Supply chain disruptions-causes

According to a recent survey of 560 companies from 62 countries by Zurich Financial services and U.K. Business Continuity Institute, 85% said that they had suffered at least one disruption to their supply chains during 2011 (Veysey, 2011). Listed next, in order, are the major causes of the supply chain disruptions ... 

Following Yang (2006), we classify risks, natural or man-made, that can cause supply chain disruptions into two types for the purpose of quantification ... 

VaR type risks are rare events that can cause supply chain disruptions due to man-made or natural disasters. We discussed quantitative models for VaR type risks, using EVT in Section 7.9. In this section, we will present quantitative models for MtT type risks. 

To maintain supply continuity successfully, sourcing professionals work to open lines of communication between their company s internal functional departments and with external suppliers. Communication reduces the risk of supply chain disruptions. Many areas in a supply chain can cause an interruption in the flow of goods operational, financial. 

Logistics. The committee observes that the supply chain provides a delivery mechanism for surreptitious chemical or biological attack. Our nation s recent experience with anthrax delivered through the U.S. mail system provides a relevant illustration of the disruption and psychological response that such an attack can cause. Food and water supplies offer similar delivery opportunities. Attacks by such means should be considered within the context of an overall risk assessment, since they could significantly degrade operational readiness. 

Generally, VaR type risks are caused by rare events, such as earthquakes, floods, fire, wars, terrorism, etc. They can result in catastrophic disruptions to the company s supply chain. Recall how a lightning bolt hithng a semi-conductor plant in New Mexico in 2000, resulted in over 640 million revenue loss to Ericsson and changed the landscape of the mobile phone industry. 

The emphasis in this section is on publications on risks related to events that can cause disruptions in a supply chain. We review those models and methods that have not been discussed in detail in this chapter. To date, most of the work on supply chain risk considers demand and supply risks rather than survivability of supply chains. Therefore, we also review recent papers addressing risks related to uncertainty in demand and supply. 

Relationships in a supply chain should be identified in both the B2B and the B2C markets. They are governed by different responsibilities, as the behaviours of institutional and individual customers are dissimilar. To meet the strict requirements of both markets, companies more often focus on suppliers, who play a vital role in adding customer value (Helander and Moller 2007). Building supplier relationships is aimed at boosting the effectiveness and efficiency of flow processes in the supply chain by reducing costs, shortening cycles (e.g. production, order completion) or lessening the probability of disruptions that may cause delays and the failure to complete customers orders in line with their expectations. 

Both situations caused massive losses for the companies. These were not only financial losses, but also immeasurable losses such as loss of reputation and customer trust. The decision to move the branch proved to be wrong, as it was ill considered from the point of view of the size and diversity of associated threats. On the other hand, the oil spill in the Gulf of Mexico was the direct consequence of the operational risk. The explosion of the drilling rig was a random event and difficult to predict, with a scenario that turned out to be dramatic. The preparation of corrective measures in the event of adverse effects is a very important element in assuring process continuity in the relationships between the supplier and purchaser. It provides for resistance (resilience, robustness), i.e. a company s capacity to respond to unexpected disruptions and therefore to assure the proper level of operational process in the supply chain (Rice 2003, p. 4). 

Each adverse effect, e.g. fire in suppliers facilities or the bankruptcy of the main business partner, causes certain consequences and problems for other links in the supply chain. The effect of the consequences of risk along the supply chain is defined as disruption. Such a turn of events is commonly compared to the domino effect. One event triggers another, and the consequence of one event becomes the cause of another. Disruptions in supply chains are "unplanned events that may occur in the supply chain which might affect the normal or expected flow of materials and components" (Svensson 2000, pp. 731-749). An adverse effect that leads to a long gap in the flow of processes in the supply chain is a critical disruption of the supply chain. According to the concept of business continuity management a crisis is described as "any unplanned event that can cause deaths or significant injuries to empioyees, customers or the public or that can shut down your... 

From the perspective of processes carried out by companies in the supply chain the six areas of risk can be indicated (Spekman and Davis 2004, pp. 414-433). The first three areas pertain to flow processes carried out in the supply chain flow of goods, flow of information and flow of money. The last three areas include ICT systems, relationships with suppliers and aspects of corporate social responsibility. Risk related to goods is associated with the costs of excessive inventories and loss or damage of cargo. The information flow process is exposed to disruptions caused by, e.g., computer viruses or network problems. 

The problems of each participant in the supply chain (regarded as a specific and defined structure) may affect the business success of cooperating parties. The links connecting one to another by flow processes (the output of the supplier s processes, e.g. delivery, is the input of the purchaser s processes) may cause disruptions along the supply chain (Figure 3.1). 

The partners closest to the company that is the direct source of the problem are the most exposed to the domino effect. Disruptions maybe caused by a wrong decision or random event of one of the participants resulting from, e.g., human error or failure of machinery and equipment. The problem of the domino effect is especially escalated if strong dependencies occur within the supply chain. Dependencies resulting from cooperation translate into strong relations between resources and actions, which are the basic components of each relationships between... 

Introduction of new products often causes disruptions in the supply chain. Such disruptions may impact the inventories of components or they may require restructuring the architecture of the supply chain. 

Creating a single platform to incorporate MOOC, even if it is possible, has the potential to cause disruptions in the pedagogical supply chain of the university for years to come. 

Factors causing disruptions such as terrorism, infectious diseases, natural disasters, and human errors, can be catastrophic to economic sustainability. The likelihood and impact of such events are hard to predict and measure, as borne out by hurricane Katrina with an estimated economic loss of over 125 billion (Finkle 2005). Companies must be prepared with strategies for rapidly mitigating the impact of the disaster, to ensure business continuity. Another example is the recall of toys made in China by Mattel in 2007 that caused considerable disruption in Mattel s supply chain (Hoyt 2008). The recalls were for excessive lead content in toys, and exceeded 20 million toys. It sparked intense criticism of Mattel and its Chinese supply chain. The company s stock price fell 18% in 2007. 

Managing the risk in supply chains has gained a lot of attention in recent years. Man-made events, such as the labor strike in US West Coast ports in 2002, and natural events, such as the Japanese earthquake and tsunami in 2011, have caused companies to realize tiiat a singular emphasis on the cost efficiency of supply chains can actually make the supply chains brittle and much more susceptible to risk from disruptions. Chapters 3, 7, 9, and 10 incorporate supply chain risk as an objective function in multiple criteria optimization models. 

Financial Those disruptions caused by adverse changes in the financial condition of any party involved in the supply chain (e.g., bankruptcy, or liquidation of a supplier). 

A disruption occurs when the stmcture of the supply chain system is radically transformed, through the non-availability of certain production, warehousing and distribution facilities or transportation options due to une q)ected events caused by human or natural factors. 

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