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Managing Supply Chains in Times of Crisis

Karolina Trofiniak Marcin Mrugaa 46211 Steffen Seidel

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:

Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

FrankfurtSchool.de

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

In Supply Chain Management:


one or more supply major disruption of chain members the normal flow of activities are goods or services interrupted

crisis in a supply chain is unpredictable, it may not be unexpected - Coombs, 1999

Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

FrankfurtSchool.de

Classifying crises in Supply Chain Management

Note: this is only one approach

Source: Natarajarathinam (2009)

Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

FrankfurtSchool.de

Theory dealing with crises

Why invest in crisis management?

80% of managers say they are somewhat capable of mitigating key supply chain risks McKinsey survey 2006

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

Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

FrankfurtSchool.de

Theory Judging the severity of the crisis


An unplanned event occurs:
supply chain density supply chain complexity node criticality

1.

Supply Chain Design

2.
3. 4.

5.
Supply Chain Mitigation Capability recovery capability warning capability

The more dense the supply chain, the more severe the disruption The more complex the supply chain, the more severe the disruption The more critical nodes there are, the more severe the disruption The more recovery capabilities, the less severe the disruption 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).

Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

FrankfurtSchool.de

Theory dealing with the crisis classic management approach


Analyse crucial areas of susceptibilities Analyse probably types of crises situations Develop crisis management emergency plans Conduct mock drills What got affected? Location, components, product, customer, production stream Revenue impact Lessons from previous experiences Perception of stakeholders

Before Crisis

During Crisis

After Crisis

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

Source: infosys.com

Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

FrankfurtSchool.de

Being the author of its on misfortunes JIT and kaizen philosophy have hidden flaws
Setting the ambitious goal to raise global market share to 15%, up from 11% in 2002

Sole-sourcing approach - the peerless example


- works fine at the shop-floor level, but things break down the line

Collaboration with a bunch of unfamiliar suppliers (tier-two and tier-three supplier) who didnt have a deep understanding of Toyotas culture like CTS Corp.

Leading to: A fatal crash in which a californian highway patrol officer and three family members died, ensuing recall of 3.8 million cars, and the close of the companys first American factory in California.

2004 2007

2009

5,9%.
CAGR of revenues
2008-2012

$ -4.5bn
Operating profit
2012

-1.7%
CAGR of revenues
Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

7.352mln units
Cars sold
Source: toyota-global.com, knowledge.reutes.com, economist.com

FrankfurtSchool.de

Drowned twice too slow improvements lead to same disaster


11th March 2011 Great East Japan Earthquake, and the ensuing tsunami and accident at nuclear power plant in Fukushima 18th March 2011 resumption of production in stages, normal operational capacity by end of 2011

Flooding in Thailand (worst in 70years) paralyzed


manufacturing with further disruptions in Toyotas global supply chain.

Again: crisis reveals shortages of SCM strategy focus should be: to diversify risks (need to manage external factors) and move closer to the customer (in order to get independence of financial risk and increase brand awareness)

aftermath

Oct. 2011

- 7.2%
shareprice
2012

- 8.8%
US car sales
2011

- 56%
net income

45%
Made in Japan
Source: economist.com, businessweek.com

Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

FrankfurtSchool.de

Inadequate crisis mngt. leads to reputational and financial risks


Mea culpa of Mr. Toyoda as a sign
to customers and employees for the betrayal as a quality car producer Minimum $ 6.5 bn in direct costs by both man-made and environmental disasters

2012

2011

No. 4
Worlds car-makers
2011

100 bn
costs of the quake
2012

$ 5.3bn
Recall costs
Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

461,000
cars lost
Source: Kumar & Schmitz (2010), usatoday.com, businessweek.com

FrankfurtSchool.de

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Questioning the wisdom of lean operations using JIT processes


Costs of offshore suppliers with longer lead times versus local suppliers with proximity

Supplier relationship

Insurance concept
incremental cost of using the local supplier is the premium paid for the reduced risk of SC disruption

Strategic Emegency Stock


Inventory/ finished goods should be replenished in a Sell-OneStore- One (SoSo) discipline Management priority

Inventory

Protecting knowledge Knowledge Backup


Inventory/ finished goods should be replenished in a Sell-OneStore- One (SoSo) discipline Management priority

Source: Sheffi (2001)

Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

FrankfurtSchool.de

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Bibliography

Managing Supply Chains in Times of Crisis Karolina Trofiniak, Marcin Mrugaa and Steffen Seidel, 21th May 2013

FrankfurtSchool.de

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