MANAGING

SUPPLY CHAIN DISRUPTIONS:

HOW TO DEAL WITH THEM ?

Adi Djoko Guritno | MM FEB UGM| adidjoko@tip-ugm.org | Tel. +62-81-125-4285

Steve Culp, Contributor

Leads Accentures Risk Management practice globally.

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LE ADE R SH IP | 2/15/2013 @ 10:45AM | 2,554 views

Supply Chain Disruption A

Major Threat To Business
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In recent years, supply chains have become longer and more complex, while
the severity and frequency of supply chain disruptions seems to be
increasing. Recently the World Economic Forum launched a new report in
Most Read on Forbes
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cooperation
with
Accenture,
Building
Resilience
in
Supply
Chains,
led
Global Supply Chain Challenges, Rumors, Disruptions for Apple, Apply Chain Ignorance Now a Common
NKE, WMT)
NEWS Defense
People (AAPL,
Places AMZN,
Companies
by my colleague Jonathan Wright and presented last month at the WEF
Annual Meeting in Davos, Switzerland by Sander vant Noordende, Group
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Chief Executive Management Consulting for Accenture. It indicates that
significant supply chain disruptions reduce the share price of affected
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companies by as much as seven percent on average.
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5/5/13 10:01 PM

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Natural disasters and extreme

weather conditions are not the only threats to
Industry
Elon Musk Ups Resale Value Of Tesla
supply chains. Systemic vulnerabilities, such as oil dependence and
Model S: 'We Decided We Were Wrong'
information fragmentation, also pose serious risks, as do political unrest,
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cyber crime and the rising cost of insurance and trade finance. Our research
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Global
Supply Chain Challenges,
Is 'The Great
Gatsby' Doomed To Flop
says that 80 percent of companies worldwide see better protection of supply
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Due To Its Release Date? +39,077 views
Rumors,
Disruptions for Apple,
chains as a priority.
Discuss in my forum

Retail Industry

Amazon, IKEA, Nike and Forever 21 There areSupply

worldwide
steps that
industry groups
Retail
Chain
Ignorance
Nowand
a government can take
together
to
make
supply
chains
more
resilient,
such
as institutionalizing a risk
Common Defense (AAPL, AMZN,
assessment process within a broad-based, neutral international body, or
NKE, WMT)

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expanding the use of data-sharing platforms for risk identification and

response. To help government, industries and consumers cooperate, the
Supply
chain
has
the buzz
of the month
for bothdata
the U.S.
and global
March. Global
supply chain management challenges and
report
calls
for
a been
common
riskphrase
vocabulary,
improved
sharing
alongretail
andindustry in
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On Forbes
disruptions have put major retailers like Apple (APPL), Amazon (AMZN), IKEA, Nike (NIKE) and Forever
21
in
the
news headlines, and supply chain rumors
Keep up with the writers,
between supply chains, and more flexible response strategies.

By Barbara Farfan, About.com Guide March 25, 2013

have been equally as problematic for some retail chains as the supply chain challenges themselves.
people, places, companies and

organizations that interest you.

Private
companies
can support
broad
measures
suchall
asmonth.
those Analysts
discussed
Supply sector
chain rumors
have swirled
around Apple
with
tornadic force
speculated about a softening demand for iPhones and iPads, the
Sign
now shortage,

release
of
a
hig-res
iPad
Mini
with
Retina
display,
the
loss
of
supply
chain
control
to
Samsung,
a
touchup
sensor
margins, product demand, and the
at Davos, but they should also take steps to make their own supply chains
effect of all of this on the product mix, traffic, and sales that will or won't happen in Apple retail stores. With each negative rumor, came a significant stock
more resilient and risk-resistant. Two important private sector priorities are
price drop for Apple stock, proving that the only thing less controllable than global suppliers are stock analyst speculations.
the use of exercises to stress-test assumptions and plans, and the
Steve Culp
When Apple's supply chain has a challenge it should be disconcerting for all leaders of all major global businesses.
That's because the man who is widely
development
of business continuity or trade resumption plans, protocols and
Contributor
considered to be the ultimate supply chain master is now Apple's CEO - Tim Cook. Prior to moving into the CEO
office, under Cook's supply chain leadership
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lines
of authority to address major concerns. When a disruption occurs,
Apple has been judged to have the best supply chain management out of all businesses operating anywhere in the world for the past five years.
businesses need to have mitigation plans in place to prevent loss of market
If the world leader in supply chain management can have seemingly constant challenges, disruptions, and failures in his supply chain, what hope is there

 WITH SUPPLY CHAINS, THE QUESTION ISNT WHETHER

DISRUPTIONS WILL HAPPEN, BUT WHAT AND WHEN
(Zurich Consulting, 2011)

The ripples of disruptions affect the end customer, the brand image,

revenues and even investors. Research by Kevin B. Hendricks and

Vinod R. Singhal published in 2005 shows that firms suffering from

supply chain disruptions experience between 33% and 40% lower
stock returns relative to their benchmarks over a three-year period.

Supply Chain Disruption

- De%inition

A SUPPLY CHAIN DISRUPTION

.. is an event that might happen in any part of a supply chain
and causes undesired impacts on the (achievement of) objective
and the performance of supply chain.

BCM-SC DISRUPTION CASE IN INDONESIA ?

Central
Java

Batubara
Continuity Power
Supply
(Pasokan Telat)

Tanjung Jati
(Jepara)
BBM

AHI

Jakarta
Gas
Continuity Power
Supply
(Pasokan Telat)

Muara Karang
Muara Tawar
BBM
5

DI

World Trade
-International trade volume & shipping line

3.0 mill TEU

2.5 m
TEU ill

13.3 mill
TEU

3.2 mill TEU

1.5
m
TEU ill

6.6 mill TEU

SC Disruptions
- Category

ACCIDENTS fire, explosions, structural failures, hazardous spills;

LABOR AVAILABILITY shortage of qualified staff, high-cost
labor, labor unrest, strikes, slowdowns;

PRODUCTION PROBLEMS overly lean inventory, process issues,

reliability, lead-time variability, inflexible production capacity, long
set-up time;

NATURAL DISASTERS epidemics, earthquakes, extreme weather.

Flow of Goods
- Export and Inter-regional

Export > Inter-regional

Ketergantungan inter-regional < negara lain

Source: Study of Na+onal Strategic Development Policy based on

Compete+ve Advantage,Bappenas 2005

Flow of Goods
- Import and Inter-regional

Import > Inter-regional

Ketergantungan inter-regional < negara lain

Source: Study of Na+onal Strategic Development Policy based on

Compete+ve Advantage,Bappenas 2005

Pre & Post Disruption

PRE-DISRUPTION VIEW

POST-DISRUPTION VIEW

(SC Risk
Management)

(SC Disruption
Management)

TIME
Disrup2ve event

Fig. Handling disruption in Supply Chain

10

Pre & Post Disruption

Integrated process to manage disruption

TIME

Fig. Integrated disruption management

in Supply Chain

11

Pre & Post Disruption

A period of time over which a
disruption is latent and inactive

Potential Disruption

The disruption happens

in the real world

Actual
Disruption

Fig. Disruption life cycle

12

SC Disruption Management
- De%inition

SC Disruption Management is a structured and continuous

process to analyze the impact of disruptions across supply
chain on the predefined objectives and to handle them in
their whole life cycle.

13

Integrated Framework

- To manage disruption in SC
Risk management starts

System Definition &

Risk Identification

Disruption
occurs

Risk
Monitoring

RISK
MANAGEMENT
CYCLE

Disruption
Detector

Disruption
Learning

DISRUPTION
MANAGEMENT
CYCLE

Disruption is
managed

Disruption
Reaction

Risk
Quantification

Disruption
Recovery
Risk Evaluation &
Treatment

14

Managing SC disruption
MAPPING THE SUPPLY CHAIN
Identification of productivity losses
Determine the sensitivity to specific disruption
Identify where the profit is being generated

KNOWING YOUR SUPPLIERS

Knowing where the suppliers supplies come from
Identify where you stand in your suppliers priorities

APPLYING A RISK-BASED APPROACH

The cost of risk assessment and having a set of strategies to
deal with outcomes is far preferable to the potential cost of
leaving risk on balance sheet

15

Mostly discussed SC disruptions

SC LEVEL
Company Level

Demand Side
Network
Supply Side
Level
Transporta2on

Environment

TYPES OF DISRUPTIONS
Produc2on facility failure ; Quality problems in end-
product ; IT system failure ; Human resource problems
(e.g., strike)
Distribu2on network breakdown ; Demand vola2lity
Quality problems in raw material ; Supplier delay ;
Supplier bankruptcy
3PL bankruptcy ; Transporta2on delay ; Port strike
Natural catastrophes ; Security risks (e.g., terrorist
aPacks) ; Communica2on infrastructure breakdown ;
Poli2cal/Economic instability ; Regulatory and legal risk
16

the intensity of each risk factor. Firstly, the supply chain objectives (e.g., on-time delivery,
order completeness, order correctness, and damage-free and defect-free delivery) have
been prioritized. Subsequently, the relative
importance
risk factors
regarding
Method
of SofC identified
impact
quantiKication
each of these objectives was assessed.

Table.
ethods for
for supply
supply
chain
impact
quanLcaLon
Table 5-MMethods
chain
impact
quantification
Risk Quantification Method
AHP
Qualitative/semiquantitative

Quantitative
(Modeling and
Simulation)

Expert group rating

Expert opinion (survey)
Failure mode and effect
analysis (FMEA)
Petri net
System dynamics
Discrete event
simulation
Markov Chain Modeling
Inoperability inputoutput modeling (IIM)

Reference
Wu et al. (2006), Gaudenzi and Borghesi (2006),
Levary (2007), Levary (2008), Schoenherr et al.
(2008), Enyinda et al. (2010), Kull and Talluri
(2008)
Norrman and Jansson (2004), Blackhurst et al.
(2008), Matook et al. (2009)
Thun and Hoenig (2009), Yang (2010)
Sinha et al. (2004), Pujawan and Geraldin (2009)
Wu et al. (2007), Tuncel and Alpan (2010)
Wilson (2007)
Munoz and Clements (2008)
Ross et al. (2008)
Wei et al. (2010)
(Behdani et al., 2012)

Similarly, Wu et al. (2006) have suggested AHP to analyze the risk factors in the supply base
of companies. For this purpose, they firstly classified of supplier-oriented risk factors into

17

Handling disruption in SC
Risk management starts

System
Definition
&
Risk
iden2ca2on
method
Risk
Identification
Risk
classica2on
scheme

Disruption
occurs

Risk mRisk
onitoring
Monitoring
method

Visibility
& inform. Access
Disruption
Inform,
analysis tools
Detector
Disrup2on causal analysis

Disrup2on
Disruption
learning
process
Learning

Disruption is
managed

DISRUPTION
MANAGEMENT
CYCLE

RISK
MANAGEMENT
CYCLE

Disruption
Response
plan /
Reaction
implementa2on

Risk
Likelihood
and impact
Quantification
es2ma2on methods

Resource nding and alloc.

Communica2on Disruption
& inform sharing
Recovery
Coordina2on of ac2vi2es & actors
Risk
Evaluation
&
Risk
treatment
methods
Treatment
Selec2ng
app. methods

18

Strategic initiative

- To minimize disruptions
1. Collaborating SC Planning (end to end Planning) (P)
2. Efficient Procurement Management (S)
3. Lean & Integrated Manufacturing system (M)
4. Improve Logistics and Transportation effectiveness (D)
5. Develop SCM System and Competency

19

Understanding the Supply Chain

Respond to wide ranges of quantities demanded

Meet short lead times
Handle a large variety of products
Build highly innovative products
Meet a very high service level
Handle supply uncertainty

Key Point

Achieving SC Strategic Fit

The <inal step in achieving

strategic <it is to match supply
Responsive
chain responsiveness
with the
Responsive
Supply Chain
implied uncertainty from
demand and supply.
Responsiveness
Spectrum

Ecient Supply
Chain
Certain
Demand

Implied
Uncertainty
Spectrum

Uncertain
Demand

Supply Chain Strategy Over a PLC

Responsive

Responsiveness
Spectrum

Ecient
Product
Maturity

Implied
Uncertainty
Spectrum

Product
Introduc2on

22

LogisLc pipeline management

Value adding time is time spent doing something that
creates a benefit for which the customer is prepared to
pay
Non-value adding time is time spent on an activity whose
elimination would lead to no reduction of benefit to the
customer.

Cust.
Delivery

VALUE ADDING TIME

Regional
stock
In transit

RM stock

Finished
stock

Production

Production
RM stock

In transit

Finished stock

Cust. Delivery

Regional stock

COST ADDING TIME

References
Avoiding the pitfalls of supply chain disruption. Insight,
Supply Chain Risk Issue 2011. Zurich Help Point.
How to handle disruptions in supply chains an integrated
framework and review of literature. Behdani B. Adhitya A.
Lukszo Z. and Srinivasan R., 2012.
When supply chain disruption matter. Schmidt W. Raman A,
2012.

25

T E R I M A K A S I H

Contact: Adi Djoko Guritno, Ph.D,

adidjoko@tip-ugm.org ; adidjoko@pttimah.co.id
Mobile: 081-125-4285
Blog: http://adidjoko.wordpress.com