Supply Chain Risk Management in the German Automotive Industry

While cleaning out some of my blog directories, I just found this article in my backup repository, I already wrote it over a year ago, but it still seems relevant. So without further ado: In their 2009 article Jörn-Henrik Thun and Daniel Hoenig from the Industrieseminar Mannheim (link only in German), present their research on Supply Chain Risk Management within the German automotive industry. Their goal was twofold: a) to identify supply chain risks and risk drivers, b) investigate measures for dealing with SC risks and their impact on SC performance.

Methodology

Therefore the authors conducted a survey with 67 companies from the automotive supply chains in Germany. Respondents were primarily managers in charge of supply chain management or logistics. The answers were measured using a five-point Likert scale (from “strongly disagree” to “strongly aggree”).

Results

Based on the results of the survey the following hypotheses could not be rejected and therefore can be seen as validated:

• Supply chains are susceptible to supply chain risks

• Complexity (eg. globalization) and efficiency (eg. outsourcing) of the supply chain are key drivers for supply chain risks

• Internal supply chain risks have a higher likelihood to occur than external risks

• Companies with a high degree of supply chain risk management show a higher performance than companies with a low degree

• There is a difference between companies using preventive risk mitigation instruments contrary to those using reactive instruments in terms of supply chain performance

The most interesting finding in my view is that companies using preventive instruments show higher values in terms of increased flexibility, decreased stocks, reactivity, and cost reduction, whereas the group using reactive instruments shows higher average values concerning a reduction of the bullwhip effect and external disruptions resilience. And overall: companies implementing supply chain risk management strategies show higher performance values than others.

One of the hypothesis (“External SC risks have a greater impact on the SC than internal risks”) has been rejected. The authors explain this result as follows:

The […] result might be influenced by the fact that managers estimate the impact of incidents with a higher likelihood stronger since they implicitly reevaluate the impact based on its expectation value. However, the results indicate that most of the risks supply chains are confronted with arise from inside the supply chain. This indicates that managers are able to act on these risks directly.

Conclusion

Surveys are always subjective, so results from this survey might not be true for any other sample taken.

But the logic of the hypothesis might be skewed as well. The problem with correlations is that they work both ways. For example the hypothesis “Companies with a high degree of supply chain risk management show a higher performance than companies with a low degree” can also be interpreted the other way: Companies with high performance are more likely to implement risk management measures. And this is an especially interesting one, since to my knowledge it has not yet been analyzed.

Here is some more food for thought:

• External risks in this sample of companies has been perceived as not more impactful than internal risks. So this might be true or it might be based on a skewed perception. What do you think? And if it’s true, does this hold true for all industries?

• Performance gains are realized if we conduct supply chain risk management. What are the most effective strategies? What strategies are you following at the moment (reactive or preventive)?