scm in times of crisis

7/30/2019 SCM in Times of Crisis

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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,

21th May 2013

F r a n k f u r t S c h o o l . d e2

Agenda

1. What is a crisis in supply chain management?

2. Classifying different types of crises

3. Theory responding to a crisis

4. Practice Case study 1: Toyota

5. Practice Case study 2:

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What is a crisis in supply chain management?

In general:

an unstable or crucial time or state of affairs in which a decisive change is impending; especially: one with

the distinct possibility of a highly undesirable outcome.- Merriam-Webster

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In Supply Chain Management:

one or more supplychain members

activities areinterrupted

major disruption ofthe normal flow ofgoods or services

crisis in a supply chain is

unpredictable, it may not be

unexpected - Coombs, 1999


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Classifying crises in Supply Chain Management

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Source: Natarajarathinam (2009)

Note: this is

only one

approach


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Theory dealing with crises

Why invest in crisis management?

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80% of managers say they aresomewhat capable of mitigating

key supply chain risksMcKinsey survey 2006

Source: Natarajarathinam (2009), Supply Chain Leadership Crisis website


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Theory Judging the severity of the crisis

supply chaindensity

supply chaincomplexity

nodecriticality

SupplyChain

Design

recoverycapability

warningcapability

Supply

ChainMitigationCapability

An unplanned event occurs:

1. The more dense the supply chain, the more severe the

disruption

2. The more complex the supply chain, the more severe the

disruption

3. The more critical nodes there are, the more severe the

disruption

4. The more recovery capabilities, the less severe the

disruption

5. The bigger the capability to detect the problem, the less

severe the disruption

A disruption in a supply chain that is dense, complex and with

many critical nodes is less severe if there is a capability to quickly

detect and disseminate information about the event and thus

respond and correct in a proactive or reactive manner.

Source: Craighead, C., Blackhurst, J., Rungtusanatham, M., & Handfield, R. (2007).


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Theory dealing with the crisis classic management approach

BeforeCrisis

Analyse crucial areas of susceptibilitiesAnalyse probably types of crises situations Develop crisis management emergency plans Conduct mock drills

DuringCrisis

What got affected? Location, components, product, customer, production stream Revenue impact Lessons from previous experiences Perception of stakeholders

After

Crisis

Analyse what went wrong Document the lessons learnt Formulate strategies based upon the findings

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Source: infosys.com


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Being the author of its on misfortunesJIT and kaizen philosophy have hidden flaws

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2004 2007

5,9%.CAGR of revenues

2008-2012

-1.7%CAGR of revenues

2009

$ -4.5bnOperating profit

2012

7.352mln unitsCars sold

Source: toyota-global.com, knowledge.reutes.com, economist.com

Setting the ambitious goal to raise global marketshare to 15%, up from 11% in 2002

Sole-sourcing approach - the peerless example- works fine at the shop-floor level, but thingsbreak down the line

Collaboration with a bunch of unfamiliarsuppliers (tier-two and tier-three supplier) whodidnt have a deep understanding of Toyotasculture like CTS Corp.

Leading to: A fatal crash in which a californianhighway patrol officer and three family members died,

ensuing recall of 3.8 million cars, and the close of the companys first Americanfactory in California.


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Oct. 2011

- 8.8%

US car sales

2011

45%Made in Japan

2012

- 56%net income

Drowned twice too slow improvements lead to same disaster

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aftermath

- 7.2%

shareprice

Source: economist.com, businessweek.com

11th March 2011Great East Japan Earthquake, andthe ensuing tsunami and accident at nuclear power plantin Fukushima

18th March 2011 resumption of production in stages,normal operational capacity by end of 2011

Flooding in Thailand (worst in 70years) paralyzedmanufacturing with further disruptions in Toyotas globalsupply chain.

Again: crisis reveals shortages of SCM strategy focusshould be:

to diversify risks (need to manage externalfactors) and

move closer to the customer (in order to getindependence of financial risk and increase brandawareness)


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Inadequate crisis mngt. leads to reputational and financial risks

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2011

$ 5.3bnRecall costs

2012

No. 4Worlds car-makers

2011

100 bn

costs of the quake

2012

461,000cars lost

Source: Kumar & Schmitz (2010), usatoday.com, businessweek.com

Mea culpa of Mr. Toyoda as a signto customers and employees for the

betrayal as a quality car producer

Minimum $ 6.5 bn in direct costs byboth man-made and environmentaldisasters


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Supplier

relationship

Inventory

Knowledge

Backup

Costs of offshore suppliers with longer lead timesversus

local suppliers with proximity

Insurance concept

incremental cost of using the local supplier is thepremium paid for the reduced risk of SC disruption

Strategic Emegency Stock Inventory/ finished goods should

be replenished in a Sell-One-Store- One (SoSo) discipline

Management priority

Protecting knowledge

Inventory/ finished goods shouldbe replenished in a Sell-One-Store- One (SoSo) discipline

Management priority

Source: Sheffi (2001)

Questioning the wisdom of lean operations using JIT processes


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Bibliography

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scm in times of crisis

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