Supply Chain Risks : A Systems Thinking

Perspective

Abhijeet Ghadge and Samir Dani

School of Business and Economics, Loughborough University, UK

7th SEPTEMBER 2010

10th International Supply Chain Risk Management Network Conference

About me….Education Qualification:

Bachelor of Engineering in Aeronautical EngineeringAeronautical Society of India, New Delhi, India

Master of Technology in Industrial Engineering and Management Indian Institute of Technology (IIT) Kharagpur, India

Currently pursuing PhD in Supply Chain Risk ManagementSchool of Business & Economics, Loughborough University, UK

Experience:

Around 4 years (operational level) experience in Design and development, Supply chain activities in Aerospace, Automotive domain.

Defense Research Development Organization (DRDO), Bangalore, India Infotech Enterprises Limited, Bangalore, India TATA Voltas, Mumbai, India

Classification of supply chain risks

Chopra and Sodhi (2004) Classified supply chain risks as disruptions, delays, systems, forecast, intellectual property, procurement, receivables, inventory, and capacity.

Sinha et al. (2004) Classified four areas of risks which include standards, supplier, technology, and practices.

Finch (2004) Classified risks into three broad categories which include the three levels of coverage: application level, organizational level, and inter-organizational level.

Norrman and Lindroth (2004) Categorize the type of risks into operational accidents, operational catastrophes, and strategic uncertainty.

Kleindorfer, Saad (2004) Divided risks in two broad risk categories as (1) risks arising from the problems of coordinating supply and demand, (2) risks arising from disruptions to natural activities.

Tang (2006) Concluded there exist two kinds of risks in supply chain as operational risk and disruption risk

Tang and Tomlin (2008) Companies usually manage supply chain risks either at the strategic (long term) or at the tactical (mediumterm) level.

Systems thinking approach

Process of understanding how factors/parameters/ variables influence one another within a whole.

concept originally evolved in the defense sector, but now it being widely spread globalised in all sectors.

Focuses on understanding how the physical processes, information flows and managerial policies interact so as to understand dynamics of the variables of interest.

Change in one variable affects other variables over time, which in turn affects the original variable.

Systems of systems

Typical supply chain network links from a systems perspective

“ Systems of systems are large scale concurrent and distributed systems that are comprised of complex systems ” -Kotov,1997

Research methodology

To understand the interdependencies within the factors and the risk propagation within Supply chain.

Literature review on SCM and SCRM for last 10 years (2000 onwards) Finding from workshops conducted as a part of three NEXT-GEN conferences (2008,09,10).

(Next Generation Manufacture Supply Chains and Economy Research Collaboration)

Use of Systems Engineering tools and techniques to identify different affecting parameters and nodes within SC.

Systems thinking/concepts Causal loop diagramming Analytical Hierarchy/Network process System Dynamics/ simulation (parallel & Discrete) Delphi technique/Group consensus

Next generation supply chains

Environmental regulations

Information and communication technology

3PL/4PL Logistics service

Global market

Customer expectations

Skills shortage

Risks from sustainability perspective…

Sustainable supply chain risks (to be presented at LRN conference, 2010)

Causal loop diagram

Causal loop diagram for supply chain system

Next generation supply chain risk model

Risk propagation in aerospace supply chain

Industry Supply Chain Disruption Risk Impact

Airbus A380 (2005)

1) Distributed Integration dependencies among manufacturing sites and

suppliers

2) Design configuration management problems (CATIA V4/V5)

1) Mismatch of electrical harness between designed

and physically appeared routing on aircraft.

2) Costly delays for two years.

Boeing 787 (2006)

1) Failure of assemble to order manufacturing strategy

2) Failure by global supplier network to meet targets

1) Problems with spare parts led to delays up to 2 years.

2) Financial loss due to cancellation of orders.

3) Reputation loss

JSF F-35 Lockheed Martin (2010)

1) Development is being done concurrently with early production.

2) National shortage of professionals leading to longer flight test program.

1) JSF F-35 delays up to 2015 to US Air Force

2) Delays resulting in heavy cost increases to JSF program

partners.

Instances of supply chain risk propagation in the aerospace sector

Research framework

Conclusion

Systems thinking/SD modelling approach identifies influential risk parameters for supply chain.

New perspective towards using systems thinking to manage future supply chain risks.

Challenges for Simulating the complete complex model of SC (non-availability of sufficient data, setting parameter’s values, etc)

The Research framework is in its infancy and needs further testing and would be developed further.