scrm introduction

Demand Forecasting, Resilience and Mapping (Book Review)

Daniel Dumke — Mon, 31 Oct 2011 14:30:00 +0000

I am a huge fan of Open Access in research and a while ago I was made aware of a book on supply chain management, which has recently been published under an open access license. The full book can be downloaded on the web site of the publisher.
The book contains 27 chapters / articles on a range of supply chain related topics, such as optimization, public sector supply chains, modeling and simulation, but also several papers which addressed supply chain risks in one way or the other.
I was especially interested in the risk related chapters, so I will give you a short overview on three of the papers:

A Hybrid Fuzzy Approach to Bullwhip Effect in Supply Chain Networks, by H. Tozan and O. Vayvay

The authors of the first paper propose a fuzzy-neural-network approach for demand forecasting. In supply chain management a test case for demand forecasting, has always been the bullwhip effect. The better your demand forecasting the less pronounced the bullwhip effect will be. And this can be a real money saver.

A simulation of their new approach shows that for a three tier supply chain (customer, retailer, factory) especially the fluctuations at the retailer can be reduced quite drastically (figure 1 a and b).

Figure 1: Orders and Production in the Base vs. Proposed Model (Tozan and Vayvay, 2011)

Integrating Lean, Agile, Resilience and Green Paradigms in Supply Chain Management (LARG_SCM), by H. Carvalho and V. Cruz-Machado

The second article I would like to highlight, tries to integrate the supply chain concepts of lean, agile, resilience and sustainability / green. One of the weaknesses in supply chain management research has always been the strong focus on one of the concepts, neglecting the fact that successful companies often have to integrate different aspects in one supply chain. A supply chain of a high-end computer manufacturer for example might have to be green and agile at the same time, a military supply chain probably should integrate the concepts of agility and resilience to be successful.
First the authors introduce the mentioned concepts and compare them in a nice table view.

Next they build a graphical model of the supply chain and added vectors to symbolize how the different concepts influence decisions in the supply chain.
Figure 2 aggregates the results.

Figure 2: Impact of different Concepts on Supply Chain Management Decisions (Carvalho and Cruz-Machado, 2011)

Supply Chain Resilience Using the Mapping Approach, by A.P. Barroso, V.H. Machado and V. Cruz-Machado

The last paper analyzes supply chain resilience using the example of a supply chain in the automotive industry. Supply chain mapping is a simple technique where the elements and connections of a supply chain are drawn on a map. The elements and connections are the enriched with additional information like inventory levels and policies or lead times.
After describing the methodology the authors use a case study to analyze the resilience of the chain. The supply chain mapping enables them to unveil several points for improvement:

The assembler has no alternative suppliers for part B. An identical situation is found for all the other parts.
Like the assembler, the 1st Tier B has no buffer stock. There is no inventory of raw materials, work in progress, and final products.

Conclusion

The first paper shows a quite interesting approach to demand forecasting, which (at least in the simulation) was able to produce much better results than more traditional approaches. If you are interested in this topic, I already discussed several other aspects of forecast risk and problems with forecasting, but I also touched other methods to improve forecasting (e.g. by information sharing).

The second paper contributes to the understanding of the effect of different aspects of some generic concepts in supply chain management. Even though it only considers a small amount of supply chain decisions, the results are quite clear: It is not possible to easily combine the different concepts and it highlights the need either to find trade-offs or to develop new approaches to satisfy all goals.

The third paper introduces the supply chain mapping methodology, which is quite simplistic in nature, but in my point of view one of the most powerful methods to analyze supply chain risks in practice. The case study should be read as an example only and gives a few hints on how to implement the methodology and analyze the results.

Reference:

Tozan, H., & Vayvay, O. (2011). A Hybrid Fuzzy Approach to Bullwhip Effect in Supply Chain Networks Supply Chain Management, 49-72

Carvalho, H., & Cruz-Machado, V. (2011). Integrating Lean, Agile, Resilience and Green Paradigms in Supply Chain Management (LARG_SCM) Supply Chain Management

Barroso, A.P., Machado, V.H., & Cruz Machado, V. (2011). Supply Chain Resilience Using the Mapping Approach Supply Chain Management

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scrm introduction

Introduction to Risk Management in Supply Chains

Daniel Dumke — Wed, 21 Sep 2011 13:09:00 +0000

This is another introductory article (book chapter) to supply chain risk management. I included it, since it is an early (2003) view on supply chain risk management from another perspective. Many other articles I reviewed up to now are following the “Cranfield School Approach” with (Christopher, Jüttner, …) and this one by Peter Kajüter (Münster University, Germany) shows a different approach developed in parallel.

Basis and literature

Risk is defined as

a future development or event that might adversely impact the achievement of corporate goals.

Kajüter argues that risk management is a entrepreneurial need, which should be established by any company. Most developed countries also “support” this need by further regulation requiring risk management systems to contain the risk on a company level. But there seems to be no regulation demanding risk management which covers the supply chain and

consequently, companies are free to extend the scope of risk management beyond the company level and develop inter-organizational approaches to managing risk.

The literature review shows that two streams regarding risks in supply chains can be distinguished:

Investigation of mathematical models to analyze risk sharing instruments.
Focus on conceptual issues in supply chain risk management based on exploratory case studies.

Figure 1: Stages of Supply Chain Risk Management Implementation (Kajüter, 2003)

Corporate and supply chain risk management

Based on the review of the conceptual literature, Kajüter identifies three approaches in supply chain risk management (figure 1).

Depending on the integration stage of the supply chain network and the intensity of collaboration.

Corporate risk management is characterized by individual risk handling of a single company. Supply chain related risks are considered by purchasing risk assessments which are part of the overall risk management.

If buyers and suppliers start to cooperate in managing risks, supply chain risk assessments can be observed. They are characterized by a rather informal communication of risks among the supply chain members and joint efforts to handle them.

Supply chain risk management finally constitutes a structured and formal approach to managing risks by collaboration of supply chain partners. A specific risk management process for the supply chain is established.

So supply chain risk management can be defined as:

Supply chain risk management is a collaborative and structured approach to risk management, embedded in the planning and control processes of the supply chain,
to handle risks that might adversely affect the achievement of supply chain goals.

Risk strategy

The author next proposes the elements of the risk strategy in a supply chain risk management framework: basic principles of risk management, defined risk limits and responsibilities.
The risk management principles are shown in figure 2. Risk limits refer to the levels of maximum damage which can be tolerated and have to be set for each individual company and the overall supply chain.
Lastly the responsibilities have to be defined for the identified risks within the chain. Kajüter suggests establishing a risk owner for each risk and a cross-functional, cross-company risk management committee.

Figure 2: Principles of Supply Chain Risk Management (Kajüter, 2003)

Risk management process

Kajüter suggest a three step process to manage supply chain risks.
The first step includes the risk analysis which has to be conducted on a supply chain level. Figure 3 shows an example.
Step two refers to the risk control, where risk management strategies are employed to mitigate risks, those include: risk avoidance, reduction, transfer and acceptance.
The last step includes risk monitoring and reporting, where processes continuous monitoring of identified risks have to be found.

Figure 3: Risk Assessment Portfolio (Kajüter, 2003)

The author concludes:

An interorganizational approach to risk management in supply chains facilitates risk management at the single firms and offers opportunities to improve supply chain performance. It requires a high level of trust and mutual respect among the individual companies, though.

Conclusion

Kajüter delivers answers for three basic questions in supply chain risk management.

What are the stages of supply chain risk management and how is it different from corporate risk management?
What are the three major parts of supply chain risk management?
How can the process of supply chain risk management be employed in a supply chain and company?

Of course, this 16 page chapter can only give hints on the implementation side, but not cover every aspect. I did not like the risk categorization very much, or at least the wording (mathematical models for risk sharing or conceptual works) leaves out much quantitative literature which just investigate risk mitigation strategies.

But all in all the article makes a great starting point for supply chain risk management endeavors in business and research.

Reference:

Kajüter, P. (2003). Risk Management in Supply Chains Strategy and Organization in Supply Chains, 321-336

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