then, the trend towards globalization and outsourcing has been discussed with a special emphasis on
the outsourcing phenomenon, which has been explained using Williamson’s transaction cost economics
framework. Following a comparison of SCM with logistics and purchasing functions, which are closely
interrelated, the chapter ends by giving a brief overview of automotive manufacturing industry and the
changing trends in manufacturing strategies over the past few decades.

Chapter 3 - Literature Review: Supply Chain Risk Management
3.0 Introduction
This chapter provides a comprehensive overview of supply chain risk management using specific
examples. The various supply risk sources are categorized and the disruption risk management process
explained. The comprehensive set of risk mitigation strategies and models are critically analyzed and an
overview of supply chain resilience and business continuity management is provided.
3.1 Supply Chain Risk Management (SCRM)
While Christopher et al (2002) define supply chain risk management in general as “the identification and
management of risks within the supply chain and risks external to it through a coordinated approach
amongst supply chain members to reduce supply chain vulnerability as a whole”; Zsidisin (2003) defines
supply risk in particular as “the potential occurrence of an incident associated with inbound supply from
individual supplier failures or the supply market, in which its outcomes result in the inability of the
purchasing firm to meet customer demand or cause threats to customer life and safety”.
Due to increasing level of globalization and outsourcing, many manufacturing firms are shifting their
practices from that of vertical integration to focusing on core competencies (Hamel and Prahlad, 1990;
Quinn and Hilmer, 1994). While outsourcing has given a competitive advantage to organizations, it has
also increased the supply chain complexity making it vulnerable to even minor supply disruptions. Since
outsourced organizations may not be able to exercise a total control over its suppliers, they may not be
able to manage the supply-side risks, and hence the failure of a supplier to provide materials can result
in shut-down of the entire production plant due to material non-availability. Subsequently, this may
result in loss of business, brand reputation and also customer goodwill (Zsidisin et al, 2000).
For example, the fire incident that occurred in one of Ericsson’s supplier’s factory in 2000, resulted in
the company incurring a major loss of about $2.34 billion that nearly jeopardized the business continuity
and as a result lost a significant market share to its competitor (Sheffi, 2005). In relation to this,
Hendricks and Singhal (2005) argue that supplier network disruptions can prove to be very expensive
and hypothesize from the research they conducted that such disruptions not only cause short-term
losses, but also long-term underperformance of the firm from a stock market perspective.

3.1.1 Supply Disruption Risk Management Process
In general, Supply disruption risk management process comprises of risk identification, risk assessment,
risk implementation and risk monitoring (Figure 3.1).
Figure 3.1: Disruption risk management (Feng et al, 2010)
Disruption Risks Identification
Literature suggests risk identification as the fundamental step in risk management process (Hallikas et
aI., 2004; Norrman & Lindroth, 2004; Waters, 2007).The main aim of risk identification is to recognize
the potential risks facing the organization. One of the most important tools for risk identification is “risk
mapping”, which uses a structured approach to map various risk sources and thereby understand the
consequences of each risk type. Recognizing such risk types helps the organization to proactively
manage future risks (Feng et al, 2010).
Literature suggests that many scholars have conducted research in identifying and classifying supply
chain risks based on their source. For instance, Waters (2007) classifies supply chain disruption risks
broadly into two categories - internal risks i.e., risks that exist within the firm and between other firms in
the supply network and external risks i.e., risks that come from outside the supply chain and exist
between the supply chain and its external environment. In accordance to this, Chapman et al. (2002),
Christopher & Peck (2004), Juttner et al. (2003), Veenstra et al. (2006), and Kiser & Cantrell (2006)
suggest a similar way to classify supply chain risks based on their source i.e., whether the risks are within

the organization or between supply chain members (internal risks) or outside the organization (external
risks).
Internal risks such as forecast errors, transportation delays, components shortage, excess stock, human
error, IT system issues, etc, are present in day-to-day operations and are generally less dramatic, and are
controllable by the operations managers using the traditional methods. In contrast, external risks such
as economic disturbances, industrial accidents, fires or explosions, tsunamis, earthquakes, hurricanes,
wars, terrorist attacks, outbreaks of disease, etc, are unpredictable and hence outside managers’ ability
to control. For example, there is a continuing risk of hurricanes striking the south-west coast of the USA.
Although managers cannot mitigate this risk, they can however design operations to reduce its effects,
perhaps by having secure buildings, closing plant during the hurricane season or simply moving to
another location (Waters, 2007).
Due to the complexity of globally outsourced supply chains, identifying all possible risks is not practically
feasible; however, through this process a list of most probable risks to the supply chain can be
identified.
Disruption Risks Assessment
Having identified the risk types, it is important to assess their impact, which mainly depends on two
factors – the probability of occurrence of a risky event and the severity of consequences when they do
occur. Literature suggests techniques such as Simulation (Levy, 2005; Wilson, 2007) and Optimization
(Goh et al, 2007) to estimate the impact of disruptions. Subsequently, managers can prioritize the risk
types and make decisions on where to concentrate the resources based on the risk priority level and
also devise plans to reduce the impact of such risk events. However, one essential limitation of listing
the risks and assessing their impact is that it does not capture the dependency relationship between the
different disruptive events, both at the frequency and impact levels (Basu et al., 2007).
Examples of a few disruptive events, their probability of occurrence and potential impact are show in
the figure 3.2 below

Figure 3.2: Likelihood and impact of supply chain disruptive events (Basu et al., 2007)
The output of this process is a prioritized list of risk types and their potential outcomes. Since all risk
factors cannot be predicted with certainty, their outcomes may not be predicted accurately, however,
this process does provide managers with significant information regarding risk avoidance, mitigation,
and acceptance in the supply chain (Feng et al, 2010).
Disruption Risks Implementation
This stage involves developing risk mitigation strategies such as transferring risks (e.g. insurance, vendor
managed inventory, etc), accepting risks (e.g. natural disasters, terrorist activities), eliminating or
reducing risks (e.g. avoiding risky suppliers, supplier location risks, etc). Subsequently, managers can
evaluate and decide on implementing the most appropriate solution for each risk type. Waters (2007)

suggests that although there are many ways of responding to risks, the three most common amongst
them are – prevention (to reduce the likelihood of occurrence of the disruptive event), mitigation (to
reduce the impact due to the event) and response (to decide on the appropriate response after the
occurrence of the disruptive event). This process results in a planned response to each risk type (Feng et
al, 2010).
Disruption Risks Monitoring
Once the risk types have been identified, & prioritized, they have to be monitored on a regular basis in
order to minimize risk exposure to the supply chain. The main aim of this process is efficient utilization
of the company’s and suppliers’ resources in order to manage the risk events. Blackhurst et al (2008)
argue that the key to risk monitoring is that once a supplier assessment process has been designed and
implemented, managers must be able to measure, track and analyze supplier and part specific risk
indices in order to effectively manage and monitor risks and develop strategies to mitigate them (Feng
et al, 2010). Handfield & McCormack (2008) argue that global event monitoring is crucial since most
disasters are only reported locally and when a tier-2 or tier-3 supplier is affected by a disruptive event
such as weather or political turmoil, it disrupts the entire supply chain.
3.2 Supply Chain Risk Mitigation Strategies
Literature suggests abundance of techniques and strategies pertaining to mitigating risks in global
supply chains. While Zsidisin et al (2004) focus on supply risks arising from factors external to the
purchasing organization, and suggest a four stage risk mitigation approach that includes creating
awareness, preventing risks, remediation and knowledge management; Finch (2004) focuses on risks
arising from inter-organizational networks and suggests using business continuity planning as the
approach to mitigate internal and external risks in the supply chain.

3.2.1 Supply Chain Visibility
Christopher and Lee (2004) suggest improving the end-to-end visibility throughout the supply chain as a
means of reducing risk while improving supply chain confidence. Moreover, visibility in the supply
network enables quicker discovery and mitigation of disruptions when they do occur. Part of supply
visibility involves having real-time information of location and the state of inventories such as in-stock,
on-transit, quarantined, etc within the supply network. By having such real time information of
inventory, capacity and demand levels across key nodes such as ports and shipping locations, of the
supply chain, the firm can perform real-time contingency planning enabling risk mitigation. In addition,
having supply chain visibility can increase competitive advantage of firms since it enables better
management of disruptive events (Penfield, 2008).
By using technologies such as RFID to track the containers in shipment, system-wide visibility can be
established and hence in the event of a disruption, the firm will be able to respond more effectively by
redeploying its resources and adjusting the capacities, thereby increasing the supply chain flexibility. As
an example, Airbus, due to the fact that it outsources most of its manufacturing processes realized the
need to have real-time visibility and speed in dealing with supply chain disruptions and demand
fluctuations. As a result, the company has introduced the RFID-technology through its “Value Chain
Visibility” program, to increase visibility across all entities of its supply chain (Airbus, 2011).
3.2.2 Proactive Risk Mitigation Strategies
According to Tang (2006), although there are significant costs involved in implementing risk mitigation
strategies, they serve as additional unique selling points (USP) for firms to acquire new clients while
retaining existing ones before and after a major disruption. Based on the research conducted on SCRM,
he proposes a list of nine “robust strategies” (Tang, 2006), which under stable conditions, enable firms
to reduce costs (i.e., supply management) and enhance customer satisfaction (i.e., demand
management) and in the event of disruptions, enable firms to continue operations during and after the
disruption.
The table below summarizes the main features of proactive and robust supply chain risk mitigation
strategies.

Robust Supply Chain Strategy Key Objective
Benefits(s) under
stable conditions
Benefits(s) under
disruption conditions
Postponement
To increase product flexibility Improves capability
to manage supplies
Enables quick changes to
configuration of products
Holding Strategic Stock
To increase product
availability
Improves capability
to manage supply
Enables quicker response
to supply disruptions and
demand variations
Flexible Supply Base
To increase flexibility in
supply
Improves capability
to manage supply
Enables firms to quickly
shift production among
supplies
Make-and-Buy
supply
Improves capability
to manage supply
shift production between
in-house facilities and
suppliers facilities
Economic Supply incentives
To increase product
availability
Improves capability
to manage supply
adjust order quantities
Flexible Transportation
transportation
Improves capability
to manage supply
change transportation
mode during disruption
Revenue Management
To increase control of
product demand
Improves capability
to manage demand
Enables firms to
dynamically influence
customer preference for
products
Dynamic Assortment Planning
product demand
Improves capability
to manage demand
Enables firms to
dynamically influence
demand for different
products
Silent Product Rollover
product exposure to
customers
Improves capability
to manage supply
and demand
Enables firms to manage
demands for different
products quickly
Figure 3.3: Supply Chain Risk Mitigation Strategies (Tang, 2006)
Conversely, Tang (2006) suggests that while adopting such robust strategies enables firms to respond
more effectively when a disruption occurs, alternatively, when firms reduce their exposure to risks, they
will apparently reduce their vulnerability to risks thereby improving resilience. He argues that while

most disruptive events are unpredictable and cannot be eliminated, nevertheless, the severity of impact
on supply chain operations can be reduced by adopting strategies such as building “supply alliance
network” (Tang, 2006) that serves as a safety-net in the event of disruption, “reducing lead time” (Tang,
2006) by redesigning the supply network and by establishing “recovery planning systems” (Tang, 2006)
to enable quick recovery of supply chains from disruptions. In addition, he argues that all the robust
strategies mentioned in Table 3.1 would be ineffective unless they are implemented in a “proactive”
(Tang, 2006) manner by the firm.
3.2.3 Partnership Sourcing
In relation to the assertion made above by Tang (2006) that forming “supply alliance network” reduces
the severity of impact in the event of a disruption, partnership sourcing can be used as an effective
strategy to reduce costs while also mitigate supply chain risks. However, since maintaining a strong
supplier relationship is the key to attain benefits of a partnership, Macbeth and Ferguson (1994)
propose a five-stage supplier-customer relationship model to improve effectiveness in relationship and
also a Relationship Positioning Pool (RPT) to monitor the strength of relationship.
The tool captures the most important factors that determine success of a relationship. The strength of
existing supplier relationship depends on the performance metrics of “Quality, Delivery, Cost and
Innovation” and any discrepancies in the Quality, Delivery and Cost metrics with regard to the supplied
materials indicates “weakness” in relationship and in order for continuous improvements in innovation
in terms of supplied materials, it is important for the relationship to be effective both in the present and
in the future (Macbeth & Ferguson, 1994).
However, one of the main drawbacks of partnership sourcing is the potential lack of trust between the
supplier and customer, which acts as a barrier for the relationship to be effective (Macbeth & Ferguson,
1994). However, there are several instances within the automobile manufacturing industry, wherein the
firms have rescued their supplier partners since this is a low-cost option when compared to the risk of
losing the supplier.

3.2.4 Scenario Planning
According to Ringland & Schwartz (2006) scenario planning “builds plausible views of different possible
futures for an organization based on groups of key environmental influences and drivers of change
about which there is a high level of uncertainty”. Deep and Dani (2010) propose a risk mitigation model
using scenario planning at the operational level (Figure 3.4). They suggest that scenario generation
should be done at three levels – strategic, tactical and operational with the output of each level feeding
into the other.
Figure 3.4: Scenario Planning and Risk Mitigation (Deep & Dani, 2010)
While scenario planning can be used as an early warning tool to predict the most plausible future
scenarios pertaining to supply disruptions and devise plans to mitigate risks, none of the scenarios may

actually materialize. However, it is argued that using scenarios would enable managers to proactively
manage future risks and take effective decisions in the event of disruption. Literature suggests that
although many organization use scenario planning, there exists an ambiguity relating to issues such as
the exact method to be followed, the number of scenarios to be generated, etc since there are no
standard protocols to implementing it (Deep & Dani, 2010).
3.2.5 Early Supplier Involvement (ESI)
Zsidisin and Smith (2005) suggest early supplier involvement as a technique to reduce supply disruption
risks, especially in new product development. According to Leenders et al (2002) purchasing firms use
ESI to collaborate and involve their suppliers at an early stage, perhaps in the need recognition and
conceptualization stages of the product development cycle. While on one hand, ESI provides numerous
benefits such as greater efficiency and effectiveness due to enhanced level of trust between the firm and
its suppliers, on the other hand, evidence from research suggests that ESI does not always result in
positive results due to factors such as lack of mutual trust, collaborating with wrong partners, etc
leading to increased product and development costs.
For example, Boeing’s 787 dreamliner project pioneered the concept of ESI in the aviation industry and
involved its key suppliers’ right from the design stage to production stage in order to gain advantage of
the suppliers’ ingenuity while reducing costs. However, since the suppliers could not meet the delivery
requirements of Boeing, the launch of the airplane was delayed by nearly two years (Crandall &
Crandall, 2008), casting a doubt on the credibility of ESI as a means to reduce supply risks.
3.2.6 Disruption Discovery, Disruption Recovery and Supply Chain Re-design
Blackhurst et al (2008), based on the research conducted on automotive manufacturers, suggest the use
of a supplier risk assessment methodology that enables firms to measure, track and analyze supplier and
part specific risks. They suggest a three stage approach to risk mitigation – “disruption discovery,
disruption recovery and supply chain redesign” (Blackhurst et al, 2008; 2005).
Handfield and McCormack (2008) argue that most organizations fail to discover the occurrence of an
event in the supply chain and as a result the recovery process is hindered. From the figure 3.5 below, it

is evident that, in the event of a supply disruption, early discovery of the event (A) leads to early
deployment of risk mitigation strategies leading to quicker recovery and vice-versa. In order to eliminate
or mitigate the impact of disruption risks, they propose a four step strategy – deploying excess resources
(to enable quicker response to disruptions), supply chain planning and collaboration, enhancing
information visibility throughout the supply chain and supply chain redesign (product and process
redesign to mitigate risk exposure).
Figure 3.5: Supply Chain Disruption Discovery and Recovery (Handfield & McCormack, 2008)
Kleindorfer and Saad (2005) propose two key aspects in managing supply disruption risks. While the first
aspect involves using strategies and approaches that decrease the frequency and severity of occurrence
of disruptive events at both the firm level and supply chain level, the second aspect involves increasing
the capacity of suppliers to sustain or absorb risks in the supply chain without any major disruption to
operations. In order to mitigate the effects of disruptive events, they suggest a ten principle
methodology that includes: integrating and optimizing the firm’s internal supply chain, diversification of
supply chain activities, identifying vulnerabilities in the supply network through early warning systems,
risk assessment and contingency planning, optimally balancing the tradeoff between supply chain

robustness and operational efficiency, redundancy and safety stock, cooperation and collaboration
within the firm and amongst its supply chain partners, linking quantifiable supply risks with appropriate
mitigation strategies, modularity of process and product designs, and applying total quality
management (TQM) principles such as six-sigma methodology to reduce disruption risks.
3.3 Cost Benefit Analysis
Kleindorfer and Saad (2005) suggest a model (figure 3.6) based on the work of Shavell (1984) to reduce
the total cost of investing in risk mitigation by balancing the tradeoff between investing in mitigation (y)
and the potential loss due to disruption (L(y)), weighted by the probability of a disruption. According to
them, the total cost of investment and disruption loss can be represented as:
Where,
y is the investment to mitigate disruption loss
P(y) is the probability of occurrence of a disruption and
L(y) is the amount of loss
At the optimum level, i.e., y*, the total investment costs on risk mitigation are minimal.
Figure 3.6: Framework for Risk Mitigation (Shavell, 1984; Kleindorfer and Saad, 2005)
Total Cost = y + P(y) L(y)

However, Rice and Caniato (2003) and Zsidisin et al (2000) argue that due to the unpredictability of
occurrence of major disruptive events, it is difficult to perform a cost benefit analysis to justify the
implementation of risk mitigation plans and as a result many firms underestimate and hence are
unfamiliar with managing supply chain risks (Tang, 2006).
3.4 Resilience and Business Continuity Management
3.4.1 Resilience from an Organizational Perspective
From an organizational perspective, resilience refers to - (a) the ability of an organization to bounce back
from an unforeseen disruptive event (Sutcliffe & Vogus, 2003) (b) the ability of the organization to
positively adjust while maintaining the continuity of essential functions under stressful conditions
(Worline et al, 2004). Resilient organizations not only plan for recovering in the event of disruptions, but
also proactively build flexibility to adapt to both positive and negative environmental influences.
Alternatively, Hamel & Valikangas (2003) argue that organizational resilience is a dynamic capability that
builds over time and is a distinct source of competitive advantage.
3.4.2 Resilience from a Supply Chain Perspective
From a supply chain perspective, resilience is the ability to react to unanticipated disruptive events such
as natural disasters, terrorist attacks, etc while restoring the supply network operations back to its
normal level (Rice & Caniato, 2003). According to Christopher & Peck (2004) resilience is “the ability of a
system to return to its original state or move to a new, more desirable state after being disturbed”. Lee
(2004) defines the characteristics of a resilient supply chain through his Triple – A supply chain concept
as one that is ‘Agile’ (in order to react quickly to sudden changes in demand or supply), ‘Adaptable’ ( to
changes in environment and market structures) and whose interests are ‘Aligned’ with the interests of
all other firms in the supply network.
The complexity of supply networks is increasing as a result of global sourcing and adoption of techniques
such as lean, TQM and JIT in the operations in order to improve efficiency (Martin, 2005). Smith (2005)
argues that while adopting such processes inevitably improves operational efficiency and overall
organizational performance, under the assumption that the environment is stable. However, in practice,

due to the inherent uncertainty of occurrence of disruptive events, the supply chains become highly
vulnerable when subject to such events due to the lack of flexibility.
Sheffi and Rice (2005) argue that an organization’s resilience to disruptive events can be significantly
improved by introducing redundancy and flexibility in its supply chain. While the standard practice of
having redundancy in inventory includes maintaining either an underutilized capacity or the use of
safety-stock, such a strategy only results in an increased cost overhead. However, by building flexibility
that involves using strategies such as designing products for maximum postponement, the ability to
quickly move production to other plants and maintaining good supplier relationships, etc can increase
efficiency of day-to-day operations and also create a long-term sustainable competitive advantage to
the firm. As an example, by using postponement and build-to-order principles in its operations, Dell was
able to recover much quicker than Apple Inc during the 1999 Taiwan earthquake disaster that disrupted
the worldwide supply of memory and graphics chips (Sheffi & Rice, 2005; Sheffi et al, 2006).
In contrast, literature suggests that although building resilience in supply chains has many benefits, they
are subject to many trade-offs. For instance, increasing the redundancy and flexibility increases the
supply chain complexity. As a result of this, the supply chain vulnerability increases and this decreases
the resilience. Hence, in order to improve supply chain resilience, it is essential that organizations
optimally balance the trade-off between resilience and complexity.
According to Christopher (2005) resilient supply chains can be built by incorporating five broad elements
– supply chain re-engineering (understanding the supply chain structure and designing optimal
processes), supply base strategy (deciding on the number of suppliers to source from), supply chain
collaboration (collaborate with all firms in the supply chain), agility (to improve visibility and flexibility of
supply chain) and by creating a supply chain risk management culture (figure 3.7) within organizations.

Figure 3.7: Creating Resilient Supply Chains (Christopher, 2005)
3.4.3 Business Continuity Management (BCM)
According to the Business Continuity Institute BCM involves “anticipating incidents which will affect
mission critical functions and processes for the organization and ensuring that it responds to any incident
in a planned and rehearsed manner whilst the business recovers” (Waters, 2007). The primary goal of
BCM is to enable organizations survive and recover from catastrophic disruptions to supply regardless of
the cause of disruption. BCM involves using preplanned methods that ensure that the essential business
activities continue to function, and in relation to a supply chain, to ensure that the material flow is
uninterrupted in the event of a disaster hitting the supply chain and bringing the operations back to
normal as quickly as possible (Waters, 2007).
According to Waters (2007), while traditional risk management approaches deal with identifying risks,
assessing the vulnerability to the supply chain and defining responses to known risky events, BCM
provides additional support to traditional risk management practices by defining responses to unknown

and unanticipated events. For instance, if a supplier going bankrupt is a probable risk identified by
traditional risk management processes, BCM involves preparing alternative plans if supplies are stopped
abruptly due to a disruptive event. The process of BCM is in many ways similar to that of traditional risk
management, with the exception that in BCM, the key is to identify the critical elements of a supply
chain and plan for ways to reduce risk whereas traditional risk management identifies the most
probable anticipated risks to the supply chain and takes measures to mitigate their impact when they
occur (Waters, 2007).
Research suggests that although supply disruptions pose a major threat to business continuity,
particularly for those organizations that have implemented JIT in their operations, only a small
proportion of them consider logistics and purchasing functions into their BCM plans. This may be due to
the fact that the occurrence of catastrophic disasters is so rare that managers tend to ignore them as
anticipated risks to the supply chain. Waters (2007) argues based on the research findings that a
majority of managers consider loss of IT systems and loss of telecommunication systems to be the most
critical disruptions to business continuity. In relation to this, Juttner (2005) argues that most system
failures are not caused by catastrophic events but due to factors such as poorly managed system
upgrades, loss of key personnel, etc and introduction of new methodologies such as lean and JIT in the
operations that exacerbates vulnerability of business continuity (Waters, 2007; Juttner, 2005).
3.5 Summary
This chapter initially defines supply chain risk management (SCRM) and in particular supply disruption
risk management. After discussing the various stages of the supply disruption process that include risk
identification, assessment, implementation and monitoring, and categorizing the risk types, the key risk
mitigation strategies are critically analyzed and discussed. Subsequently, a model for calculating the cost
benefit analysis for implementing risk mitigation methods is presented. Finally, this chapter ends with a
critically analysis of resilience from both organizational and supply chain perspectives and by providing a
brief insight on business continuity management relative to traditional risk management practices.

Chapter 4 - Research Design and Methodology
4.0 Introduction
This chapter discusses the research methodology employed along with the rationale for choosing the
particular approach. The hypotheses developed from the literature are listed and the various data
collection methods employed in the research and the data analysis methodologies used are discussed.
4.1 Research Objectives
The main objectives of this research as defined by the research questions (in section 1.5) is to explore
 How global complex supply chains in the automotive manufacturing industry manage the risk of
unplanned supply disruptions?
 How the structural characteristics and risk mitigation capabilities of such supply chains relate to
the severity of impact due to supply disruptions? and
 Do automotive manufacturing companies consider ‘logistics and supply chain risks’ in their
business continuity planning? If not, why?
4.2 Hypotheses
The factors reviewed in literature in chapters 2 and 3 have led to the development of three hypotheses
as below,
Hypothesis 1: A supply disruption in a ‘complex and global’ supply chain would likely be more
severe than a disruption that occurs in a relatively less complex and more localized supply chain.
Hypothesis 2: A global supply chain that has capability to quickly detect disruptions using early
warning systems (EWS) and proactively respond to the situation would incur less severe impact
than a supply chain that has no such capability at all (derived from (3.2.5))
From Hypotheses 1, and 2 hypotheses 3 can be inferred as

Hypothesis 3: An unplanned supply disruption in a global, complex supply chain is less likely to
be severe if the supply chain has the capability to quickly detect and proactively respond to the
disruptive event.
4.3 Rationale for chosen Research Strategy
To achieve the aim and objectives of the research and validate the hypotheses, this research uses a
qualitative approach since qualitative research is subjective in nature and emphasizes on describing,
understanding and explaining the relationships and patterns of various “social and human activities”
(Collis & Hussey, 2003, Saunders et al., 2009) and the context in which such activities occur, which would
enable to explore and get an in-depth overview of supply chain risk management practices in global
supply chains. Also, this method can be classified as inductive rather than deductive, since inductive
approach is more suitable “for relatively new subjects or research areas where definitions are still
unclear and is more appropriate for questions like what and why”(Yin 1994, Saunders et al., 2009)
Due to the exploratory nature of the topic, a case study approach has been chosen over strategies such
as survey, action research, experiment, grounded theory, ethnography and archival research. Case study
approach is most appropriate when the research involves “an empirical investigation of a particular
contemporary phenomenon within its real life context using multiple sources of evidence” (Robson,
2002; Saunders et al., 2009). When undertaking an explorative study using case studies, the use of
unstructured or semi-structured interviews in research (Cooper & Schindler, 2008) encourages
interviewees to describe and explain various aspects of the phenomena providing an opportunity to
explore the emerging concepts and gain an in-depth understanding of the context of research (Saunders
et al., 2009).
This study involves use of multiple cases and multiple data collection methods. By using multiple cases
and multiple methods, the bias from a single case or from a mono-method can be reduced (Doty &
Glick, 1998), which would result in enhanced data quality and reliability thus providing a multi-
dimensional and dynamic picture of supply chain risk management. The cases are evaluated and
selected based on the adequacy of theoretical inferences that can be generated with the aim to
generate patterns and linkages to theory (Bryman, 1989). Subsequently, the multiple sources of data
(case studies) are triangulated in order to ensure the validity of the data (Saunders et al., 2009).

4.4 Data Collection Methods
Based on the previously conducted research and conceptual discussions on SCRM in the reviewed
literature, a case study research protocol (Appendix A) is developed prior to commencement of data
collection. During the execution of case studies, information is gathered through a combination of
primary and secondary data collection methods. The primary method comprises of conducting semi-
structured interviews using predominantly open-ended questions with top-level supply chain executives
and the secondary method comprises of historical data and written documents such as journals,
newspaper articles and books, which facilitate in triangulation.
The data is collected in three phases (Figure 4.1) involving different sources and collection methods with
the goal being to identify the supply disruption risk management practices employed by globally
outsourced manufacturing organizations.
The phase-one focuses on exploring the existing literature on supply chain risk management practices
and also on analyzing two case studies – Nissan and Toyota that have encountered supply disruptions in
the past and have implemented risk mitigation practices using the secondary data sources.
The phase-two focuses on a large Indian-based automobile original equipment manufacturer (OEM)
“Auto-OEM1”. In executing this typical case study as per the guidelines of Yin (1994) and Eisenhardt
(1989), a series of four individual semi-structured interviews via e-mail were conducted with
professionals holding managerial positions in the supply chain department of the company according to
the questions listed in Appendix A. By focusing on a single firm, a depth of information related to its
global supply chain and the risk management practices can be better understood.
Finally, phase-three of the research focuses on conducting individual semi-structured interviews with
seven top-level executives from different firms in various sectors having diverse supply chain structures
and complexity levels to substantiate SCRM theory with practical research findings and also to
strengthen the validity of the hypotheses. These executives were chosen due to the depth of knowledge
they possess from managing the supply chains for a significant period.
For the purpose of triangulation, the same questions have been asked to all interviewees who
participated in the research. The questions are semi-structured and a majority of them are open-ended
so that new issues related to supply chain risk management would emerge. The use of e-mail as the
medium to conduct the interview provided the flexibility to the interviewees to think and respond at

anytime of their convenience since most of them are from the senior managerial level to executive level
and owing to their busy work schedules, may not be able to complete the interview in a single session.
Before interviewing, the participants were provided the plain language statement in order to give a brief
introduction about the research being conducted and also to explain the confidentiality and anonymity
of the participants, and their firms. After the interview questionnaire was e-mailed to the participants,
the responses received were considered as the required consent to proceed with interviewing the
participants via e-mail. During the course of the interview, the participants were asked to give their
views to a combination of general questions related to supply chain risks and a few specific questions
related to how they handled disruptive incidents, if any, based on their work experience. (Appendix B -
E).
Figure 4.1: Research Design Structure
4.5 Data Analysis
4.5.1 Sampling
The interviewees are selected based on a “purposive sampling” (Saunders et al., 2009) technique in
order to ensure that the participants are most likely to answer the questions related to the
phenomenon of SCRM thereby fulfilling the aim and objectives of the research. Within this technique, a

heterogeneous strategy of selecting samples is used so that the data collected describes and explains
the key emergent themes related to the research topic. In order to explore the diverse characteristics
and key themes of the research, a small sample comprising of different cases has been used (Saunders
et al., 2009). In relation to this, this research uses a sample of supply chain professionals, who have at
least five years of experience in managing supply chains and possess substantial knowledge on risks
related to supply chain.
4.5.2 Hypotheses Testing: The Critical Incident Technique
The section C of the interview questionnaire uses the critical incident technique, which “offers an
opportunity to go straight to the heart of an issue and collect information about what is really being
sought” (Flanagan, 1954, Easterby-Smith et al., 2008). By employing this technique, the interviewees are
asked to describe a critical supplier disruptive incident that they faced recently and how they handled it.
The findings provide precise information to establish a cause-effect relationship of severity of incidents,
which helps to test the validity of the hypotheses.
The hypotheses are tested based on the findings from interviewees of Auto-OEM1 and also from the
findings of secondary cases of Nissan and Toyota. Due to the explorative nature of the research, the
findings from the interviewees, several of which are unique, are grouped into different themes and
these themes are further grouped into categories for the purpose of data reduction. Finally, the
different themes are systematically developed into tables highlighting the quotations from interviewees
and then analyzed relative to findings from literature.
4.5.3 Reliability and Validity
Reliability
According to Easterby-Smith et al. (2008) “reliability refers to the extent to which your data collection
techniques or analysis procedures will yield consistent findings”. Robson (2002) argues that there may
be four different threats to reliability - participant error, participant bias, observer error and observer
bias. By using email as the medium for conducting interviews in this research, participant error and bias
is reduced since the participants were given the opportunity to choose the time of their convenience to

participate in the interview. Since only one researcher conducted all the interviews and also interpreted
the result findings, the chances for observer error and bias are also reduced.
Validity
Data validity, according to Saunders et al. (2009), is related to factors such as “whether the findings are
really about what they appear to be about? Is the relationship between two variables a causal
relationship?” In order to reduce the threats to validity of research findings, a multiple case study
approach using multiple data collection methods has been adopted and also the findings are
triangulated to strengthen the validity.
4.6 Summary
This chapter initially discusses the research objectives as stated earlier in chapter 1. Then the
hypotheses followed by the research methodology employed are discussed. Subsequently, the data
collection methodology and the data analysis techniques used in the research are explained with
emphasis on ensuring reliability and validity of data.

Chapter 5- Case Studies
5.0 Introduction
This chapter discusses case studies of three typical automotive original equipment manufacturers
(OEM’s). Each case study focuses on describing the structure of its supply chain, sourcing strategies used
and also the risk mitigation capabilities embedded in its supply chain. The findings of these case studies
along with the empirical findings aid in validating hypotheses and in triangulation of data in the
following chapter.
5.1 Case Study 1: A major Indian Automotive OEM
Company Profile
Auto-OEM1 is a major Indian automotive company that has diversified its business into several
segments that include aircraft design and manufacturing, farm equipment manufacturing, trade and
logistics services, IT services, infrastructure development and others. The company employs around
14000 people and is headquartered in India.
The company’s automotive segment manufactures and sells automobiles, spare parts and related
services. The company is one of top producers of utility vehicles and light commercial vehicles to the
Indian market and also has overseas operations that include Americas, Europe, Middle East, Asia and
Africa. Due to client confidentially the company has been referred to as Auto-OEM1.
Automotive Industry trends
Indian Automobile Market
Automakers in the Indian automobile manufacturing sector face intense competition because of the
liberal policies of the government. Consequently, most foreign automakers have local production
facilities and operations in the country thereby increasing the pressure on domestic automakers. Most
automotive OEMs in India source locally and from low-cost countries such as China, Philippines, Taiwan,
etc since their main focus is on reducing production costs to provide attractive prices on automobiles for
the Indian market.

Since a majority of population belongs to the middle-class category, the general preference for
automobiles is that of low-cost with fuel efficiency. The high oil prices in India act as a barrier for people
to purchase cars that are not fuel-efficient. Besides the import duties for parts imported from other
countries are high. High investment on R&D is required to develop low-cost and fuel efficient cars, which
acts as a barrier for most automakers to operate successfully in the Indian market. The Tata Nano,
which costs approximately $2500 released recently by Tata Motors (Fogarty, 2009), is an example of the
kind of preference of the masses – low cost yet fuel efficient. There is also increasing pressure on
automakers to conform to environmental standards as per the regulations of the Government of India.
Characteristics of the supply chain
Auto-OEM1 sources parts and components from a multi – tiered network of local and global suppliers
based in different locations. However, India being a low cost country, a majority of parts is sourced
locally through its supply base of more than 500 vendors. The company maintains and depends on a
pool of Tier-1 suppliers such as Bosch for electronic combustion units (ECU’s), Exide and Amaron for
batteries, etc based on factors such as vendor capacity, lead-time, financial health, global tech-support,
location and amount of investment involved.
The company monitors its Tier 1 suppliers, who are responsible for monitoring and procuring parts from
tier-n suppliers and all procurement activities are handled by the company’s inbound logistics
department (Figure 5.1). The company maintains clusters of suppliers with each cluster having a hub.
This enables the 3PL providers (i.e., outbound logistics function) to build optimal routes to collect
materials from several hubs to the assembly plant, thereby increasing efficiency in transport.
Figure 5.1: Illustration of Supply Chain of Auto-OEM

The firm manages its supply chain through its supply chain planning and control department. Within this
department the procurement function has two units – Strategic Sourcing Business Unit (SSBU) and
Materials Management Business Unit (MMBU). While the SSBU mainly comprises of top-level
executives, who are responsible for key decisions such as vendor selection, sourcing strategies, etc, the
MMBU comprises of buyers, who provide technical specifications to the suppliers and supply quality
analysts, who periodically review quality processes and also perform quality audits for the procured
materials.
Supplier Kanban system
In order to ensure material availability relative to changing material requirements, the company follows
a supplier kanban system. Using various scientific methods kanban sizes and number of kanbans are
decided and kanban triggers are sent to suppliers electronically. Once the triggers are received, the
suppliers acknowledge receipt of trigger and dispatch the material within the lead-time specified in the
service level agreement.
The firm sources nearly 80% of parts from local approved suppliers and the rest from overseas suppliers.
A majority of overseas suppliers are from low-cost economies such as Taiwan, Singapore, Philippines
and China due to the cost benefit they provide. The company also depends to a small extent on Japan
for its electronic component supplies.
Risk Mitigation Capabilities
Some of the strategies that Auto-OEM1 has implemented in order to reduce its susceptibility to supply
disruptions are as below,
The company has taken several initiatives in order to reduce its susceptibility to supply disruptions.
Recently, in the process of moving to a pull based sales strategy from that of a push based strategy the
company has taken measures such as - implementing an IT based system to enable near real-time
visibility of stocks so that they are replenished at the stockyard, frequent deliveries of parts to reduce
overall inventory levels and also as a means to monitor supplier performance through key performance
indicator (KPI) metrics. The move to a pull based system, wherein parts and components are ordered
based on actual demand by using robust inventory planning tools assists in adjusting to variations in
supply and demand, thereby reducing supply chain risks.

MBA Dissertation Thesis

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (11)

Similar to MBA Dissertation Thesis

Similar to MBA Dissertation Thesis (20)

MBA Dissertation Thesis