03: Supply risks: conceptual background

Question 1

How does a typical supply chain look like?

Answer 1

Supply side –>upstream
OEM (manufacture)
demand side –>Downstream

Question 2

What are the 3 types of supply chain risk? (Flows)

Answer 2

• Flow of Materials
• Flow of Information
• Flow of Funds

Question 3

What are some supply chain risks?

Answer 3

• Supplier defaults
• Shipment delays
• Supplier quality issues
• Labor strikes

Question 4

What is a supply chain disruption ? (Def)

Answer 4

A Disruption is an exceptional and anomalous situation in comparision to every-day-business

–>resulting impact is usually a function of time: The consequential situation, if ignored or mismanaged, threatens operations/supply chain objectives

Question 5

What does a disruption constist of?

Answer 5

1.Triggering event (moment in time)
- Unitendend, unexpected event that materializes in the supply chain or the supply environment, and triggers the consequential situation

2.Consequential situation (duration >0)
- Exceptional situation that significantly threatens the normal course of business operations of the affected firm

Question 6

What does the Thomas theorem say about event?
(Zitat and key point)

Answer 6

“If men define situations as real, they are real in their consequences”
-> an even is a disruption if it is perceived as one

–>: The Subjective interpretation of a situation influences (causes) the actions, not objective facts

Question 7

What are the main implications of the thomas theorem?

Answer 7

• We can only speak of disruption, if actors perceive the situation as not normal
• the subjective nature of a disruption, makes it difficult to neatly demarcate the beginning and ending of a disruption

–>because different actors perceive a situation in terms of crisis at different points of time

Question 8

What are the different stages of a supply chain disrtuption?

Answer 8

before triggering event:
1.Prodromal stage

after triggering event:
2.Acute stage
3.Chronic stage
4.Resolution stage

Question 9

What is the Prodromal stage?
(+ example)?

Answer 9

• also calleed incubation period
• normal condition, but early warning signals (percursory signs) might foreshadow the triggering event

Example: A suppliers bad credit rating

Question 10

What is the Acute stage?
(example)

Answer 10

• triggering event sets off the actue stage
• sense-making: uncertaintiy, stress, limited or fragmented information, demand of swift decision making

Example: Supplier files for bankruptcy

Question 11

What is the Chronic stage?
(Example)

Answer 11

• Firm starts to cope with the situation
• Short-term decisions are made
• Attempts to prevent escalation

Example: focal firm subsidizes the distressed supplier

Question 12

What is the resolution stage?

Answer 12

• firm returns to normality
• Disruption is evaluated
• Learning might take place
• Strategic responses to the disruption are devised

Example: focal firm finds a new supplier

Question 13

What are the 5 different supply chain risk sources?

Answer 13

1. Deman side risks
2. Supply side risks
3. Regulatory, legal, bureaucratic risks
4. Infrastructure risks
5. Catastrophic risks

Question 14

What is demand side risks?
(where does it come from, what are i.e.)

Answer 14

Demand-side risks arise from downstream supply chain operations:

• Risks associated with the physical distribution of products to the end-customer (transportation operations, distribution network)
• Customers’ unforeseeable demands (mismatch between a company’s projections and actual demand) (cf. Bullwhip effect)
• Credit risk (accounts receivables)
• Opportunistic behavior by customers (e.g., hold up)

Question 15

What is supply side risks?

Answer 15

Supply side risks arise from upstream supply chain operations (purchasing activities, suppl. relationships, and supply networks): e.g.

• Supplier business risks (defaults, vertical integration by a direct competitor)
• Material price fluctuations
• Opportunistic behavior by suppliers (e.g., lock in)
• Capacity constraints or shortages, poor logistics performance

Question 16

What is regulatory, legal, and bureaucratic risks?

Answer 16

= arise from non-compliance with laws, rules, regulations, or ethical standards, as well as from regulatory, legal, or administrative barriers:

– In many countries, authorities are a significant factor of uncertainty in the setup and operation of supply chains
– Sudden changes in supply chain-relevant institutions may lead to violations of laws, rules, regulations, or
ethical standards
– Administrative barriers (tariffs, embargos, import/ export quotas, or local content constrains)

Question 17

What is infrastructure risks?

Answer 17

= arise from the infrastructures and systems a buying firm maintains for its supply chain operations

– Socio-technical accidents (equipment malfunctions, machine breakdowns)
– IT failures or breakdowns
– Local human-centered issues (e.g., vandalism, sabotage, labor strikes, industrial accidents)

Question 18

What is catastrophic risks?
(what are the two types?)

Answer 18

Arise from extreme events (usually low-probability, high-impact event)

1. Natural catastrophes: Extreme weather conditions (draughts, floods), epidemics, volcanoes, earthquakes, wild fires
2. Man-made catastrophes: Terror attacks

Question 19

What are sustainability related supply chain risks? And What is the risk path of those?

Answer 19

Sustainability risks have no imminent risk of disruption

–>risk path:
1. sustainability related supply chain risks source
2. Stakeholder reaction
3. Negative effects

Question 20

Why did sustainability related supply chain risks become important?

Answer 20

Stakeholders have begun holding buying firms accountable for the sustainability-related conditions at their suppliers and even sub-suppliers

Question 21

What is supply chain vulnerability?

Answer 21

• Mechanisms internal to a supply chain that moderate (amplify or mitigate) the negative consequences of a supply chain disruption experienced by a focal firm
• Susceptibility or predisposition to loss because of existing organizational or functional practices or conditions
• “Vulnerability” and “exposure” deal with the same phenomenon, but take a different perspective

Question 22

What are recent trends affecting supply chains?

Answer 22

Interconnectedness
- More dependencies (“Tight coupling”)
- Increasingly complex supply networks

Industry clock speed
- Shorter product life cycles
- Explosion of product variety
- Mass customization
- Smaller margins of error

Globalization
- Globalization of supply and demand markets
- Longer paths in supply chains

SCM/OM Trends:
- Outsourcing
- Single Sourcing
- Lean Production
- Focus on cost efficiency but not on robustness

Question 23

What are the two popular theoretical perspectives on supply chain vulnerability?

Answer 23

Normal accident theory (NAT:) Pessimistic perspective

High reliability theory (HRT) Optimistic perspective

Question 24

What is the normal accident theory (NAT)?

Answer 24

Core argument: Accidents are inevitable (normal), in systems that exhibit:

• Interactive complexity and/or
• Tight coupling

Question 25

What is meant exactly with the first element of NAT: (interactive) Complexity? 1. **What is a complex system?**

Answer 25

A **complex** system is "made up of a **large number of** parts that **interact** in nonsimple way

Question 26

What are examples of **supply side risks**?

Answer 26

- **Supplier business risks** (defaults, vertical integration by a direct competitor) - Material **price fluctuations** - **Opportunistic behavior** by suppliers (e.g., lock in) - **Capacity constraints** or **shortages,** poor logistics performance

Question 27

What are examples of **demand side** risk?

Answer 27

- Risks **associated with the physical distribution** of products to the **end-customer** (transportation operations, distribution network) - **Customers’ unforeseeable demands** (mismatch between a company’s projections and actual demand) (cf. Bullwhip effect) - **Credit risk** (accounts receivables) - **Opportunistic behavior** by customers (e.g., hold up)