Presented at MDP on 'Demystifying Supply Chain' organised by Management Development Center at Energy Acres, UPES Dehradun

1. Consequences of Supply Chain
Disruptions
Dr. Etinder Pal Singh
Feb 24, 2012
Presented at MDP organized by Center for Management Development & UPES Dehradun

2. • Impact of disruptions on supply chain performance:
– Disruptions in the supply chain  supply chain performance
decreases
– Higher costs, lower delivery dependability, lower service level
etc.
• Impact of disruptions on stock-related metrics and
financial-statement metrics:
– 10% decrease in shareholder wealth
– 40% decrease in stock returns
– 107% drop in operation income
– 114% decrease in return on sales
– 93% drop in return on assets
The consequences of disruptions are severe but are they the same for all firms?
Source: Hendricks and Singhal (2003, 2005a, 2005b) , Wagner and Bode (2008)

3. Step 1+2: Risk identification and assessment
• Focus and create awareness
• Create a cross-functional risk
team
• Determine potential risks (also
unobservable risks)
• Assess (quantify) risks and rank
• Methods
– Brainstorming, elevator pitches
– Risk-matrix
– Failure Mode & Effect Analysis
(FMEA)
Source: Lammers, Ploos van Amstel and Eijkelenbergh (2009)

4. Failure Mode and Effect Analysis (FMEA)
Method for looking at potential ‘failure modes’ and its effects
developed in the 1940s by the U.S. Army
• Determine scope of analysis
• Create a multi-disciplinary team
• Describe processes
• Describe potential failures (risks)
• Determine the expected Effects of these failures (scale 1-10)
• Determine the Probability of the failure (scale 1-10)
• Determine the ability of Detection of the failure (scale 1-10)
• Calculate Risk Priority Number (RPN = 5*6*7)
• Choose target value RPN
Step 3 of risk
• Eliminate management
• Recalculate RPN and make cost-benefit analysis

5. Step 3: Risk management
• Treating the risks by means of a ‘strategy’
• Five classic strategies (but there are others)
– Avoid – eliminate possibility of event
– Reduce – minimise probability of occurrence
– Transfer – shift risk to third party (e.g. insurance)
– Retain – bear risk and do nothing
– Exploit – reduce the impact
• Subsequently, perform cost-benefit analysis
of risk treatment and keep monitoring
Source: DeLoach (2000), Husdal (2009)

6. Impact of Innovation
• Allow the firm to address new or existing
customer segments whose needs are NOT being
served by current competitors.
• Allow the firm to address new or existing
customer segments whose needs are poorly
being served by current competitors.
• Change the design, manufacture, delivery, and
distribution of existing products and services.

7. We need to answer the following
• How do you design a supply chain for a
specific desired outcome?
• When can outcomes be blended and under
what conditions should they not be?

9. The Emergence of the Blended
Outcomes Enterprise
Challenge – How to achieve multiple objectives
• Solution
– Blended Outcomes

10. Blending Outcomes
• Blending outcomes means making tradeoffs
• When blending outcomes,one should stand out
• Emphasis on the alignment of incentives within
supply chain
• It complicates the outcome measurement
process
• Some outcomes should not be blended
(cost and innovation)

11. Success depends on
• Critical SC drivers
– Demand driven (Walmart/Dell)
– Supply driven (oil/gas)
– Technology driven
• Global Cultural Differences
• Location
• Corporate culture (when boss is away)
• Stage of product life
– Early stages (responsiveness, innovation,security)
– Maturity (cost and resilience)

12. • “The only constant is change.”
– Heraclitus, 600 BC, Greek philosopher
• “It is not the strongest of the species that survive,
not the most intelligent, but the ones most
responsive to change.”
– Charles Darwin

13. Final Comments
• If we shift from old view of supply chains to
the new view, we have to rethink the supply
chain.
• To understand the new supply chains, we
need to understand outcomes.
• The new supply chain must be designed to
make the blended outcomes inevitable.

14. Any questions?
Thank you for listening!