Abstract Number: 003-0034
Supply chain resilience - Analysis of a distribution network model under changing scenarios
Sixteenth Annual Conference of POMS, Chicago, IL, April 29 - May 2, 2005
Partha Priya Datta
Cranfield University
Cranfield, Bedford
MK43 0AL
England
Email:
Phone: 00441234750111 Extn: 3720
Peter M. Allen
Cranfield University
Cranfield, Bedford
MK43 0AL
England
Email:
Phone: 00441234754800
In a turbulent operating environment, an effectively designed supply chain, capable of recovering in the face of disruptions and responding to changes in customer needs, is considered a source of competitive advantage. We argue that, supply chain resilience is not just recovery from the mishaps, but is a proactive, structured and integrated exploration of capabilities within the supply chain to resist and win against unforeseen happenings. We define the resilience of a supply chain as the capability to maintain the functioning of the system in the face of disruptions of various kinds without losing the agility to respond to changes in customer needs and requirements. The paper describes a conceptual framework of supply chain resilience, based on the different aspects of resilience addressed by supply chain resilience literature. In order to develop resilient supply chain models, it is very essential to understand the different behavioural aspects of supply networks under different scenarios. This paper develops the argument that complex systems theory provides an approach that captures the dynamic and evolving nature of supply network behavior. A hypothetical supply chain is modelled based on a single echelon self-organising distribution model. The paper then shows how the emergent supply chain structure adapts to changing business environments hence giving rise to resilience.
Key Words: Supply chain resilience, supply chain model, complex systems
Introduction
Christopher (1992) defines a supply chain as a network of organizations engaged, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer. As Nassimbeni (1998) convincingly argued, inside a network, firms enter into a complex set of interdependencies with other firms. Harland (1996) defines four uses of the term supply chain management. The term can be used to refer to operations within an organization, within an inter-organizational dyad, within a chain of suppliers and customers (in the linear sense), and within a network of organizations. She concludes by noting that there is still a great deal of work that needs to be done to understand supply networks. Johnson et al (2000) focus on eight different networking activities related to establishing and operating supply networks. Lamming et al (2000) developed an initial classification of supply networks using product type as a differentiator. Lin and Shaw (1998), in considering material flow perspective of a production process, define three specific types of supply networks: convergent assembly, divergent assembly and divergent differentiation. It appeared from this initial review, that, conceptual models of supply networks are becoming more holistic and strategic. Hong and Choi (2002) have attempted detailed mapping of supply networks in the automotive sector to gain better understanding of the subtleties involved.
Though the conceptualization of a supply system as a network rather than a chain provides a more accurate and realistic view of organizational relationships, it is not without limitations. One of the key limitations on the network conceptualization of a supply chain is in the analysis of such a set of relationships. Finding analytical solutions for models that closely resemble real-world relationships is difficult.
Another key concern is, supply networks are becoming more complex, dynamically changing webs (Harland, Lamming and Cousins, 1999). Wong et al (2002) stated, a supply chain can be very lean and efficient; if it is unable to find an alternative route of delivery quickly, it will be susceptible to system shocks and disturbances. Firms increasingly depend on a complicated network of global suppliers and partners boosting the risk of system failure, if a key member of the network shuts down, even temporarily. Consequently, businesses need to balance the benefits [such as, potential to achieve both efficiency and flexibility at the same time due to loose coupling (Orton and Weick, 1990) and a combination of competition and cooperation are regarded as a basic characteristic of all inter-firm networks (Pfohl and Buse, 2000)] and risks associated with them. Recently Cranfield research on supply chain resilience (2003) has identified some practical tools for creation of more resilient supply chains. The findings of the research suggested, supply chains are increasingly at risk of disruption due to growing complexity of their structure.
As MIT research (2003) puts it, there are ‘different paths toward the same goal’; there is not a single way to build resilience in the supply chain. Building resilient supply chains involves a lot of trade-offs. For example, trade-offs between cost-efficiency and risk must be assessed to build resilient supply networks; increasing redundancies and flexibilities in the supply chain often leads to increased complicacies that works against resilience.
So far, there has been no conceptual model that addresses the dynamic and multidimensional aspect of supply chain resilience. Neither has anybody attempted to model a resilient supply chain. All models in a way have addressed flexibility, agility, reliability, but none have come up with a definite resilient supply chain that is capable of responding to changing customer requirements, at the same time capable of maintaining it in the face of disruption. This paper provides a comprehensive framework of supply chain resilience after conducting a thorough literature review.
The inherent assumption of a static supply chain network structure and optimization focus limits the use of past modelling approaches for studying the formation and behavioral based dynamics of a supply chain network (Riddalls et al. 2000), thus preventing the study of resilience of supply chains under different policies and scenarios. This research models a supply chain as a complex system based on the elementary single echelon self-organising distribution model designed by Seppala (1995) and Allen (2004). In this research each customer is modelled as an independent agent with one’s own set of preferences (delivery quantity, choice of distribution centre and lead times), which change with time. The distribution network is then shown to adjust to the changing preferences and circumstances through complex interactions between its agents (distribution centres and central production facility).
Literature Review
Resilience in ecological sciences literature refers to the ‘capacity … to retain a system’s organisational structure following perturbation of some state variable from a given value.’ (Perrings, 1994, p30). In contrast to this view of resilience as a measure of system’s stability in presence of external shocks, Holling (1986, p297) argues that, ‘resilience emphasizes…. events far from equilibrium, high variability and adaptation to change.’
Carpenter et al (2001, p766) defined the three properties of resilience:
‘(a) amount of change the system can undergo (and implicitly, therefore, the amount of extrinsic force the system can sustain) and still remain within the same domain of attraction (i.e., retain the same controls on structure and function);
(b) the degree to which the system is capable of self-organization…
(c) the degree to which system can build the capacity to learn and adapt.’
Adaptive capacity is therefore a component of resilience that reflects the learning aspect of system behaviour in response to disturbance (Gunderson, 2000). Clark, Trejo and Allen (1995) stated that, resilience is not only concerned with the ability of the system to maintain its structure in the face of disturbance, but is also a property that allows the system to absorb and utilize change. The degree of resilience is linked to the ability of the system’s components to explore and develop mutually beneficial strategies and behaviours, which will permit them to change and adapt in response to disturbance.
In describing resilience from an organisational perspective, Anderson (2003) notes that, resilience is different than just recovery, it implies being flexible enough to adapt to both positive and negative influences. “Resilience is a reflex, a way of facingand understanding the world. It is a critical capability for success and the ability to bend and bounce back from hardship” (Coutu, 2002, p 55). Resilient organizations are ‘crisis prepared (or proactive)’ encounter fewer disasters and recover better from hardship. (Mitroff and Alpasan, 2003). But resilience is not only concerned with recovery, flexibility or crisis preparedness, it implies something more, which is evident in Hamel and Valikangas’ (2003, p55, 63) statement, ‘resilience refers to a capacity for continuous reconstruction, It requires innovation…Any company that can make sense of its environment, generate strategic options and realign its resources faster than its rivals will enjoy a decisive advantage. This is the essence of resilience.’
Stoltz (2004, p17) states that, ‘Resilience is the only sustainable, portable strategic plan. Resilient individuals, teams, and organizations consistently outlast, outmaneuver and outperform their less resilient competitors…’ He mentions that, resilience of organizations depends mostly on the resilience of individuals comprising it. According to him, resilience can be learned, built on and improved. Horne (1997, p28) expressed organizational resilience as the hallmark of corporate stardom in 21st century that reflects the organizations’ ‘ability to combine information with a range of other factors to flex, mold, adapt and redefine themselves to face ever-changing conditions.’ Weick (1993) identified four sources of resilience as improvisation (swift replacement of the old order), virtual role systems (each member of the group ‘can run the group in their head and use it for continued guidance of their own individual action’, (p640)), wisdom (accepting ambiguity and lack of understanding in certain circumstances) and communication (sharing information about options and strategic directions in advance of change to attune the system to opportunities). Mallak(1998) defined resilience ‘as the ability of an individual or organization to expeditiously design and implement positive adaptive behaviors matched to the immediate situation, while enduring minimal stress’ (p148).
All studies in organisational resilience suggest its complex construct. The term is appearing in the literature about organisations in the past few years. Unfortunately the majority of these references fail to provide any detailed explanation of this complex construct in its entirety. Very few have even hinted at how to build a resilient organisation. Deevy (1995) addressed this concern by saying that, the challenge for organisations today is to develop a new organisational form with the capability of continuously responding to change. Wheatley and Rogers (1996) viewed organisations as living systems that thrive on chaos and disequilibrium and have the built-in ability to adapt to changes in the environment by organising themselves into adaptive patterns and structures without any externally imposed plans or directions. Haeckel (1999) argues that when unpredictability is a given, the only strategy that makes sense is a strategy to become adaptive — to sense early and respond quickly to abrupt changes in individual customer needs. As a result, a firm's operations must be driven by current customer requests — implicit as well as articulated — rather than by plans to make and sell what customers are forecasted to want in the future.
Goldspink and Kay (2003) mentioned that, in order to explain dynamical behaviour of organisations, especially the aspects of resilience, in the face of changing environmental conditions require representation of organisations as networks of structurally coupled units compatible with the theory of complex systems. Gailbraith (1974) considered the manner in which organizations adapt to complex, uncertain environments by changing their information-processing capabilities, either by reducing the need for information (making tasks and subgroups more autonomous, or creating slack resources) or by increasing the capacity for information acquisition, storage, and retrieval (via information systems). Anderson (1999) states that in ever-changing environments organization adaptation must be evolved and not planned. He argues (p228), ‘adaptation is the passage of an organization through an endless series of organizational microstates that emerge from local interactions among agents trying to improve their local payoffs.’ McKelvey (1997) stresses the need for a complex systems theoretical approach for understanding of organizing and organizations in such environments. Mitleton-Kelly (1997) argued that in constantly changing environments, the core essence of resilient organizations is allowing new ways of functioning to emerge adaptively affecting the organization itself and all related businesses, consumers, suppliers as well as economic, cultural and legal institutions.
Radjou (2002) and Lawrie (2003) state that, no top-down planning, however collaborative, can deliver results in an ever-changing, complex environment. Instead, they believe that companies will thrive by forming adaptive supply networks – business networks of supply chain partners that sense and respond in a coordinated fashion to changes in their environment. Whenever an environmental or organic change disturbs the flow of goods and information in the adaptive supply network, the operating policies and strategies of the network automatically adapt to maintain optimal performance. This is the essence of resilience in the context of supply networks.
In supply chains, Christopher (2004, p18) stated, ‘One of the most powerful ways of achieving resilience … is to create networks, which are capable of more rapid response to changed conditions. This is the idea of agility.’ Rice and Caniato (2003, p25, 26) suggested a hybrid flexibility and redundancy approach for increasing supply chain resilience. Haywood and Peck (2003) in their research on supply chain vulnerability found supply chains were most vulnerable during periods of change since the supply chains never reached stable ‘steady state’ as the changing demands of the marketplace, constant changes in product specifications, together with other continuous improvement initiatives within the organisations and the wider industry as a whole never become static. So they suggested effective supply chain change management as the key to enhance supply chain resilience.
Muckstadt et al (2001) stated the importance of collaborative relationships across supply chain to reduce uncertainty in operating environments leading to more reliable supply chain performance and hence more resilience. Christopher and Lee (2001) also supports this by saying, ‘Synchronous supply requires transparency of demand and pipeline inventory in as close to real time as possible. It also requires a willingness on the part of all the members of the supply chain to work to a single supply chain plan.’
Lee’s (2004, p102) characterisation of top performing supply chains sums up the criteria for building resilient supply networks discussed above as:
1)Agility, speedy reaction to sudden changes in demand or supply
2)Adaptability over time as market structures and strategies evolve
3)Alignment of interests of all firms in the supply network, so that companies optimize the chain’s performance when they maximize their interests
Based on the detailed review of literature above, a conceptual framework of resilience has been developed (figure 1). In this framework, an event is defined as an activity that can have both negative and positive influence on business. Failure to cope with the impact of the event results in vulnerability of the supply networks. Supply chain resilience is comprised of two elements, one is natural resulting from in-built adaptive capability, capability to innovate and self-organise and the other is developed through preparative actions as well as post-event actions. Businesses with supply chains that are not resilient enough to respond to changing environment, faces damage leading to disastrous performance. However supply chains, which are naturally resilient, can be made resilient after damage occurs, thus preventing a possible disaster. Also such supply chains can prevent future damages due to their learning from last event response.
Figure 1: Conceptual Framework of Supply Chain Resilience
So, from the above discussion, resilience of a supply chain has two aspects. The first is about the maintenance of the production system of a given product in the face of disruptions of various kinds. The second however is about the agility of the process to respond to changes in customer needs and requirements. This means that there is a need for the system to be able to modify its product appropriately and to be able to offer it as rapidly as possible. Similarly there is a need to make use of any new technological opportunity that arises that may offer either better performance or lower costs. So the problem becomes that of dealing with the contingencies of a given production line and separately, the capacity to perceive a change in need or opportunity and to respond to this rapidly. Such a multi-faceted definition of supply chain resilience has not been given so far in reviewed literature. Most of the studies on supply chain resilience are either concerned with supply chain risk management or modelling uncertainty. The empirical studies are more concerned with qualitative interpretation of risk management or studying how the performances of supply chains vary when the different resilience enablers or disablers come into play. A conceptual framework of supply chain resilience based on diverse fields of research is lacking in contemporary literature. No model of resilient supply chains has been developed yet.
Methodology
Complex systems models are useful in understanding the dynamics involved in functioning of firms coevolving with their counterparts in a supply network. Also such modeling approach is appropriate when the primary form of control in the system in question is self-organization (Dooley and Corman, 2001). Choi et al. (2001) argue that supply chain networks should be recognized as complex systems.
Morel and Ramanujam (1999) say, any representation of organizations as dynamic systems of adaptation and evolution implicitly assumes that organizations are complex systems. In order to explain adaptive learning systems, Allen (2001c) states that, ‘it is any system that has within itself a capacity to respond to its environment in more than one way, and which selects among these in some way. It is not to a mechanical system, with a single predetermined (and predictable) trajectory, but instead is a “complex system” with some internal possibilities of choice or response that it can bring into play’. In several previous papers (Allen, 2001a, 2001b), it was shown how the creative interaction of multiple agents is naturally described by co-evolutionary, complex systems models in which both the agents, the structure of their interactions and the products and services that they exchange evolve qualitatively.