Week 4

Fisher's (1997) approach of differentiating between “functional” and “innovative” products is a popular framework that matches a company's supply-chain design to the level of demand uncertainty. The Fisher framework defined the need for custom supply chains to achieve “agility” in a context in which supply is matched with demand day to day via short-term adjustments: Long-term risk management was not addressed in this framework.

• Lee (2002) expanded on Fisher's framework by including supply uncertainty, and the strategies were expanded to include some long-term practices such as vertical integration, strategic alliances, and dual sourcing

• The resulting 2 2 matrix (supply-chain design vs. level of product innovation) distinguishes between efficient, responsive, risk hedging, and agile supply chains for functional and innovative products.

The “Triple A” supply-chain framework adds that firms need to be agile, adapt, and align the interests of their company with other supply-chain actors

supply chain in which robustness augments agility, adaptability becomes resilience through increased proactivity

Companies face different supply-chain characteristics/features, which lead to a different balance of weights and tradeoffs, resulting in different supply chain strategies to pursue in practice.

enlisting flexibility and hedging options to mitigate market uncertainties such as in price or demand

the degree to which different supply chains within one company are intertwined and share common resources (e.g., in terms of planning, inventory control, logistics, procurement, manufacturing equipment, etc.).

• “Multiple independent supply chains”: Companies with several independently managed supply chains with only very limited sharing of resources across the supply chains. Typically, companies/conglomerates with very broad and diverse product portfolios fall into this category.

• “Shared services”: Companies whose multiple supply chains share some supply-chain processes or resources, typically functions such as procurement, logistics, or distribution.

• “Central guidance”: Companies that manage all products centrally and in the same way, while having fundamentally different supply chain structures for each. Usually, most internal resources such as personnel, plants, equipment, and IT systems are shared across the company.

• “One-size-fits-all”: Companies that use one supplychain setup to produce all its stock keeping units (SKUs). There might be slight differences in the way the SKUs are managed (e.g., priority rules, planning cycles) or handled (e.g., packaging). Such companies are usually seen as single-product-companies

the degree to which a supply chain is interlinked and aligned with the supply chains of partner companies, in terms of material flow, information flow and financial flow

• “Less dependency/engagement”: Companies that have arm's length relationships with their suppliers/supply chain partners. These are typically companies that do part of value adding inhouse, and externally sourced materials can be obtained in a transactional fashion. These companies do not have strategic suppliers and for most inputs they can easily switch sources.

• “Coordination with key partners”: Companies that have only a limited number of strategic suppliers with which they coordinate efforts and share some information (e.g., market data). Most of the relationships are still transactional and less engaged.

• “Integrated systems”: Companies that share some parts of the supply chain and have a system interface with their key partners (e.g., for customer or vendormanaged-inventory). These companies frequently share information with some strategic partners. Switching those partners would be very costly and disruptive

• “Collaboration”: Companies whose supply-chain processes are very interlinked with their partners. Goal alignment is typically strong between these companies and their partners. They may collaborate on the development of new products (e.g., Joint Design Manufacturing). Switching partners would be prohibitively costly in the short to medium term.

• “Vertical integration”: Companies that control two or more, typically investment-intensive, stages of the production that in other contexts might be operated by separate firms. A company with this structure therefore does most of the value adding processes by itself.

The Triple-p supply chain resilience archetypes

• The products in this archetype are produced by homogeneous supply chain processes even though they serve at least two different markets: larger, long-term contractual relationships with important customers, and a more short-term market with transactional relationships with smaller players.

• Supply chains in this archetype tend to be vertically integrated to protect intellectual property, with limited outsourcing to a small pool of qualified suppliers.

• Upstream processes tend to be heavily automated to reduce labor cost, representing high capital investment. The capital investment requires that the upstream processes be run at a high utilization, which then limits flexibility throughout the supply chain.

• Product complexity and the resulting perceived need for heavy upstream automation are the dominant drivers of supply-chain design and resilience decisions for the supply chains in this cluster.

• these factors require the upstream operations to maintain a high capacity utilization, which creates a push system that makes it difficult to match supply with a volatile demand.

• the need for high utilization, specialized worker skills, and management of IP requires centralization of capacity, making regional production (whether outsourced or in house) difficult—perhaps even infeasible.

• Changes in the mix of customers or market applications—such as producing a chip for consumer electronics instead of the automotive market—puts stress on the “homogeneity” of the supply-chain processes and the efficiency of automation.

• need to maintain a long-term focus

• diversify the production footprint and build redundancies into their center of excellence structures

• use of sophisticated supply-chain riskmanagement programs for owned assets and tier-1 partnerships.

• Supply chains in this cluster handle complex product portfolios (large number of components) of either standardized make-to-stock (MTS) or make/engineer-to-order products (MTO/ETO) for B2B settings

• The company retains partial ownership of assembly and testing processes for quality purposes and lead-time control, and of a few key components to protect IP.

• Shorter life cycle than archetype 1

• Firms of this type typically pursue regionalized strategies, with only few facilities playing global roles. This makes the company-owned part of the supply chain shorter than for supply chains from the product-complexity archetype.

• The perceived need to select lowest cost-per-unit suppliers increases the total number of suppliers and the supply-chain length.

• They are responsible for the entire end-to-end supply chain. They are vulnerable to disruptions in the multilayered supply network.

• dual-sourcing strategies often still rely heavily on Chinese supplier bases, and that the financial health of small suppliers is a major concern.

• having more than one market segment with differential requirements requires having different supply-chain strategies with differences in some of the supply-chain processes.

• Transportation capacity constraints accentuate supply shocks.

• Customers expect and demand—but are not willing to pay for— “resilience insurance.”

• Heavy investment in tools, people, and mechanisms to expand their “reach” into lower tiers and manage the end-to-end supply-chain design

• “control tower” to guide supply-chain design and execution, and to support lower-tier suppliers

• Supply chains in this cluster, contrary to “product complexity” supply chains, primarily buffer with inventories instead of capacity. Oftentimes, inventory “within the chain” (at suppliers) is used, as well as inventory across pooled different products or regions, often managed through centralized procurement functions

• Supply shocks of the last decade have shown that a diversified footprint combined with regionalization can effectively increase resilience.

Supply chains in this cluster sell broad portfolios of consumer products. Their variants are used by industrial supply chains in support of service industries. The multiplicity of products and very different value propositions require a wide variety of supply-chain strategies, ranging from efficient but longer-lead-time flow chains to highly responsive short lead-time ones. Companies in this archetype heavily outsource to contract manufacturers and supply chain orchestrators that have access to a global supplier network. The access to a diverse supplier portfolio allows for labor-wage arbitrage, currency exchangerate hedging, and easy access to capacity for dealing with demand shocks.

• Mainly concerned with internal obstacles and internal process complexity when it comes to increasing supply-chain resilience.

• The diverse product portfolio with partly independent, partly intertwined supply chains increases complexity, confuses the execution of supply-chain strategies, and inhibits fast decision making and transparency of product profitability

• lack of visibility into the supply chains of their strategic partners such as contract manufacturers, third-party logistics providers, or supply-chain orchestrators. Although supply-chain risk management is practiced to some extent with key suppliers, it was often not expanded deeper into the chain made up of small suppliers in emerging markets.

• Focus on complexity reduction through portfolio and supplier rationalization that required the focal company to take an active role in supply-chain management

• engaged in some sort of standardization of components, production methods, or assets to increase flexibility of the local/regional production network.

• Supply chains in this cluster need to optimize both inventory levels and capacity utilization due to the price pressure in their respective markets. In case of supply shocks these companies are experienced in finding “creative” solutions for handling shortages, such as the use of alternative materials or flexible bills of material.

Resilience enables a supply chain to be prepared for events, reduce the impact of a disruption and strengthens the ability to recover quickly from them by maintaining continuity of operations at the desired level of connectedness and control over structure and function

• Flexibility

  • Flexibility facilitates coordination processes and enables organizations to deal with high levels of uncertainty

  • It allows a supply chain to effectively adapt to (un)foreseen changes

  • Strong supply chain relationships, contracts that allow for modifications in delivery schedules, manufacturing facilities that can be used to produce multiple products, redundancy in terms of slack or unused resources and a multi-skilled workforce are factors that enable flexibility in the supply chain

• Velocity

  • Velocity places a strong emphasis on the efficiency of the supply chain’s response and recovery

  • Higher supply chain velocity in this regard leads to quicker response to market changes or events and helps to improve the speed of recovery from disruptions

• Visibility

  • The ability to see from one end of the pipeline to the other, is important for supply chain resilience. Visibility is determined by the extent to which supply chain actors have access to, or timely, share information that is of key importance to operations

  • visibility has been labeled as an antecedent of supply chain resilience

• the formative elements of supply chain resilience have to be adopted by all members of a supply chain to align forces in the case of a risk event

• it has been shown that organizations engaged in collaborative relationships achieve improved visibility, higher service levels, increased flexibility, greater end-customer satisfaction and reduced cycle times

• Supply chain collaboration enables the development of synergies among partners, facilitates joint planning and encourages real-time information exchange required to prepare for, respond to and recover from supply chain disruptions while reducing their impact.

• Many authors cite mutuality of benefit, rewards and risksharing together with the exchange of information as the foundation of collaboration

information sharing, goal congruence, decision synchronization, incentive alignment, resource-sharing, collaborative communication and joint knowledge creation

Our findings indicate that information-sharing and collaborative communication help to improve supply chain visibility by providing transparency needed to detect and respond to disruptions upstream and downstream. At the same time, knowledge of processes and procedures is created jointly, which we found further increased visibility while ensuring confidence into the supply chain, so that over-reactions, unnecessary interventions and ineffective decisions in a risk event situation can be prevented

• decision synchronization via joined solution seeking and resource-sharing increases velocity in responding to (upcoming) disruptions.

• velocity is supported by the early sharing of good quality, complete and reliable information, as knowledge of processes within the supply chain enables anticipation, readiness and quick response to disruptions

• Information-sharing, collaborative communication and jointly created knowledge increase visibility and, hence, supply chain resilience.

• Information-sharing, collaborative communication, joint relationship effort, and jointly created knowledge increase velocity and, hence, supply chain resilience.

• Joint relationship effort increases flexibility and, hence, supply chain resilience; a lack of information sharing and collaborative communication reduces flexibility and, hence, supply chain resilience

• The higher the levels of collaborative activities in a supply chain, the higher the level of resilience in the supply chain.

• A high amount of mutually created knowledge can somewhat offset low levels of collaborative activities in the creation of a resilient supply chain.

• Mutual dependency between two organizations in a supply chain or mutual dependence on a third party indirectly increases supply chain resilience, as it leads to more willingness to share information, increased joint relationship effort and mutually created knowledge.

• Mutual dependency between two organizations in a supply chain or mutual dependence on a third party indirectly leads to more willingness for specific investments. Dedicated investment leads to path dependencies, possibly decreasing flexibility and, in turn, supply chain resilience.

• Supply chain resilience can be enhanced through collaboration with competitors.

  • Our analysis indicates that competitors’ resources can help to create flexibility, i.e. additional supply to customer in case of disruption. At the same time, this means that the disruptions can be taken care of in a speedy way; hence, competitors also enable velocity

• The level of collaboration is determined by characteristics of the market (demand and supply uncertainty), the product (criticality and customization level) as well as the partner (superior capabilities and dependence)

Resilience can be understood as the capability to manage and cope with (sudden) calamities, such as shocks, disturbances, recessions, or disaster events affecting business and economies at various levels, so that performance is sustained or even improved after recovery

This is because there seems to be a balance between being efficient and resilient

• High levels of supply chain integration, which help increase performance, but might have opposing effects on SC resilience

• Tight coupling between business partners might remove all redundancies and make the chain less able to cope with disruptions

• Tight coupling might increase response, speed, agility and information sharing and thus increase SC resilience capability

• Standardised Products Economies of Scale Production, management, distribution, marketing etc

• Lower Costs More potential sources of raw materials, labour, outsourcing, manufacturing options etc.

• Increased Access to New Markets Through increasing the size and scope of the supply chain

• Flexibility: Provide (potentially) the flexibility to cope with the uncertainty of international markets

• Substantial geographic distances

  • Logistics networks stretched, Lead time implications

• Added forecasting difficulties

  • Aggregation can become more difficult, Qualitative knowledge of local markets limited

• Infrastructural Inadequacies

  • Worker skill, performance expectations Supplier availability, reliability, contracts Lack of local technologies Inadequacies in transportation, communications infrastructure

• Political Issues

  • Tariffs and tax rates Levels of government control Stability of political systems and processes

• Incomplete decision regarding off- and reshoring

  • Offshoring based on cost only Reshoring due to inadequate coordinated/managed offshoring

Worker skill, performance expectations Supplier availability, reliability, contracts Lack of local technologies Inadequacies in transportation, communications infrastructure

• First a dramatic lowering of production

• Slowly builds up again

• Sometimes doing even better after disruption

Attribution theory

Attribution theory investigates how individuals assign causes of and responsibility for unexpected events through a sense-making process

Locus of causality

Controllability

Stability

Severity

Examines the degree to which the cause of an event is attributed to factors either internal to the directly affected supplier (e.g., a failure by the supplier) or external to the directly affected supplier (e.g., a plant’s destruction by a tornado). Internally attributable loci of causality typically lead to a higher responsibility attribution to suppliers

the volitional control of a counterparty (here, the supplier) over an event, also leads to increased supplier responsibility attribution.

refers to the extent to which the cause of an event remains the same or changes over time. In cases of a repeated fault by a specific supplier, the buying firm is more inclined to attribute responsibility to the supplier for similar future behavior.

refers to the degree of damage caused by the event. Supplier responsibility attribution increases with the severity of the event’s outcomes

• Responsibility attributions are known to affect behavioural reactions

• responsibility attribution of a psychological contract breach—a breach that occurs when an individual perceives that an exchange partner has failed to fulfil the individual’s interpretation of the terms and conditions of an exchange—is positively related to supplier switching behaviour by the buyer.

• Managerial coping behavior is defined as a manager’s cognitive efforts to manage (i.e., reduce, minimize, or tolerate) the internal and external demands of the manager’s challenging environment

• Such behavioral coping studies typically use the lens of dual process theories. Dual process theories suggest that individuals use two distinct but interacting cognitive systems. It proposes that rational cognitive modes can override intuitive modes when both modes cue different responses

Firm coping actions traditionally have been structured according to the buffering/bridging dichotomy, where buffering describes approaches of the buyer that are uncooperative (e.g., switching suppliers) and bridging describes cooperative approaches (i.e., collaborating more closely with the current supplier).

Results provide three archetypes leading to high coping success and two archetypes leading to low coping success, suggesting that managers with dark personality traits and managers without them can both achieve high coping success, but only if the response involves a fit with managerial coping behavior and firm coping actions; without such a fit, the response’s outcome will be a low coping success.