Helen Peck

Management of Vulnerabilities in the UK Aerospace Industry

Daniel Dumke — Mon, 14 May 2012 13:40:33 +0000

Just recently I took a closer look at some aspects of supply chain risk management in the automotive supply chain. Within limits insights gained from this industry could also be transferred to other examples.

Today I review an early work focussing on another manufacturing industry: the UK aerospace manufacturers.

Method

In 2003 Haywood and Peck published their findings of a case study. These covered the foundations of how the companies understand of supply chain risk management. They also reported on some of the risk measures used by the participating companies.

All in all 47 semi-structured interviews were conducted with managers of differing levels in the aerospace supply chain.

This purposive sampling allowed multiple levels of the supply chain networks to be included in the study, ranging from the focal firm’s customer (purchasing organisations for the armed forces of national governments), through two tiers of suppliers above the Prime. In addition, input came from two industry bodies representing small and medium enterprises (SMEs) nestling in the higher reaches of the supply networks. It was clear however that at least six or seven tiers existed upstream of the Prime Contractor and downstream the final consumers (pilots and other users) remained unvisited.

As you can see the authors were quite blunt about the limitations of their endeavor to analyze the complete network. Though this constraint should not be taken too seriously, since this study aimed for a preliminary sketch of the status quo only.

Key findings: Risk sources

The first findings come from the assessment of the risk sources faced by the interviewees.

First, the respondents did not deal with either the precise geographical location of a problem or on the impact of other ‘external’ sources of risks. […]
In fact several of the managers interviewed related the sources of risk directly back to the Critical Success Factors (CSFs) for the focal firm’s Strategic Supplier and Commodity Management processes: Cost Focussed Decisions; Extreme Quality/Performance Requirements; Delivery Schedule Adherence; Customer-Supplier Relationships. […]
Nevertheless, the examples put forward by interviewees highlighted tensions between them. The link between interviewees’ perceptions of ‘sources of risk’ and process CSFs was upheld by members of the industry focus groups involved in the validation exercise. […]
The second theme to emerge was that managers frequently defined a source of risk with reference to acknowledged or perceived constraints imposed by the nature of the product and the structure of the industry.

Furthermore, many interviewees acknowledged that their supply chain is most vulnerable during times of change, but also that change is a constant state in their supply chain activities.

Key findings: Tools

The second stream of findings analyzes the tools and techniques, which were employed by the companies.
The authors therefore divide the realm of supply chain management into three tool categories: Supply Chain Planning, Supply Chain Management and Supply Chain Change Management (figure 1).

Figure 1: Continuum of Supply Chain Management Activities (From Strategic to Operational; Haywood and Peck, 2003)

The extreme left of the spectrum is occupied by pure supply chain planning, which in an ‘ideal world’ would be unencumbered by the legacy commitments of existing production facilities or supplier contracts. The right by pure supply chain management actives. These are the day-to-day activities undertaken in the management of a mature established supply chain.

Figure 2 summarizes the tools used by or considered useful (marked in italics), by the interviewed managers.

Figure 2: Selected Measures to mitigate Supply Chain Risks (Haywood and Peck, 2003; click to zoom)

However, it is important to recognise that Figure 2 represents only a summary of what is or could be in use somewhere in the network.
[Also it should be recognized, that] other tools and mitigation techniques again suggest contradictory requirements. For example, to mitigate cost-related risks, lean manufacturing techniques were being used (Set 5), while elsewhere someone is using inventory, capacity and capability buffers on a regular or temporary basis to mitigate delivery or schedule adherence problems (Set 7 and 11).

Key findings: Implementation

Lastly, the authors took a look at the obstacles preventing implementation of the tools.
Three key factors were unveiled.

The first was staff training, there was quite a widespread recognition that existing tools could be much more effective if implemented correctly.

The second was widespread confusion over terminology.
The research revealed that there was absence of a common understanding of the scope or extent of supply chain risk management, muc h of it relating to confusing and contradictory interpretations of ‘supply chain’.

The third issue was visibility.

Based on the findings the authors developed three methods to help improve implementation.

Method 1, a ‘go it alone’ option was motivated by the possibility of achieving competitive advantage over rival organisations through exclusive or advanced identification of sources of risk. For example, if the consequences of an anticipated event were expected to disrupt others in the same industry sector, an organisation might gain advantage by simply improving its tolerance relative to its competitors.

The second method tabled was a more limited audit encompassing the focal firm, its immediate customers and suppliers. The method involves organisations acting collaboratively, in interlocking risk management relationships to produce overlapping information flows all along the supply chains. Such an approach would allow organisations to identify relevant sources of risk within their locus of control or immediate supply chain vicinity and enjoy the confidence that others were doing the same.

Method 3 was an extension of Method 2, based on interviewees’ suggestions that the effectiveness of their current management tools would be improved by the introduction of a shared data environment. It was felt that this would significantly reduce the commercial risks attached to sub-optimal supply chain performance. The majority of interviewees considered Method 3 to be sound in principle. It reflected the frequently expressed view that improved sharing of data would lead to consequential improvements in profitability and facilitate the continuous improvement practices that contribute to longer term supply chain health.

Conclusion

This research gives an glimpse into the early stages of risk management in supply chains in the UK around the turn of the millennium.
For many companies and supply chains the detected problems still exist.
Two tasks still remain: First, opening the eyes of decision makers to include a trans-corporate view on risks and embrace supply chain strategies to battle supply chain risks. Ergo, applying holistic system thinking to system problems.

Second, finding ways to circumvent the implementation obstacles. How can risks be reduced without compromising the competitiveness and autonomy of the focal company?

Reference:

Haywood, M., & Peck, H. (2003). Improving the Management of Supply Chain Vulnerability in UK Aerospace Manufacturing Proceedings of the first EUROMA/POMS Conference, 2, 121-130

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From Supply Chain Vulnerabilities to Risk - Important Concepts in Supply Chain Risk Management

Daniel Dumke — Mon, 27 Jun 2011 13:43:00 +0000

This blog may be a good starting point for supply chain risk management related research and literature, but even with more than 140 articles reviewed in the blog I still just touched the tip of the iceberg. There are still many basic articles left. Like this one by Helen Peck (2006): “Reconciling supply chain vulnerability, risk and supply chain management”

Terms in SCRM

Today I have a look at, what is basically a literature review concerned with clarifying the confusion with the terms used when talking about risks in supply chains.

There are a wide range of different terms and concepts used in the wider field of supply chain risk management. How do the terms vulnerability and risk correlate and how are those embedded in supply chain management? On another level: How are corporate governance, business continuity management and security and emergency planning relating to SCRM?

Supply Chain

Starting from a “standard” supply chain definition as a system, comprising…

…flows of materials, goods and information (including money), which pass within and between organisations, linked by a range of tangible and intangible facilitators, including relationships processes, activities and integrated (information) systems.

The first definitions for “supply chain management” came up in the early 1980s and developed from a very logistical view on a supply chain towards a network understanding, comprising aspects like marketing or product development as well. There also has to be a clear distinction between a strategic level tasks in SCM and their functional execution.

Vulnerability and resilience

Within SCM there is no clear consensus as to whether supply chain vulnerability is simply a symptom of poor SCM—to be remedied with more effective SCM and the wider adoption of a SCO—or whether it is the unintended downside consequence of its successful application. Perhaps it should rightly be regarded as a combination of all of these.

Supply chain vulnerability can be defined as an “exposure to serious disturbance, arising from risks within the supply chain as well as risks external to the supply chain” and as “a condition that is caused by time and relationship dependencies in a company’s activities in a supply chain”. Vulnerability is therefore seen as a combination of a disturbance and the resulting negative consequence.

The concept of “resilience” is related to risk and vulnerability in so far as it accepts that not all “risks” (hazards or threats) can be avoided, controlled, or eliminated. Instead, resilience focuses on the “ability of the system to return to is original or desired state after being disturbed”, i.e. its ability to absorb or mitigate the impact of the disturbance.

Corporate risk management

Supply chain (risk) management and its counterpart on a corporate level do not share the same origin. Where supply chain management stems from a more comprehensive view on operational management aspects like logistics and operations; corporate risk management originates in a strategic / macroeconomic view on the company.

These roots also lead to a different understanding for risk management. In a case where corporate risk management suggests outsourcing of non-core processes for risk reduction, a supply chain risk management view would imply a larger weight on the negative effects of the reduction in control.

Conclusion

Finally, Peck emphasizes the different aspects of risks in supply chains and highlights the distinctive factors:

Consequently, it is suggested that managerial views of supply chain risk, based on assumptions drawn principally from best practice in manufacturing enterprises, offer a familiar, convenient but incomplete picture of supply chain vulnerability. SCM is an integrative, cross-functional discipline, so it must be recognised that supply chain vulnerability is also a concern for practitioners and academics in other disciplines, including BCM and corporate risk management.

Reference:

Peck, H. (2006). Reconciling supply chain vulnerability, risk and supply chain management International Journal of Logistics, 9 (2), 127-142 DOI: 10.1080/13675560600673578

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Supply Chain Risk Sources, Consequences, Drivers and Mitigation

Daniel Dumke — Wed, 23 Feb 2011 09:35:00 +0000

I just stumbled upon one of the articles I already read about a year ago, shortly after I started my research. Beside indication of a future research agenda (see as well here), Jüttner et al. (2003) also explain some fundamental concepts of supply chain risk management.

How to get there?

Jüttner et al. decided to conduct a exploratory study with practitioner interviews and compare these results with a literature review. Four basic concepts for Supply Chain Risk Management evolved from this, namely Risk Sources, Risk Consequences, Risk Drivers and Risk Mitigation Strategies.

Risk Sources

[are] environmental, organisational or supply chain-related variables which cannot be predicted with certainty and which impact on the supply chain outcome variables

So there are three categories for risk sources: Environmental, Network and Organization.

Environmental risk sources may for example be the result of accidents (eg. fire), socio-political actions (eg. terrorist attacks) or force majeure (like hurricanes or earthquakes)
Network-related risk sources unfold from interactions between organisations within the supply chain, examples are: Lack of Ownership (unclear responsibilites between supply chain partners eg. due to increased concentration and outsourcing), Chaos can result from missing trust or badly communicated information, finally Inertia describes a lack of flexibility within the supply chain.
The interviews showed
a consensus that network-related risks are an important and so far neglected source of risk.
Organisational risk sources can be found within one of the participants of the supply chain in focus and can be found within the production factors like labour (strikes), machines (failure), etc.

To conclude: From the point of view of the links within the supply chain, environmental and organizational uncertainties can be seen as risks “to” the links in the supply chain whereas network-related uncertainties are risk sources “of” the links.

Risk Consequences

Risk can have consequences can be measured ex post by the performance indicators used. Ex ante they are contained within the variances of the indicators. Three different consequences can be named:

Financial consequences
Reputation damage
Health and safety concerns

Risk Drivers

Risk drivers further increase the risk experienced by the supply chain participants (examples: competition increases the risk indirectly, outsourcing (increased complexity) has a direct effect on risks)

The major drivers for risk are: focus on efficiency rather than effectiveness, globalization of supply chains, focussed factories and centralized distribution, the trend to outsourcing and the reduction of the supplier base.

Risk Mitigating Strategies

… can be defined as

strategic moves organisations deliberately undertake to mitigate the uncertainties identified from the various risk sources (Miller, 1992)

Conclusion

The results of this article experienced a widespread use and are accepted by many researchers. The definitions mentioned can be used as basis for further research in the supply chain risk management field.

Reference:

Juttner, U., Peck, H., & Christopher, M. (2003). Supply Chain Risk Management: Outlining an Agenda for Future Research International Journal of Logistics Research and Applications, 6 (4), 197-210 DOI: 10.1080/13675560310001627016

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