risks

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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Strategies

Managing Global Sourcing Risk

Daniel Dumke — Mon, 23 Jan 2012 17:34:15 +0000

Probably most companies source at least some parts for their products from global sources. This could be the steel from Australia, electronics from Taiwan or cloth from India. The reasons for international sourcing usually include cost and quality, which might be superior compared to local sources.

On the other hand longer shipment ways and less direct access and control may also increase the risks of quality failures, delays or even disruptions.

So at the moment a lot of companies struggle to find the right balance between increased risks and reduced cost in international sourcing. This study gives an inside view into fifteen companies and how they handle risks related to global sourcing, and therefore this overview is a good example for current practices in the field of supply chain risk mitigation.

Method

The authors still see a gap in the knowledge about how other companies analyze their sourcing related risks and how these risks are mitigated by them.

Therefore they use a multiple case study approach with 15 cases / companies within seven industries. In each company several information sources were tapped, including expert interviews.

Afterwards the authors compared the individual results in a cross case analysis.

Sourcing globally

But first the authors start with a literature analysis to analyze the reasons and risks of global sourcing.

Figure 1 shows their results regarding the advantages and risks of sourcing globally.

Figure 1: Sourcing Globally: Advantages and Risks (Christopher et al., 2011; click to zoom)

From this the authors extract a risk classification for global sourcing risks (figure 2).

Figure 2: Sourcing Globally: Risk Classification (Christopher et al., 2011; click to zoom)

Risks in global sourcing

Building on this literature review the authors conduct their case study. The cross-case analysis reveals risks in the following industries:

retail,

fashion retail and wholesale,

consumer electronics,

oil/gas,

mechanical and electrical equipment,

fast moving consumer goods (food and drink), and

aerospace.

The risks are shown in figure 3.

Figure 3: Risk Overview (Sourcing Globally) (Christopher et al., 2011; click to zoom)

Strategies for risk mitigation

The identified risks are handled very differently by each of the companies. Figure 4 shows the different approaches to identify and manage the risks.

Figure 4: Risk Management Strategies and Tools (Christopher et al., 2011; click to zoom)

Overall the authors find:

The study proposes four generic strategies for managing global sourcing risk: network re-engineering, collaboration, agility and a risk management culture. Evidence of each of these strategics was found in the case studies although no single company was applying all of them.

The study also shows that even though many managers were aware of the risks their companies were exposed to, risk management strategies were not implemented in a systematic and holistic manner.

Conclusion

It is not possible to generalize these results for any company, due to the specific exploratory nature of the method used. But I find the findings quite interesting and I think they could be used as a foundation to build your own mix of mitigation strategies.

Reference:

Christopher, M., Mena, C., Khan, O., & Yurt, O. (2011). Approaches to managing global sourcing risk Supply Chain Management: An International Journal, 16 (2), 67-81 DOI: 10.1108/13598541111115338

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Year of Renewal - This Week in Supply Chain Management (1 / 2012)

Daniel Dumke — Fri, 06 Jan 2012 12:29:59 +0000

Welcome to the “Year of Renewal”.
The first week in 2012 is nearly over and I restarted writing on my chapter on supply chain risk management from a practitioner’s perspective. Hopefully finishing by the end of the month.

Year of Renewal

2012 is my year of renewal and I just started with a new website design. I do not think it needs a lot of explanation, so I just used Skitch to create a graphical howto.

There are still some things not as I’d like them to be. This morning I had to make some fixes for those who still use the Internet Explorer with versions below 8. It is still not perfect, but I will continue to work on some aspects anyway.

News

There weren’t many news during the last days, but I found two articles with some new thoughts on 2011’s hot topics.

The Bangkok Post summarizes the local issues during the flooding. The Thai Industry Association summarizes the situation as follows: “The private sector has no clue how to react when a devastating natural disaster occurs”. Thereby, highlighting the massive failure to account for the regional risk structure by many global companies. (Bangkok Post)
Boing is finally conducting a more in depth analysis of their supply chain to find sources for the long delays of its new 787 Dreamliner. (Strategic Sourceror)

Blogs

Bloggers never sleep. And I would like to highlight the following articles:

Jan Husdal concluded 2011 with some nice statistics. The last article from 2011 was about the “Estimation of disruption risk exposure”, with “the most complete estimation of disruption risks” available. (Jan Husdal)
@risk also published two interesting articles during the two weeks. First, on a study that Japanese companies are shifting their sourcing focus to other countries, due to high local risks. Second, the US Department of Energy (DOE) released his second “Critical Materials Strategy” report, forecasting a decreasing long term risk in supply disruptions. (Japan Critical Materials)
There are many projections out there for 2012 I found the “red herrings” at the Risk Management Monitor very entertaining. Also click the linked list with the full listing as well. (RMM)

Learning and research

SCM Operations reviews an online supply chain management which is offered by the University of San Francisco. (SCM Operations)
Already published in 2009 but still interesting: The Big Picture published an (video) interview with Robert Shiller (Yale Professor) on evaluating risk. (The Big Picture)

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