scm in times of crisis
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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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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,
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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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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,
21th May 2013
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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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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 e5
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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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,
21th May 2013
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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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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,
21th May 2013
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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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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,
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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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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,
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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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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,
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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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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,
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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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Managing Supply Chains in Times of CrisisKarolina Trofiniak, Marcin Mrugaa and Steffen Seidel,
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Bibliography
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