Strategies

Supply Chain Risk Management for SMEs in Automotive SCs

Daniel Dumke — Mon, 30 Apr 2012 14:02:46 +0000

When it comes to supply chain management some positions within the network have better chances of fighting supply chain risks, due to structural and negotiating-power-related issues.

In this case the focus is on a supplier of a automotive OEM. Natural hedging, as defined below, is the core strategy analyzed in this study.

Natural hedging

The author utilizes a literature review to found his conceptual approach.

He defines natural hedging as “an instrument of real economical risk management, where transactions are hedged through real economic counter deals.”

The term “natural” is seen as a contrast to immaterial hedging using financial derivatives.

This strategy can be employed to mitigate price risk of commodities.

Theoretical case

The author develops the following theoretical case study with three echelons: tier 2 supplier, tier 1 supplier (focal company) and the OEM.

Tier 2 supplier is located within a different currency area.

In the short run there are no substitute products available for the OEM and vice-versa there is no other demand for the tier 1 supplier than the OEM.

For the tier 1 supplier the following risks can be observed:

Owing to relatively small purchase quantities, a potential risk of unavailability exists for the SME-supplier. This could probably be expected if the Tier 2-commodity supplier has capacity constraints and thus prefers to supply larger customers.

Because of volatile commodity prices on the world market, the SME-supplier faces a price risk for the required raw materials. An adequate hedge of single components with “classical” financial derivatives is difficult, due to limited management capacities and lack of know-how. In addition, respective fees for listed hedges hamper an economic execution of futures or options contracts.

Continuous fluctuations on the derivative markets, as well as exclusive activities in currency area B on the purchasing side, and on the sales side in currency area A, lead to a currency risk for the SME-supplier. Cost-intensive development of currency management or billable usage of hedging instruments prevents an economic reduction of currency risks.

The OEM on the other hand also faces risks:

The SME-supplier’s accumulated risks could lead to non-availability of input goods for the OEM, due to supply bottlenecks or even insolvency. This would trigger unemployment, damage the company’s image or force the award of supplementary grants, in order to finance damage limitation activities.

Like the supplier, the OEM is exposed to many commodity price and currency risks. It does, however, possess larger resources to deal with single risk sources within the scope of supply chain risk management.

The flow of goods and money in the initial situation is displayed in figure 1.

Figure 1: Case Study Supply Chain (Hofmann, 2011)

Figure 2 shows the implementation of a financial hedge. If the OEM also has end-customers in the currency area B, it would be possible to have the OEM directly pay the tier 2 supplier in currency B using the money obtained by the customers.

Figure 2: Natural Hedge using an purely Financial Angle (Hofmann, 2011)

In figure 3 a natural hedge is conducted which focusses on a re-design of the supply chain structure:

Figure 3: Natural Hedge using a Physical Angle (Hofmann, 2011)

The OEM shall (for now) not be active in the currency area B. Nonetheless, it takes over currency risk and pays the Tier 2-commodity supplier directly in the respective currency. The flow of materials is also “reorganized and not carried out through the Tier 1-supplier, but initially through the OEM. This alternative, which corresponds to a “vertical purchasing cooperation” or a centralized purchasing approach on the network level […]. Due to the modified flows of materials, it is called “physical component of natural hedging in supply chains” or for short: “physical hedge”. In this version, the OEM carries the sole supply risk for purchased commodities.

Overall, the risk management costs in a supply chain section can be reduced through die natural hedging approach on the network level, since the costs to hedge single risks arc higher for one actor than the costs for harmonized hedging of bundled risks.

Results

Beside this theoretical foundation the author calculates an example with figures for the steel-price-fluctuations in 2008.

The following advantages can be summarized (figure 4):

Figure 4: Advantages of Natural Hedging for the Stakeholders (Hofmann, 2011)

The author prescribes the following process to implement the natural hedging.

Preparation of managerial prerequisites, as well as examination of contractual and legal framework.

Business model decision and concept evaluation.

Ramp-up and organizational integration.

Performance measurement of results.

The following issues should be considered:

Framework contract model. The OEM signs the contract with the pre-material Tier 2-suppliers. Part of the framework contract is usually a quantity purchasing structure, serving as a target figure for a certain amount of time.

Coaching model. The OEM takes on the role of the “purchasing advisor”, supplying his SME-suppliers with information about purchasing sources and prices of the needed raw and prc-material, as well as financing alternatives.

Trade model. Within this resale or buy-sell approach, the OEM is the broker for prc-material. Thereby, he typically waits to purchase from the commodity Tier 2-supplier until an order from the Tier 1-supplier-basis comes in (order pass-dirough).

Procurement service provider model. The use of a procurement service provider constitutes the intersection point between the supplier and his assortment and the OEM. The OEM signs a framework contract with the service provider about die purchase of materials or product groups. This could also include financial aspects (e.g. prc-financing conditions or payment terms for the Tier 1-suppliers).

Marketplace model. Within such an “infomediary” model, the OEM initiates a platform (often a web-based E- marketplacc), through which suppliers can mutually access pre-material suppliers or pre-material offers. This model could also include payment processing in the

supply chain.

Conclusion

Not only natural disasters pose risks to supply chains. Also ordinary price changes can pose a threat to the profitability of a company.

But those risks have been on the risk management agenda for quite some time now. Still, supply chain risk management enables companies to handle some risks differently and natural hedging as described here may be one option.

Even though the empirical support for this strategy presented in this paper is quite weak, it should give food for thought and using some concrete figures should help with the decision if and how such a strategy might help your company, be it OEM or supplier.

Reference:

Hofmann, E. (2011). Natural hedging as a risk prophylaxis and supplier financing instrument in automotive supply chains Supply Chain Management: An International Journal, 16 (2), 128-141 DOI: 10.1108/13598541111115374

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Fragile Food Supply Chains: Reacting to Risks

Daniel Dumke — Mon, 05 Mar 2012 12:22:00 +0000

The foods supply chain satisfies one of the most basic Maslowian needs.
Interruptions can quickly become major crisis. Assessment and reactions to risks therefore seems to be a vital point.

This article presents a framework by Dani and Deep on how specific food supply chain risks can be analyzed and how reactions can be tailored.

Status quo

The authors start by sketching the status quo of a foods supply chain and the trends affecting it.

Figure 1: Food Supply Chain Schematic (Dani and Deep, 2010)

A typical foods supply chain consists of six echelons starting at the farmer. The second stage is usually an aggregator/marketer who provides the input for the processing facilities. The distribution stage starts with the wholesaler which delivers the product to the customer usually via a retail stage.

Several trends affect the supply, processing and demand for food products:

Consumer: In the past decades demand shifts have been observed, leading for parts to more meat based diets (e.g. China) or to a more health-concious consumption.
Food standards: Internal (company-made) and external (government-made) standards seem to be on the rise to provide a high degree of food safety.
Technology: Advances especially in IT technology and electronics have made it possible to provide uninterrupted tracking within the foods supply chain to improve safety and responsibility further.

Research goal and method

The aim of the presented paper is to answer the following questions:

Question 1: If a risk were to materialise, what can be done to minimise its impact?

Question 2: What are the reactive risk management peculiarities of the food supply chain?

The paper is build as a meta-study using secondary sources: “research publications, journal papers, newspaper reports, articles from business magazines, websites and government reports”

From these sources thoughts and ideas were extracted and then clustered with the goal to distill common themes which can be used for the general framework.

Results

The following themes were identified:

Speed of response: Speed of response is often cited as the most crucial variable in controlling the effects of risk. […] A quick response to food supply chain incidents may include: 1) Deploying a crisis management team, 2) Scope and extent definition of the problem, 3) Identifying affected areas and their impact on critical activities, 4) Recall procedures.

Communication: Communication and information sharing is often beneficial in controlling the damage caused by a risk. […] Crises are situations of extreme stress and therefore an organisation needs to ensure that they are able to provide coherent, precise and timely information to all concerned members.

Escalation: Escalation refers to the procedure for making information available to the most relevant authority.

Resource and fund availability

Multi-partner collaboration

Leadership: Leadership is an essential catalyst for the above factors to combine.

Two distinct risk types can be separated:

Type I: These are risks which are concerned with food safety, as well as maintaining a secure supply of food. These are differentiated on the basis of the responsibility and involvement of regulatory authorities. Food contamination is the most prominent of these risks and involves any incident which may constitute a public health emergency of domestic or international concern.

Type II: These are all other risks which affect the supply chain but do not have a direct impact on food safety. The involvement of these types of risks is primarily the organisation and its direct supply chain. These risks include transportation strikes, loss of power, flooding, etc.

Combining these aspects into a single conceptual model results in the following diagram.

Figure 2: Conceptual Model (Dani and Deep, 2010)

Case based validation

The author then use three case studies (summarized in figure 3) to post-hoc validate their model.

Figure 3: Case Studies for the Framework Validation (Dani and Deep, 2010)

This is the conclusion of the author of what went wrong in the first case (for the other cases I refer you to the original paper):

Case highlights:
One of the biggest cases of food product recall in US history is the most recent case of outbreak of illness caused by Salmonella typhimurium. The FDA and Centres for Disease Control and Prevention (CDC) identified the source as peanut butter and peanut butter paste in the processing plant of Peanut Corporation of America (PCA) at Blakely, Georgia.

Case analysis:
In this case, clearly the type of risk was type 1. Referring to the conceptual model depicted in Figure 2, it can be seen that although all entities were involved within the crisis management process, the speed of response was very slow causing failure of the PCA [Peanut Corporation of America]. The Peanut Corporation, despite being aware of a salmonella poisoning investigation at King Nut Corporation, did not initiate any damage control steps. The FDA inspection at the PCA started on 9 January, but the recall announcement did not happen until 13 January. The collaboration, communication and information between different members were possibly inadequate as the recall list grew from 21 products to all products manufactured at the location. The date of recall moved back to any product manufactured at the facility since 1 January 2007, which highlights gross inconsistencies in process controls within the organisation. There were no escalation procedures set up until the FDA took control over the crisis management process. Also, multi-partner collaboration was lacking as a second plant of PCA was also found contaminated with Salmonella 2 weeks after the initial inspection at PCA.
In the investigation (Weise and Schmit 2009), it was highlighted that the leadership of the company had the chance and information to intervene much earlier in the process to stop the con- taminated product reaching the customer. However, poor leadership and improper risk mitigation procedures led to the risk propagating widely and causing human fatalities. As per the model, even though the FDA intervened and took over the risk mitigation process, the speed of response was slow and there were no proactive measures instilled by PCA with regard to risk mitigation. Hence with reference to the model, although this is a type 1 risk and process A is involved, the success of the intervention is dependent upon the capability of process B.

The authors conclude that the framework is a good fit to analyze cases after the crisis happened. Furthermore they are confident that it should also be applicable for proactive and predictive analyses.

Conclusion

I think focussing the research questions to include only food supply chains in this case results in a very focussed model of the impact factors in food supply chain resilience.
On the other hand as often (this may be good or bad) I fail to see why this model should only be applicable to disruptions in foods supply chains. Leadership, communication, and collaboration are key factors in many (most?) supply chains and in times of disruptions even more so.

Reference:

Dani, S., & Deep, A. (2010). Fragile food supply chains: reacting to risks International Journal of Logistics Research and Applications, 13 (5), 395-410 DOI: 10.1080/13675567.2010.518564

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Supply Risk Management from a Small Company's Perspective

Daniel Dumke — Mon, 14 Nov 2011 15:53:00 +0000

This study takes a closer look at supply risk management, but this time from the perspective of several small companies. This article tries to answer the questions what risks small company owners (SCOs) see and how SCOs mitigate those risks.

Method

A case study with eleven small companies was conducted. The companies had between 1 and 12 employees. Overall 26 interviews were conducted (90 minutes on average). In addition, two seminars were held, to present the preliminary results and discuss the findings. The seminars were also used to generate additional data and validate existing results.

Informants rarely used terms such as supply risk, risk management, probability reduction, supply chain or even purchasing. [… So] Instead of forcing risk management terminology upon informants, possibly provoking misunderstandings and incomplete accounts, the idea was to let the SCOs provide rich accounts of their purchasing and SCM practices in layman’s terms. In the dialogue information was sought out that allowed plausible interpretations of supply risk management practices.

Figure 1 summarizes some facts about the companies.

Figure 1: Facts on the Case Study Companies (Ellegaard, 2008; click to enlarge)

Risk mitigation approaches

From literature the author develops three types of supply risk management / mitigation activities, namely: increased knowledge, reduced probability and reduced impact (figure 2).

Figure 2: Risk Management Alternatives (Ellegaard, 2008)

Knowledge

Knowledge increasing practices were infrequent among the studied SCOs. They spend limited time and resources actively acquiring knowledge about suppliers and supply markets and therefore possessed limited information […]. Only one SCO interacted with suppliers often.

Probability reduction

Probability reduction had the highest priority in these companies. Elimination of severe risks formed the backbone of SCO practices. […] In order to eliminate certain severe risks, the SCOs sourced locally, exhibited source loyalty, and were careful not to reveal proprietary product knowledge to suppliers.

Effect reduction

None of the SCOs held reserve capacity and practiced mainly single sourcing, with the aim of tying up as few resources as possible. The very limited reserves left the SCOs quite vulnerable to certain types of risks. Any specific events with the potential to obstruct delivery capabilities of suppliers, such as a fire, take-over, bankruptcy, up-stream material shortages etc. could bring SCO production to a halt.

All results are summarized in figure 3.

Figure 3: Supply Risk Mitigation Approaches (Ellegaard, 2008; click to enlarge)

Lessons learned

Despite the autodidact and informal purchasing practices of

the studied SCOs, there may be much to learn from these practices, even for state-of-the-art purchasing/SCM departments. The SCOs specialised in a few supply risk management practices that seemed to complement each other well. The study suggests that effective supply risk management is not only about adopting a wide range of sophisticated risk reduction practices. The challenge may be more connected to finding the right mix of practices, which fits the available resources and is sufficient to secure against supply risks. Supply chain managers should realise that:

different supply risk management practices require different levels of expertise and resources;

only a limited number of potential supply risk management practices may be necessary; and

supply risk management means adopting the exact mix of practices that provides security.

Conclusion

This study provides some missing insights into risk management practices of small enterprises. As the author, I do think that there are still things even larger companies can learn from their mitigation strategies: Prioritization and focus of risk management activities which deem to be most effective with the given resources may be one of those.

Reference:

Ellegaard, C. (2008). Supply risk management in a small company perspective Supply Chain Management: An International Journal, 13 (6), 425-434 DOI: 10.1108/13598540810905688

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Relative Improvements of Supply Chain Redesign Strategies

Daniel Dumke — Mon, 29 Aug 2011 13:21:00 +0000

The Bullwhip Effect was first discovered and analyzed in the 1950s. It triggered more intense research on the supply chain system (even though the term supply chain was not yet coined).
Starting in the early 1980s, this research finally lead to significant changes in real supply chains as well.
This article does a follow up on these developments and evaluates the relative improvements of each of the strategic stages.

Supply chain redesign process

The authors refer to a supply chain redesign process called “Cardiff methodology”. It is depicted in figure 1, key elements are the real supply chain as a starting point, this supply chain is then analyzed and converted into a conceptual model of the chain. In the the next step this conceptual model is transformed into a mathematical representation and then simulated to generate new insights on the dynamic behavior of the system. Lastly, this knowledge is used to adapt the real supply chain, and the process is restarted.

Figure 1: Supply Chain Design Process (Berry and Naim, 1996)

History of supply chain redesigns

The article in great length on the shifting redesign paradigms since the 1980s. Four phases are distinguished here. I will highlight the corner stones of each of them.

Phase 1 – Just in time
Just in time initiatives were launched in the early 1980s, with the goal of reducing in-plant lead times. As a result: “The application of JIT techniques have achieved very significant reductions in lead-times and inventory. In European plants, the average manufacturing cycle time from component start to finished good shipment has been reduced by around 50%, with an accompanying drop in inventory.”
Phase 2 – Interplant planning and logistics integration
The next step was to improve the information flows thoughout within the company and on its edges. Key components here was the introduction of MRP systems and the supporting EDI.
Phase 3 – Vendor Integration
During the next phase the focus shifted towards the supply side. And the vendors were integrated into the systems established in Phase 2.
Phase 4 – Time based management
Should be seen as a broader view on the above mentioned steps to lead time reduction. So time based management includes the comprehensive reduction of total cycle times from product development to the end customer.

Case study

The author use a case study to highlight the effects of above mentioned strategies on supply chain performance. Using the example of a PC supply chain the authors create a computer simulation model of this specific chain and test the above mentioned redesign strategies. Overall five different models are generated one baseline case including the state of the supply chain before the redesign strategies and one model for each of the four phases mentioned above.

The results can best be seen in figure 2.
At about time 5 a positive demand shock is induced into the system, after that customer demand is constant again. The results show decreasing factory order rate fluctuations with each new strategy employed.

Figure 1: Supply Chain Dynamics with different Supply Chain Designs (Berry and Naim, 1996)

Conclusion

This article has two major contributions first it has a very informative listing of the strategic paradigms during a 20 year time period. Furthermore it also shows that these strategic changes have not been in vain, but each of the phases has the potential to improve the supply chain performance.

Reference:

Berry, D., & Naim, M. (1996). Quantifying the relative improvements of redesign strategies in a P.C. supply chain International Journal of Production Economics, 46-47, 181-196 DOI: 10.1016/0925-5273(95)00181-6

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Robust Strategies for Mitigating Disruptions

Daniel Dumke — Wed, 25 May 2011 14:51:00 +0000

There are several scientific research centers on supply chain risks in the US (as around the world): The east coast has several researcher on this topic e.g. with Yossi Sheffi from the MIT, in the center with Joseph Fiksel from the Center for Resilience at the Ohio State University and on the west coast Christopher Tang from the UCLA or Hau L. Lee from Stanford University.

I wanted to write about this article, by Christopher and Tang, for some time now.

History teaches us

After a major disruption there are many firms who severely suffer and take a long time to fully recover. On the other side of the spectrum there are a few companies that continue to satisfy their customers demand, and thus use these capabilities to retain and acquire new customers in the process.

Defining robust strategies

Tang defines “robust” strategies as those which fulfill two objectives at once:

Help reducing costs or improve customer satisfaction during times without a disruption,
Support the firm during and after a disruption in continuing operations.

The goal therefore is to create a win-win situation where the investment into the strategy can pay of no matter if a disruption occurs or not.

Cases

Tang lists three cases to highlight some of the few companies that achieved that goal:

Nokia vs. Ericsson
I wrote about this case before, where Nokia and Ericsson were affected by the same disruption at a micro chip plant of a common supplier. Nokia was able to quickly adapt the product design and find another supplier, while Ericsson suffered sever financial consequences leading to the Ericsson / Sony “merger”.
Li and Fung
changed its supply plan in a flash to meet customer demand during a currency crisis.
Dell’s adaptive pricing strategy
to accomodate to supply shortages and still guide and satisfy customer demand.

Robust strategies

Building on these case the author selects and describes nine supply chain strategies that fit above mentioned definition (figure 1).

Figure 1: Robust Supply Chain Strategies (click to enlarge; Tang, 2006)

There are however challenges which have to be considered before implementing the strategies:

Cost versus benefits
These strategies probably make it easier to justify the investments due to their positive effects with or without disruptions, nonetheless there is still a tradeoff which has to be analyzed. Tang suggest to think of the remaining cost surplus as insurance premium.
Strategic fit
Not every strategy may fit for every company. For example Dell’s pricing strategy might be adaptable for airline tickets but not for heavy machinery with a new quote every day.
Proactive execution
Proactive strategies (e.g. rerouting of shipments after a port strike) can be better than reactive strategies (e.g. increasing stocks).

Conclusion

I like this article due to the practice oriented approach taken. But I am missing some clearer description of the ways to generate these strategies. Also, there is no consideration of the completeness of this listing. So I have to assume that it is probably a good starting point. And to my knowledge there are already several studies building on this paper.

As a side note: Nokia also may be a mixed example for a company as role model for good strategies. I would argue that either Nokia was lucky or had a very in-homogenous state of strategy execution: The mentioned disruption happened in 2000, exactly the same time where they should have laid ground for the new smart phone generations which are commonplace now from many manufacturers, but not Nokia.

Reference:

Tang, C. (2006). Robust strategies for mitigating supply chain disruptions International Journal of Logistics Research and Applications, 9 (1), 33-45 DOI: 10.1080/13675560500405584

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Supply Chain Simulation and the Bullwhip Effect

Daniel Dumke — Wed, 20 Apr 2011 08:59:00 +0000

I already reviewed some articles by Denis Towill primarily because he does some interesting research on simulation and supply chains, but also because I like his clear style in his articles.

In one of his early papers (1992) he teamed up with Naim and Wikner and described state of the art strategies to fight the bullwhip effect or as it is called in the paper by its older name: Industrial Dynamics.

Industrial Dynamics

I already described the causes of the bullwhip effect and how to measure it in an older post. The bullwhip effect describes amplifications in demand within the supply chain. Exemplary effects can be seen in figure 1.

Figure 1: Effect of the Bullwhip Effect (Towill et al. 1992)

Improving SC Dynamics

One way to improve the supply chain dynamics is to introduce a leaner supply chain, which in turn will lead to lower lead times and lower amplifications.

In a lean supply chain stocks are located at a low level of “added value”, to keep the inventory cost lower.

The next decision to make is to find the right trade-off between stock levels and production rates. If you increase the flexibility of production, you might be able to reduce the inventory overall. There are two alternatives:

Fixed process rate / varying inventory levels

Varying process rate / fixed inventory

There are four sectors where where further improvements can be acchieved:

Industrial engineering improvements, eg. changing the product design or changing the layout of the production

Production engineering improvements, eg. integration and sequencing of processes to reduce lead times

Information technology improvements, eg. quicker data capture and electronic data interfaces

Operations engineering improvements, eg. pull system instead of push, shared planning

Optimization

To examine their points, Towill et al. design a simple supply chain simulation model with four stages (retailer, distributor, warehouse and factory). The results (figure 2) show that above mentioned improvements can lead to a reduction in the amplification.

Figure 2: Strategies for Reducing Demand Amplification (Towill et al. 1992)

The authors conclude that reducing the overall lead times in the supply chain may be an expensive solution. As an alternative they suggest to remove some stages from the chain which also leads to significant reductions in the amplifications. Probably the cheapest way to reduce the bullwhip effect may be to increase collaboration in the chain, in this case especially concerning forecasts and planning.

Conclusion

Simulation model cannot only help in theoretical exercises. There are very important applications in real life applications as well when the task is to optimize generic strategy recommendations like those mentioned above.

Reference:

Towill, D., Naim, M., & Wikner, J. (1992). Industrial Dynamics Simulation Models in the Design of Supply Chains International Journal of Physical Distribution & Logistics Management, 22 (5), 3-13 DOI: 10.1108/09600039210016995

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Managing Supply Chains with multiple Pipelines

Daniel Dumke — Mon, 10 Jan 2011 15:42:00 +0000

Companies offer a smaller or larger range of products serving different markets, depending on their history and primarily the respective business model.

From a supply chain management point of view this poses the question if it is ok just to use the same supply chain strategy for all those products.

Pipelines vs. Supply Chains

Aitken et al. (2005) make a convincing argument against this approach and instead suggest the “pipeline” to describe

the specific operational mechanisms and procedures that are employed to service specific product/market contexts

within one supply chain.
So one supply chain usually contains several different pipelines.

Case Study

The authors conducted a case study with a lightning company producing a range of lighting products for diverse markets.
During the four year project there were two major phases: first the introduction of lean production, and second increasing the responsiveness of the plant.

Four different pipelines were identified by clustering the products. The clusters were defined by considering the trade off between economies of scale, economies of scope and the diseconomies of averaging.

Cluster 1: low volume products
Cluster 2: high volume, low variant products
Cluster 3: multiple variants of standard products
Cluster 4: customized products

Pipeline Strategies

Different pipeline strategies were identified and are listed in table 1.

Table 1: Categorization of Pipeline Strategies (Aitken et al. 2005; click to enlarge)

Conclusion

Pipelines are a useful way of differentiating supply chain and selecting the right strategies depending on the market and product properties. Aitken et al. describe a normative scenario, in practice differences in supply chains are often due to missing integration of different parts of a company (eg. after a merger). But especially in those cases it is necessary to develop an approach for reintegration without loosing sight of the different needs of the customers.

Reference:

Aitken, J., Childerhouse, P., Christopher, M.G., & Towill, D.R. (2005). Designing and Managing multiple Pipelines Journal of Business Logistics, 26 (2), 73-95

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Rethinking links in the supply chain

Daniel Dumke — Tue, 01 Dec 2009 18:16:00 +0000

The two page article (downloadable here) reflects upon the current economic crisis and the authors views on the implications for SC Management.

Sohdi argues that at the moment the enterprise should focus more on how to improve revenues and improve profit margins as a whole instead of only trying to drive down cost. They list a couple of examples within the following categories on how this can be achieved.

Lean and green
Pricing & supply chains
Shorten supply chains
Reassess partnerships

On first sight shortening the supply chain seems to be the only strategic option from the SCRM perspective.

Shorter supply chains mean more agility, more robustness against disruption, lower exchange rate risk and, in the long run lower cost.

But if you look at this from a financial / company angle it becomes obvious that all measures mentioned are suitable to tackle the overall risk position of the company, by improving the revenue position a company can likewise (to some extend) hedge against the (at least financial) effects of supply chain risks.

From my experiences as a management consultant I can fully support the views expressed in the article. Companies tend to spend very much effort on the short term cost improvements (e.g. working capital management) and loose sight for the bigger problems like customer satisfaction.

Reference:

MMS Sodhi, & CS Tang (2009). Rethinking links in the supply chain Financial Times

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