Identifying Sources of Uncertainty

A very interesting part of Supply Chain Risk Management deals with the impact of uncertainty on the supply chain design process. Van der Vorst and Beulens (2002) address this topic, and focus on the redesign of supply chains.

They claim that sources of uncertainty can be a key driver for chain redesign and after analyzing the literature and own research (case study) they present a tool for supply chain redesign where the sources of uncertainty support the selection of the relevant strategy.

Uncertainty

Some say, that the major problem in managing supply chains is the underlying uncertainty.

Therefore supply chain uncertainty, according to Van der Vorst and Beulens (2002) is defined as:

Supply chain uncertainty refers to decision making situations in the supply chain in which the decision maker does not know definitely what to decide as he is indistinct about the objectives; lacks information about (or understanding of) the supply chain or its environment; lacks information processing capacities; is unable to accurately predict the impact of possible control actions on supply chain behavior; or, lacks effective control actions (non- controllability).

Requirements

The management of the uncertainties therefore has a huge priority to achieve an effective overall management. The requirements are:

• The managing system should have an objective and corresponding performance indicators to manage the supply chain in the right direction.
• To estimate future system states one has to have information on the environment and current supply chain state.
• There should be enough information processing capacities to process information on the environment and supply chain state.
• In order to direct the managed system in the right direction one should be able to estimate the impact of alternative actions. This requires a model of the system, presenting the relationships between available redesign variables and performance indicators.
• There should be enough potential control actions. Each environment- supply chain state combination requires one or more different control actions to manage the system in the direction of the objectives.

Supply Chain Redesign

Which elements of a supply chain can be included in a redesign strategy?

Van der Vorst and Beulens focus especially on the process related aspects. They name: chain configuration, chain control structure, chain information systems, chain organization and governance structure.

They propose two phases for the redesign; the first step should be to redesign for optimal performance, keeping in mind to reduce the potential for randomness in a second step the system should be protected against random and exogenous events.

Conclusion

Beside the excellent explanation of the methodology used for conducting case studies (based on Yin (1994)), the article is very straightforward and interesting to read.

For the supply chain professional it can be used as a glossary for selecting the right redesign strategy under given circumstances.

The major finding of the article from their case studies is, that

uncertainties in supply chain decision-making situations results in the establishment of several non-value- adding activities that reduce profitability.