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Sources of Supply Chain Disruptions,

Factors that Breed Vulnerability, andMitigating Strategies

During recent times, supply chain literature and industry practices have been devoted primarilyto increasing efficiency and reducing costs. This has resulted in supply chains that are efficientduring normal times, but at the cost of being vulnerable to disruptions. From time to timefrequent as well as rare catastrophes also disrupt supply chain operations.

In this paper we focus on developing robustness and mitigation abilities in supply chains.In our examination of the literature, no previous work has yet examined catastrophes, prevalent

supply chain management practices, and mitigation strategies in such detail.We collect and compile data from many sources and show that there has been a markedincrease in the frequency and economic losses from natural and man-made catastrophes. We findthat business losses constitute a major percentage of the total losses caused by these catastrophes.Moreover, the statistics suggest that for terrorist attacks, the vulnerability of US businessinterests is higher than others. Examination of the geographical and chronological distribution ofcatastrophes provides useful information for managers concerned about such disruptions.

Mitigation planning is difficult because of the many types and severities of catastrophes.We develop a catastrophe classification scheme that matches different types of catastrophes to avariety of infrastructural components of supply chains. We also connect a variety of mitigatingstrategies to appropriate catastrophe types. We identify current supply chain practices that have

the unfortunate consequence of increasing vulnerability. We also identify strategies to mitigatethe undesirable effects of these prevalent supply chain practices.To manage vulnerability in supply chains, we propose strategies that can be implemented

by a company to decrease the possibility of occurrence, provide advance warning, cope, andsurvive. We reveal potential benefits from mitigating strategies during normal times, whichindicates that well-developed strategies can result in better efficiency. We identify 16 futureresearch areas concerning disruption handling in supply chains.

1. IntroductionThe frequency of natural and man-made catastrophes is increasing. In recent years the monetary

losses associated with catastrophes have also increased significantly. With an escalating threat of

terrorist attacks and changing geographical climatic conditions, catastrophes are expected to

occur more often in the future.

Frequent events such as snow storms, heavy rain, excessive wind, hurricanes, industrial and

road accidents, fires, strikes, and changes in government regulations regularly interrupt normal

operations in supply chains. Large catastrophes such as hurricane Katrina in 2005, Asian tsunami

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in 2004, September 11 attacks, Mad Cow disease in the UK in 2001, and the Taiwan earthquake

in 1999, although occurring rarely, can have severe consequences for companies far away from

the incident. The global spread of modern supply chain organizations can cause relatively small

disruptions to reach companies located far from the catastrophes.

The recent research and industry emphasis on supply chain management is devoted to

increasing efficiency and speed, which is motivated by the desire of businesses to compete cost

effectively in todays markets. This focus on efficiency has resulted in supply chains that are

more vulnerable to disruptions. Despite this, to our knowledge there is little literature related to

studying supply chain management practices during catastrophes. This research begins to fill this

void by identifying problems, strategies, and future research needs to increase supply chaineffectiveness during catastrophes.

After the 9/11 terrorist attacks, research has focused primarily on increased security measures

to reduce the occurrence of terrorist attacks and decrease supply chain disruptions (Rosoff and

von Winterfeldt, 2006; Sheffi, 2003; Rice and Caniato, 2003; and Lee and Wolfe, 2003).

However, security cannot eliminate the possibility of a terrorist attack or help avoid or manage

natural catastrophes. Therefore, in addition to catastrophe avoidance, supply chain managers also

need strategies and tactics for catastrophe mitigation.

We collected a large amount of data on catastrophe and economic losses from a wide variety

of sources to understand the effects of catastrophes on supply chains. The data sources include

research articles, Department of State, Center for Research on the Epidemiology of Disasters,

Federal Emergency Management Agency, US Department of Commerce, National Climate Data

Center, and National Counterterrorism Center. Data compilation reveals geographical and

chronological inferences on catastrophe concentrations and the need of mitigation strategies. The

findings from the data should help managers make robust decisions about location of facilities

and suppliers, transportation modes, contingency measures, inventory policies, and levels offlexibility and redundancy. In Sections 2 and 3 we discuss these findings.

In Section 4, we identify 8 common supply chain practices, designed for greater efficiency,

that have the unfortunate consequence of increasing vulnerability. These practices should be re-

examined to allow supply chains to be both efficient and robust in a disruptions-prone

environment. Supply chains can be made robust by managing these vulnerability-causing

practices.

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Different catastrophes may have widely varying consequences for a supply chain. Managers

cannot anticipate all. Catastrophes affect a company by disrupting one or more of its components

such as labor, equipment, and communication. We propose a classification, presented in Table 2

and described in Section 5, which outlines the possible effects and their severity with which the

different supply chain components are affected by different catastrophes. This can help to

provide a greater understanding of causes and effects of disruptions.

We propose the most complete set of strategies to date to avoid or mitigate a wide variety of

catastrophes in Section 6. Popular literature lists a few mitigation strategies applicable to specific

types of industry. However, the strategies identified in this paper can be applied across industries

to help deal with many catastrophes. We identify proactive strategies that can help a companyavoid or decrease the possibility of certain types of disruptions. To gain benefits from advance

information, advance warning strategies that can help forecast a catastrophe are proposed.

Flexibility and redundancy in various supply chain components help define coping strategies to

help mitigate catastrophes. Survival strategies are also listed to aid companies to reduce losses

and duration of disruptions.

Some managers are aware of the vulnerability of their supply chain, but most are uncertain as

to how to manage the risk of disruptions. To help managers choose strategies appropriate for

mitigating disruptions in their organizations, we developed Tables 3 and 4. These identify the

appropriateness and effectiveness of various mitigation strategies to address catastrophe types

and diminish vulnerability from common practices.

Contrary to common belief that mitigation strategies are a source of cost and inefficiency, we

emphasize that well-developed strategies can actually increase efficiency. In particular, we

reveal some of their efficiency-improving effects.

Finally, Section 7 identifies 16 future research areas that should be addressed by researchers

and managers to encourage a robust supply chain. This paper focuses on manufacturing anddistribution. However, many of our findings can be applied to service industries as well.

2. Man-Made CatastrophesHumans are an integral part of organizations and in many ways influence its operations. This

influence gives workers, managers, customers, and outsiders (i.e., terrorists, political parties,

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government) an ability to manipulate the operations of supply chains. In Sections 2.1 and 2.2, we

discuss potential disruptions caused by intentional and unintentional acts, respectively.

2.1 Intentional Acts

Disruptions in supply chains can be caused by conscious acts by a person or a group. Depending

on the intention, these acts can be classified as terrorist or non-terrorist. Terrorist attacks are

often intended to destroy while non-terrorist acts are not.

2.1.1 Non-Terrorist Intentional Acts

Labor strikes and management problems can have severe economic consequences. Recent

management manipulations by Enron and accounting scandals in WorldCom resulted not only in

their closure but also created disruptions for employees, customers, and suppliers dependent on

them. Most industries at some time have faced disruptions because of strikes within a company

by workers or general strikes outside the company by political parties. Examples from diverse

industries include the UK film industrys 36,000 actors in 2001, Bharat Petroleum Indias 30,000

workers in 2003, Vancouvers coastal forest industrys 8,000 workers in 2003, and Germanys

engineering and metalworkers union in 2003 that involved 8,000 workers.

Strikes in industries that provide utilities often result in disruptions in many dependentindustries. For example, the Royal postal strike (UK) in 2003 impacted many business

establishments. Specifically, small firms were hit the most because of their reliance on postal

services for invoices, contracts, legal forms, and checks. During a 2002 lockout of 29 west coast

ports for 10 days, the Fremont-based Toyota-GM NUMMI plant was shut down because it ran

out of parts (Monahan et al., 2003). The Pacific Maritime Association estimated that it would

take eight to ten weeks to clear the cargo that piled up for 10 days. Helferich and Cook (2002)

identified union strikes, lifestyle changes, government spending shifts, economic downturns,

competitive service improvements, hostile corporate takeovers, changes in operations

technology, and changing product technology as factors that originate from intentional human

acts that disrupt supply chains.

Although some of these non-terrorist intentional acts happen over time (lifestyle changes,

operational technology advancements), others such as strikes or management problems can

happen suddenly. In September 2000 in the UK, fuel prices rose sharply resulting in an impact

on almost every industry (Chapman et al., 2002). The event severely disrupted over 34% of the

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companies in the UK (Peck and Juttner, 2003). After 9/11, only 21% of companies suffered

severe disruptions. This suggests that relatively small, perhaps unintended disruptions in

common markets (fuel price rise) can cause greater disruptions in supply chains than dramatic

intentional acts such as 9/11.

Labor relations, employee motivation, customer relations, technology changes, and

government regulations are some areas that in isolation have been the focus of organizational

behavior, strategy management, and industrial psychology literature. However, the system-wide

effects of such disruptions in supply chains from an operations management perspective are

largely unexplored.

2.1.2 Terrorist Acts

In recent times, the world has seen a reduction in conflicts between countries for causes such as

territory and/or natural resources control. Unfortunately, simultaneously there has been an

increase in terrorism. In 1999, the Department of State designated 28 foreign organizations as

terrorist organizations. Since then the number has steadily increased to 40 in 2004.

Traditionally, terrorism was often seen as a political problem, whose analysis was outside the

domain of economists (Kurg and Reinmoeller, 2003). Recently, political economists studied

terrorism and its economic consequences. Some aspects of terrorism and the economy that have

been examined include terrorism and tourism (Pizam and Smith, 2000) and terrorism and trade

(Enders and Sanders, 2000).

Typical terrorist organizations of the past (before 1990s) operated in small areas, with little

influence outside their primary areas of operation. The actions of these organizations had little

impact on the economy (Deutch, 2002). In contrast, todays terrorist organizations do not limit

themselves to national boundaries. These organizations threaten the international community in

part in order to attract worldwide attention.Terrorist attacks are not new, but viewing them as global economic catastrophes is. This has

happened because of globalization and increasing trade between countries. Even before 9/11,

industry was occasionally impacted by terrorist attacks. Examples include the Oklahoma City

bombings in 1995 and the Olympic park bombing in Atlanta in 1996. However, there was no

effect of these disruptions on the economy as a whole.

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Using statistics we analyze terrorist attacks worldwide and on US interest targets. Here we

define US interests as US residents, infrastructure (military, diplomat, government), and

industries that are partially or fully owned by US companies. Statistics shows that from 1991 to

2003 a startling 62% of the total attacks were on business interests (Figure 1). This indicates that

the vulnerability of businesses from terrorist attacks is more than that of all other types of targets

combined. Despite being the favorite terrorist targets, businesses have given disaster

preparedness a low priority (Helferich and Cook, 2002).

After 9/11, many businesses around the world and in the US responded to attacks by

increasing security around their premises and their transport carriers. The investments paid off.

In 2002 and 2003, attacks on business interests decreased considerably. See Figure 2. The totalnumber of attacks also decreased sharply in 2002 and 2003. See Figure 3.

Figure 2 presents an alarming scenario for the US. In 2003, of the total terrorist attacks

worldwide, 50% were on US interests. Moreover, from 1996 to 2001, the percent attacks on US

interests to total worldwide attacks increased steadily. The US is a highly preferred target for

terrorists. Since 2001, despite investing over $500 million on homeland security, the US remains

extremely vulnerable to terrorist attacks (Flynn, 2004). In 1996, for every 100 attacks on US

interests, 67 were on business interests. The percentage steadily increased to 94 in 2001. US

supply chains are highly vulnerable to terrorist attacks.

0%

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For supply chains and residents, North America continues to be safe from terrorist attacks as

it suffered less than 1% (19/2439 =0.7%) of the total terrorist attacks that happened throughout

the world. See Table 1. However, with outsourcing and globalization, many modern supply

chains are spread throughout the world. This makes them susceptible to disruptions that can

happen anywhere. US supply chains are increasing outsourcing operations to Asia, which has

seen a many-fold increase in number of attacks from 1996 to 2003. See Table 1. In fact, since

N o

D a t a

Business 62%

Diplomat 9%

Government 4%

Military 2%

Others 23%

Figure 1. Percentage attacks on various classes of targetsfrom 1991 to 2003.

Figure 2. Percentage attacks on US business interests to total attackson US interests.

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911, Asia is the only region which has not seen a significant decrease in number of attacks. The

information presented in Figures 1, 2, and 3 and Table 1 is compiled from terrorism data

published by the National Counterterrorism Center and 13 annual reports on Patters of Global

Terrorism published by the Department of State in the years 1991 through 2003.

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2.2 Accidents

Accidents are unintentional man-made catastrophes. Accidents, being related to equipment, tend

to happen in the proximity of industries, with the exception of transportation accidents. For

example, the big industrial catastrophes, Three Mile Island, Chernobyl, Union Carbide, Bhopal,

and Exxon Valdez, happened near industries.

More recently, a series of blackouts in the US, Italy, and the UK, caused by accidents at power generating stations, revealed the vulnerability of supply chains to disruption in utilities.

For US industries, the blackout of August 2003 was the most disruptive event after 9/11 (Zwin,

2003). The automobile industry was paralyzed. More than 50 assembly plants operated by GM,

Ford Motor Co., and Daimler Chrysler were shut down by the blackout. Retail industry was

severely affected. Wal-Mart shuttered about 200 stores.

International terrorist attacks by region

Year Africa Asia EurasiaLatin

AmericaMiddle

East North

AmericaWesternEurope

1996 11 11 24 84 45 0 1211997 11 21 42 128 37 13 521998 21 49 14 111 31 0 481999 53 72 35 122 26 2 852000 55 99 31 192 20 0 302001 33 68 3 201 29 4 17

2002 5 101 8 46 29 0 92003 4 70 2 53 37 0 24

Figure 3. Total numbers of attacks worldwide.

Table 1. International terrorist attacks by region.

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During the 20 th century, the number of technological and transport accidents that affected a

large population and resulted in declarations of emergency has increased from 1 per year in the

first 3 decades to 220 in the last decade. See Figure 4, which is a summary of large databases

maintained by the Center for Research on the Epidemiology of Disasters on various types of

accidents and economic losses from around the world. Along with the count the resulting

economic damages have also increased many-fold. Over the years industrial systems have

increased in number. With advancements in technology, the complexity of industrial systems

increases, which in turn increases the potential for breakdowns (Perrow, 1984). These statistics

suggest that economic losses from accidents are relatively recent and large in magnitude. Supply

chains must effectively cope with disruptions whether they be intentional or accidental.

0

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3. Natural Calamities Natural catastrophes have always been a threat for humans and their property. In the US, heat,

tropical storms, floods, severe weather, blizzards, wild fires, and ice storms cause over 90% of

the total economic losses from natural catastrophes (Ross, 2003). Early natural catastrophes

(before the 1990s) had strong regional but relatively limited global effects. Recently,catastrophes such as Katrina, Asian tsunami, SARS, and Bird Flu resulted in severe global

economic consequences.

For example, SARS disrupted electronics supply chains worldwide. It caused huge economic

damages in the Asia-Pacific region. Ironically, because of trade and travel restrictions, Australia,

with no diagnosed case of SARS, suffered an estimated loss of $1 billion (OMalley, 2003).

Similarly, Bird Flu is creating disruptions for food and travel industries. The Taiwan earthquake

Figure 4. Average yearly accidents and the yearly damage caused.

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in 1999 disrupted the global electronics industry. The disruptions in Taiwan, which fabricates

over 50% of the worlds computer memory chips, resulted in an estimated 5% loss in earnings

for manufacturers such as HP, Dell, Apple, IBM, Gateway, and Compaq (Monahan et al., 2003).

Increase in population and infrastructure have placed more humans and economic interests at

risk. For example, according to the US Census Bureau, the population of coastal areas in Florida,

which are highly vulnerable to hurricanes and tropical storms, has increased from one million in

1940 to over 10 million in 1990. At present in the US, about 36 million people live on the

hurricane-prone coast line. In 2010, the population in these areas is expected to rise to 73 million

(Helferich and Cook, 2002). Similarly, in many earthquake-prone areas such as San Francisco

and Tokyo, population has increased steadily. UN Secretary General Dr. Annan says, A widevariation in the number and intensity of natural hazards is normal and to be expected. What we

have witnessed over the past decades, however, is not natures variation but a clear upward trend

caused by human activities. There were three times as many great natural disasters in the 1990s

as in the 1960s, while disaster costs increased more than nine-fold in the same period.

In contrast to the increasing trend for natural catastrophes, from 1940 to 1960, the US

suffered 18 major hurricanes. Surprisingly, for the next 30 years (between 1960 and 1990), only

one major hurricane struck the US coastline. However, natural phenomena are cyclic (Helferich

and Cook, 2002). A possible return of active hurricane seasons, along with increased population

along the coast, provides conditions that may result in severe natural disasters. Pielke and

Landsea (1998) state that it is only a matter of time before the nation experiences a $50 billion

or greater storm, with multi-billion dollar losses becoming increasingly more frequent.

Hurricanes Katrina and Rita showed that the damages can be far beyond Pielke and Landseas

estimation. In the last 100 years, the frequency of natural catastrophes reported has increased

over 40-fold. See Figure 5, which is compiled from data on natural catastrophes maintained by

the Center for Research on the Epidemiology of Disasters. During the same period, the economic

damages have also increased considerably.

The increasing trend in number and damages is much more prominent in the last quarter of

the 20 th century. Shaw (1994) estimated the economic damages from an earthquake in Tokyo, of

a magnitude similar to the Great Kento earthquake of 1923, to be over $1.2 trillion. In the Tokyo

geographical area, a large earthquake is expected about every 60 years (Skidmore and Toya,

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2002). Similarly, an anticipated earthquake in the San Francisco area, of the magnitude of the

Kobe earthquake, can cause damage of over $150 billion (Helferich and Cook, 2002).

050

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US supply chains faced a greater threat from disasters in the 1990s than in the eighties. In the

nineties, both the numbers of disasters, as well as those resulting in losses of over a billion

dollars, were considerably higher (see Figures 6 and 7). This information came from Ross (2003)

and various publications from the US Department of Commerce, National Climate Date Center,

and Federal Emergency Management Agency. The billion dollar catastrophes increased over

300%. The locations of natural catastrophes depend primarily on the geography of the region.

For example, Asia is more prone to earthquakes than Europe (Jones, 1981). Similarly, most

hurricanes occur between the latitudes of 30 degrees North and South, but not within 5 degrees

of the equator (Alexander, 1993).

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1976 19 78 1 980 19 82 1984 1986 1 988 1 990 1992 1994 199 6 19 98 2000 2002 20 04

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1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

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Figure 6. Total natural disasters in the US. Figure 7. Total number of disasters in the US with

economic losses exceeding one billion dollars.

Widespread geographic human presence has increased the possibility for a natural

catastrophe to cause human and economic losses. Therefore, in the present world, a natural

disaster such as a snowstorm has greater chance of impacting a supply chain as it may disrupt

transportation routes. The increasing number of natural catastrophes and the resulting economic

losses calls for focus on better preparedness and proper contingency planning for supply chains.

Figure 5. Average natural catastrophes reported and the yearly economic losses caused.

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4. Factors that Breed Vulnerability in a Supply Chain

Traditionally, supply chain designs primarily focus on cost efficiency (Nahmias, 2005). Also,supply chains and business practices are designed for a stable world (Monahan et al., 2003). This

has resulted in supply chains that are vulnerable to disruptions. In this section, we identify

common business practices and the present business realities that contribute to supply chain

vulnerability.

Globalization . Offshore sourcing, manufacturing, and assembly extend the reach of supply

chains, making them global (Peck et al., 2003). With more countries open for trade, coupled with

advancements in transportation and information technology, globalization is a common business

practice.

Globalization provides strategic cost and expertise advantages. However, global presence

comes at a cost. Global organizations are often excessively dependent on transportation, the

political situation, and the graphical environment of the constituent organizations. A catastrophe,

such as an earthquake or a terrorist attack in Asia, has a potential to interrupt supply chains in the

US.

Decentralization. To achieve economies of scale, some production facilities use decentralized

production, with companies focusing on specific product(s) as opposed to a larger range of products. This has resulted in factories producing larger numbers of fewer products for a large

customer base, which in turn requires a product to travel large distances (often across borders).

For example, electronics chips that are made in US, are shipped to Asia to be assembled into

various electronics devices, and return to US markets in final products.

For facilities separated by large distances, coordination may not be as easy as for facilities

that are situated close together. Furthermore, a focused factory producing components for a

variety of final products can be a reason for disruptions in many supply chains. For example, a

disruption at a computer chip manufacturer can cause disruptions in supply chains, such as

computers, phones, home appliances, TVs, and others. Focused production also reduces

flexibility to react to disruptions.

Outsourcing. A recent trend is to outsource activities that were previously conducted within the

organization (Peck et al., 2003). Outsourcing, globalization, and decentralization are interlinked

supply chain practices. By outsourcing, organizations motivate decentralization, while

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globalization provides options for the outsourced operation to be sourced globally. Outsourcing

increases the number of external disruption points for a supply chain. For example, overseas

shipments may pass through as many as 11 middle-men (Monahan et al., 2003), which greatly

increases the risk of disruption. Outsourcing makes it harder for a company to foresee a brewing

glitch in the supply chain (Murphy, 1999). Furthermore, when compared to in-land suppliers, an

overseas supplier may have a longer lead time and greater security concerns. Outsourcing may

lead to loss of cross-functional skills of the outsourced operation, which reduces the ability to

react to disruptions.

Reduced number of suppliers. Over the last decade, there has been a dramatic decrease in the

number of suppliers (Peck and Juttner, 2003) from whom an organization procures rawmaterials, components, and/or subassemblies. A limited number of suppliers ensures that an

order size is larger (than an order when there are more suppliers). Thus a firm can often enjoy

lower prices. During normal production, cost advantages and efficiency is realized. However,

using very few suppliers can create a dependence on supplier(s). In November 1998, Hurricane

Mitch destroyed 10% of the worlds banana plantations in Honduras, Guatemala, and Nicaragua,

including one quarter of Doles banana plantation. A greater dependence of Dole on these

plantations interrupted its supply chain for more than a year. In the fourth quarter of that year

Dole suffered a 4% decline in revenue (Martha and Subbakrishna, 2002).

Business risks, such as bankruptcy, can also disrupt an organization that relies excessively on

a single supplier. For example, UPF Thompson became insolvent at the end of 2001. The impact

on Land Rover, which had UPF as its only supplier of chassis, was sudden and severe as it had to

lay off 1,400 workers at its Solihull UK plant (Chapman et al., 2002). Thus, disruption at the

supplier has the inherent potential to disrupt other members of the chain.

JIT. JIT and lean inventories have intuitive economic rationale. Over the past decade, the US

auto industry, by using JIT, has saved an estimated $1 billion a year in inventory carrying costs

(Martha and Vratimos, 2002). Along with reduction in inventories, JIT management practices

helps in improving the quality of output (Alles et al., 2000). However, the savings has a cost of

making a supply chain vulnerable to disruptions. Buffer inventories, which provide supply chains

an ability to absorb unusual system disturbances, are minimum in a JIT inventory management

system. If a company zealously go after efficiency and be lean, having less inventory, and

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just-in-time manufacturing, then I think it is definitely more vulnerable to the major disruptions

that can be man-made or natural (Lee, 2001).

During the weeks following 9/11, organizations using JIT inventory management techniques

faced severe disruptions and loss of production. This resulted in researchers and practitioners

questioning the validity and effectiveness of JIT in the present disruptions-prone environment.

Complexity. Todays supply chains are not a linear chain of companies, but a complex web of

companies. In order to achieve efficiency, the increasing complexity of products is motivating

supply chains to transform into systems that are decentralized (to achieve expertise and

efficiency) and use global sourcing. For example, electronic products such as computers use

thousands of components. These components may come from hundreds of suppliers, from allover the world. A small disturbance in any one of these suppliers may stop the final product from

reaching customers.

Reduced lead times. Increased customer expectations for faster delivery along with industrys

desire to reduce inventory has resulted in reduced lead times. Lead time includes slack, which

provides a hidden flexibility to absorb disruptions. Reducing lead time may reduce slack,

thereby increasing the possibility of a disruption to affect subsequent stages of a supply chain.

Legislation. Recent Homeland Security measures such as Customs-Trade Partnership Against

Terrorism (C-TPAT), Container Security Initiative (CSI), and the 24 hour manifest rule have

served to introduce additional stages, transactions, lead time, lead time variability, and

uncertainty into supply chains.

In todays business environment, companies are working together to create innovative ways

in sourcing, transportation, inventory, and demand planning. Supply chains have been driven

over the years to increase productivity, remove redundancy, minimize waste, and continuously

lower costs. This has resulted in an inverse relationship between efficiency and resiliency.

5. Catastrophe ClassificationFor a supply chain, not all catastrophes pose the same type or amount of risk. For example, a

biological attack can have the severe consequence of inducing large human losses, while an

attack on transportation may affect supplies. However, different catastrophes (for example, a

hurricane and an earthquake) may have similar consequences for a supply chain. It may be

difficult for companies to plan for every type of catastrophe. Therefore, classifying catastrophes

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may ease the planning for catastrophe coping strategies. Our classification below can also help to

identify areas within a company that should be focused on to mitigate disruptions.

A catastrophe disrupts a supply chain by affecting one or more of its components.

Components internal to an organization, such as equipment and facilities that are typically

owned by organizations, may remain unaffected by an external catastrophe (a catastrophe that

does not affect the premises of the organization). External components, i.e., supplies,

transportation, labor, utilities, communication, laws/regulations, and finance/banks, are typically

affected by catastrophes that happen outside of an organization. In contrast, an internal

catastrophe, such as fire and small industrial accidents, may affect internal components only. In

Figure 8, internal components are represented inside the boxes denoting various stages of asupply chain. External components are shown by arrows.

In Table 2, we identify the severity and possibility of effects on components resulting from

various classes of catastrophes. The severity and possibility corresponds to how much and

how likely a catastrophe might affect a component. The table can help managers and planners

identify the vulnerability of various components in the event of a specific catastrophe. It is

important for managers to focus on mitigating catastrophes that have a high possibility and

severity of affecting critical components. For example, for a call center, communication links

could be very critical for their operations. Table 2 shows that terrorist attacks on infrastructure,

cyber terrorism, and infrastructure destruction by a natural catastrophe have a high possibility as

well as severity of disrupting communication media. Thus, a call center may benefit by adopting

migration strategies that alleviate the effect of these three types of catastrophes.

For a supply chain, the threat posed by a catastrophe depends on factors such as industry,

geographic location, political situation, culture, location of suppliers and customers, economy,

SUPPLIEREquipmentFacilities

L a b o r

U t i l i t i e s

C o m m u n

i c a t

i o n

F i n a n c e

/ B a n

k s

L a w s / R e g u l a t

i o n

Raw MaterialTransportation

MANUFACTURER EquipmentFacilities

L a b o r

U t i l i t i e s

C o m m u n

i c a t

i o n

F i n a n c e

/ B a n

k s

L a w s / R e g u

l a t i o n

Value AddedTransportation

DISTRIBUTOREquipmentFacilities

L a b o r

U t i l i t i e s

C o m m u n

i c a t

i o n

F i n a n c e

/ B a n

k s

L a w s / R e g u

l a t i o n

Value AddedTransportation

CUSTOMEREquipmentFacilities

L a b o r

U t i l i t i e s

C o m m u n

i c a t

i o n

F i n a n c e

/ B a n

k s

L a w s / R e g u l a t

i o n

Value AddedTransportation Raw Material

Trans ortation

Figure 8. Components at Various Stages of a Supply Chain.

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supply chain is susceptible to disruptions by not only the catastrophes that affect their own

assets, but also those that affect their suppliers, customers, transport network, and utilities.

Therefore, planning should encompass the entire supply chain.

Mitroff and Alpaslan (2003) analyzed crisis readiness of Fortune 500 companies over the

past two decades. They found that during most of this time, only 5 to 25% of the companies were

prepared for crises. At times, 95% of Fortune 500 companies were not equipped to manage an

unfamiliar crisis, i.e., one that the company has not experienced before.

Planning for robustness requires identification of critical components that a company is

excessively dependent on, or those that, if disrupted, can have a severe impact on supply chain

performance. What if analyses and supply chain drills that simulate various catastrophicscenarios can help identify critical components. Intel performs drills to identify the components

and activities that would cause death for the company, if they were disrupted (Lund, 2002).

Monahan et al. (2003) identifies the following characteristics of a vulnerable component: a

bottleneck that other processes depend on; a high degree of concentration of information flow;

single or scarcity of suppliers; limited alternatives; association with high risk geographic areas;

and insecure access to important infrastructure.

In this section we identify strategies that can help make supply chain components robust.

Sections 6.1 through 6.4 identify mitigating strategies. In Section 6.5 we discuss cost-benefit

tradeoffs in implementing mitigating strategies.

6.1 Proactive Strategies

Feasibility and cost permitting, it is in the best interest of an organization to choose strategies

that make supply chain components unaffected by any or many catastrophe(s). This section

identifies such proactive strategies, which are decisions/plans/actions that are aimed towards

reducing the vulnerability and probability of disruptions. Proactive strategies are implemented prior to having information (forecast) of a catastrophe. Decisions made after a forecast are

reactive strategies, which we identify in Sections 6.3 and 6.4. Well-developed and implemented

proactive strategies can reduce the need of mitigating strategies discussed in Sections 6.2 through

6.4.

Locate facilities at safe locations. Catastrophes are not evenly distributed across geographical

regions and countries. For example, the frequency of hurricanes and earthquakes varies across

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geographical regions. Similarly, terrorist attacks occur more in some countries than others.

Therefore, risk of disruption can be considerably reduced by choosing locations that are less

susceptible to catastrophes. As noted in Section 2, US owned companies face a higher risk of

terrorist attacks outside the country. Therefore, it might be advantageous for companies to sell or

lease their vulnerable overseas assets to local companies (Simchi-Levi et al., 2001).

Selection of a plant or business location should use models that can consider risks while

comparing potential locations. Risk assessment can be made by considering both the past history

of catastrophes and the potential for future terrorist attacks and natural calamities. Besides

geographic location and country, other factors such as ownership, symbolic importance, type of

construction, neighbors, government, community, and economic situation affect the probabilityof a catastrophe.

Moreover, with time either the vulnerability or the preference level of a location can change.

After the 1993 World Trade Center bombings, Morgan Stanley realized the risks associated in

having offices in such symbolic buildings. The company moved its offices to several locations

outside the towers. The strategic decision paid returns on September 11, 2001.

Choose suppliers located at safe locations. Disruptions at supplier operations have the

potential to disrupt the entire supply chain. Therefore choosing a supplier that is located at a safe

location can considerably reduce the probability of disruption.

Choose a robust supplier. A supplier that is well-prepared to cope with catastrophes can reduce

the vulnerability of the entire chain. Many auto manufacturers such as GM help their suppliers

develop certain strategies to mitigate disruptions. Past performance of suppliers during

catastrophes can be used as an indicator of their reliability and robustness.

Robust transportation. Often transportation is the most vulnerable part of a supply chain. A

transport network, in general, is not secure and is extensively dispersed. Selecting a transport

company that has the ability to handle disruptions can provide stability to companies duringcatastrophes. In Sections 6.2 and 6.3, we identify desired abilities that can help make

transportation robust.

Establish secure communication links. A key to efficient supply chain operation can be

communication. With globalization, outsourcing, and widespread applications of computers, the

use of communication links has increased. Reliable and robust service providers can be used for

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telephone, internet, and wireless communication. For large companies, buying personal satellite

communication channels may be the most secure option.

Enforce security. Security can help prevent some intentional man-made catastrophes. Physical

security can prevent pilferage, leaking of sensitive documents, and disruptions at a plant by

terrorists. Information security can prevent cyber attacks by hackers, computer viruses,

accounting scandals, and unauthorized access to communication media. Ensuring freight security

with measures such as CT-PAT certification, and development of tracking and anti-tampering

technologies can considerably reduce the threat of terrorist attacks and delays at customs and

entry points at borders. Technologies such as e-seals, radio frequency identification tags on

containers, and global positioning systems can help in achieving this aim.Terrorists are well aware of the increasing security measures and can use smart and

innovative ways to reduce the effectiveness of advanced security devices. Therefore vigilance by

company employees, dock workers, and pedestrians is desirable.

Efficient human resource management. Understanding employees can have huge returns for a

company. For example, background information can prevent the hiring of workers that have a

wrong type of criminal background. Moreover such information can be used for assigning

critical and sensitive responsibilities. Worker training programs should not only focus on

increasing efficiency but also make it harder for anomalies and violations to occur. Coutu (2002)

emphasized worker resilience as a determining factor in their performance during catastrophes.

Finally, a close understanding and relationship with workers can help avoid strikes and

production stoppages.

6.2 Advance Warning Strategies

An advance warning or forecast of a catastrophe can provide a company valuable preparation

time to align its capabilities to minimize disruption effects. Prior information may allowcomplete prevention of a disruption. For example, a hurricane forecast provides preparation time,

which helps reduces the loss of life and property. The goal of an early identification of potential

catastrophes requires foresight on the working environment, i.e., supplier, market, inventories,

competitors, laws, and transportation. It also requires constant monitoring of the geographical

environment.

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Besides better catastrophe mitigation ability, foresight can provide strategic advantages. In

2000, by watching their supplier processes, Nokia increased its market share by 4%. Philips, a

chip manufacturer, suffered a fire in its Mexico plant. Both Nokia and Ericsson relied on Philips

as the only supplier for their cell phone chips. Nokia, anticipating the potential disruption,

responded fast to contact Philips to use its alternate facilities to meet Nokias demand. Ericsson

was late. All available capacity of Philips was taken by Nokia. Consequently, Ericsson reported a

loss of $1.8 from the shortage of chips (Chopra and Sodhi, 2004).

Enhance visibility and coordination in a supply chain. Organizations in a supply chain are

vulnerable to catastrophes that can affect any stage of a supply chain. Vertical coordination can

help prevent a catastrophe from disrupting multiple stages. Sharing information such as demand, production processes, inventory levels (excess, shortage), and processing capacities can help

companies anticipate a brewing problem at a supplier or customer that may affect them.

Horizontal coordination can also allow companies (even competitors) to forecast disruptions

such as a change in law, shifting customer preferences, and changes in technology.

Many vendors, such as I2, Manugistics, ViewVelocity, and Celarix offer specialized software

to enable extensive visibility across a supply chain. Such software provides information about

goods location, inventory status, production processes, and other internal systems such as ERP

applications. For example, eHub, developed by Cisco, provides links between multiple layers of

a supply chain. It keeps supply chain organizations up to date on potential supply shortages,

capacity limitations, or other disruptions (Lee and Wolfe, 2003).

Increase transportation visibility. It may not be possible to prevent transportation catastrophes

such as border closings, highway closings, truck breakdowns, and transportation sabotage by

terrorists. However, prompt information about such disruptions can allow managers to prepare

supply chains in a better way, thereby avoiding disruptions at their facilities. For example,

transportation vehicles can be rerouted through alternate routes, orders at other suppliers forwhich transportation routes are undisrupted can be increased, and orders can be expedited.

Monitor weather forecasts. In 1998, Toyota lost production of about 2000 vehicles, as its

Georgetown plant was shut down for a day because an ice storm made roads impassable.

Learning from this disaster, Toyota hired WeatherData Inc., a weather forecasting company, to

monitor weather conditions. Payoff came in 1999. A similar snow storm disrupted production at

Ford Motor Company. However, Toyotas plants were uninterrupted (Murphy, 1999). For

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Toyota, WeatherData Inc. forecasts weather for all 330 suppliers and their transportation routes.

Other natural calamities such as hurricanes, tsunami, and extreme temperatures can also be

forecast.

Act according to terrorist threat level. The homeland security advisory system announces the

terrorist threat level using five colors. An increase in threat level not only signifies greater

possibility of terrorist attack but also increases delays at entry ports because of higher custom or

border checks. It may also require companies to follow strict rules which can disrupt normal

operations. Therefore, supply chain components should note the threat level and look for

possible ways in which the level can impact them.

Sandia National Labs has developed an early-warning color coded system by region and byresource (gas/oil, electric power, telecommunication, transportation mode.) This uses real-time

data and statistical control limits to predict out-of-control situations.

Monitor trends. Trends such as changes in customer preference, laws and regulations, and

technology can create disruptions. These disruptions can result in loss of market, increased taxes,

and increased competition. In most cases trends occur slowly, and provide time for organizations

to adjust. Other changes such as laws and regulation can happen suddenly.

6.3 Coping StrategiesCoping strategies provide a supply chain with the ability to mitigate the effects of a disruption.

These strategies are built on flexibility and redundancy in components, which provide options

that can allow a company to offset the losses in a part of a supply chain by gains from available

alternatives (options).

Redundancy provides options by keeping extra (redundant) resources. Flexibility can hedge

risks without having redundant resources. Flexible resources can be used for multiple options.

For example, a flexible manufacturing facility may allow processing multiple products using thesame set of resources. In the remainder of this section, we identify various coping strategies.

Maintain multiple manufacturing facilities with flexible and/or redundant resources.

Having multiple facilities in different geographical and political regions can reduce the

probability of simultaneous disruptions at multiple locations. Redundant or flexible resources at

these facilities can provide disruption mitigation ability. When a facility is disrupted, production

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Li and Fung, a Hong Kong-based garment manufacturer, reserves manufacturing capacities

at multiple suppliers. This strategy ensures the availability of flexible capacity when their

customers such as Gap, Disney, and Gymboree order various different designs and quantities

(Lee and Wolfe, 2003).

Flexible transportation. Supply chains should have flexibility in using alternatives such as air,

ground, and sea transportation. Alternate transportation is more important for companies having

suppliers outside the US. Options such as multiple transport companies, alternative routes, and

expedited service are also important. After September 11, Continental Teves, an auto industry

supplier, identified that some critical parts might be delayed because of air restrictions.

Continental Teves used a contingency relationship with transport firms to supplement airtransport by land (Martha and Vratimos, 2002).

Maintain redundant critical components. It is advantageous to have backup for critical

components that can be maintained with limited investment. The appropriate level of investment

depends on the vulnerability of the company to failure of the component. For example, auto

companies maintain power generators that can run the plants for some time. Intel maintains a

redundant communication system.

Standardize various processes. A product with a standardized and well-documented process

can be easily processed at different facilities and by different workers. If production at a certain

plant (producing non-standard products) is disrupted, other non-disrupted plants may not be able

to substitute its production. Non-standardized processes make it difficult for facilities to

coordinate their efforts.

Redesign products for component and process commonality to pool risks. Inventory pooling

by designing products with common components across multiple products allows a limited or the

same set of facilities to satisfy demands for multiple products. Postponement, mass

customization, and centralized inventory management are other techniques that take advantage ofrisk pooling by component commonality.

Influence customer choice. The ability of a company to motivate customers to buy what they

want to sell is important, both during normal operations and catastrophes. For example, during

the Taiwan earthquake in 1999, Dell was able to steer customers to buy computer configurations

that Dell could make from the available components, by giving them either a free or cheap

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upgrade. To influence customer choice, a deeper understanding of their requirements,

preferences, and price sensitivity is required.

Insure against various risks. Buying insurance for various components and types of

catastrophes is one option open to companies. Various supply chain components such as

supplies, facilities, transport, and labor can be insured against natural calamities, accidents, and

theft. Some coverage includes loss of assets, profits, extra costs, and expenses because of

physical loss or damage to property.

6.4 Survival Strategies

A severe catastrophe and/or lack of proactive and coping strategies may result in supply chain

breakdowns, which can make a company inoperative. This section identifies strategies that can

be used by companies in such situations. The severity of a catastrophe and the uncertainty of its

possible effects make it difficult to develop survival options. However, past examples of survival

can be used to identify possible strategies that might be suitable for a company. Helferich and

Cook (2002) provide a detailed guideline for a disaster management process.

Survival strategies can be implemented in two stages. An immediate response to a

catastrophe can be followed by steps taken to recover. The aim during the response stage is to

save life and property. Recovery refers to re-organizing resources to restart supply chain

operations.

Implement organizational emergency plans. These include emergency safety procedures for

life and property. A response team should analyze the need for emergency assistance and

community support. In some instances, extreme measures such as shutting down can be taken.

For example, after the 9/11 attacks, Starbucks closed all locations in North America. This

decision ensured safety of the workers and avoided the potential security and transportation

problems that Starbucks might have encountered. Pre-assigned roles and responsibilities can helpin maintaining control and preventing chaos.

Maintain communication. During catastrophes, communication helps in maintaining command

and control of facilities and personnel. During recovery, communication can help in reorganizing

personnel and resources. Above all, most survival strategies identified in this section need

communication as a pre-requisite. Argenti (2002) discovered that during a catastrophe, internal

communication takes precedence over every other component. He also stressed the need for

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setting-up crisis management centers that have a good communication infrastructure. American

Airlines has a crisis management center with an ability to accommodate 200 outside callers

simultaneously.

Keep control of the organization at all times. Minimum losses and efficient recovery require

managements direction and control. Other management responsibilities include identification of

emergency services needed, ensuring critical tasks are done, arranging for suppliers during the

post-emergency period, and identification of inventories and other resource status. Most

operations are decentralized during catastrophes. However, decision making should be

centralized.

Identify needs to resume operations. Important tasks at the recovery stage include assessmentof undamaged and undamaged resources and identification of the human resources and physical

infrastructure needed. Cooperation with law enforcement and government efforts is essential. In

certain disasters, it is possible to get state or federal help, which can be critical in recovery.

6.5 Cost/Benefit Trade-offs of Mitigation Strategies

Investment in mitigation planning and implementation consume resources. This may increase

costs and reduce efficiency, which can result in lower competitiveness. The challenge is to

determine the right set of strategies and trade-offs between losses caused by reduction in

efficiency and benefits from increased robustness. It is not clear as to which strategies can reduce

risks without hurting efficiency (Sheffi et al., 2003).

In the present context, supply chain managers should note that improving robustness can also

increase efficiency, which is a lesser understood and emphasized effect of mitigating strategies.

Therefore, in this section we focus on identifying the potential benefits of these strategies during

stable times. Lee and Wolfe (2003) emphasize that it is possible to design a robust supply chain

that can increase efficiency. They provide a parallel from the quality movement of the 80s, whenit was recognized that increased quality pays benefits. The following discussion concerns the

possible benefits that can occur from implementing some risk mitigation strategies.

Reduction in lead time and lead time variability. Secure transport mediums can help reduce

the time needed at customs and checkpoints, while reliable suppliers can reduce the need for

inspection, accounting, and bookkeeping. Moreover, traceability of transport mediums, with

devices such as global positioning systems and radio frequency identification devices, allows

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real-time monitoring and control. Real-time tracking and monitoring can decrease accounting

and bookkeeping. It can also increase the predictability of delivery time, thus reducing the

associated uncertainty and variability.

Better inventory management. Increased visibility of supplier operations and transport

mediums can reduce the uncertainty in supplies. This along with reduction in lead time can

reduce the amount of safety stock needed. This can also help match demand and supply.

Efficient production planning and forecasting. Better inventory decisions and reliable

information about exact customer demand can increase the efficiency of production planning and

forecasting. Flexibility and redundancy can provide options for smoothing variations in

production because of demand fluctuations.Reduction in the bullwhip effect. Increased information sharing and coordination can reduce

bullwhip effects (Lee et al., 1997). Furthermore, reduction in lead times also reduces bullwhip

(Chen et al., 2001). A robust supplier can be expected to have higher reliability in fulfilling

orders at the right time and quantity. This implies a lesser probability of rationing demand among

customers, which in turn reduces bullwhip (Lee et al., 1997).

Increase in customer service. Companies can win customers by making products available

during catastrophes, when competitors may not be able to reach customers. A better coordination

between supplier, manufacturer, and retailer can also help in understanding and meeting the

expectations and choices of customers. Such information is critical to improving customer

service and satisfaction.

Better demand management. Coordination and visibility between supply chain organizations

can provide critical information for demand management. For example, price and promotion

decisions can be made based on availability of supplies and customer demand. A possible

shortage of units could be managed by a short term increase in price or a reduction in price of

substitute products. Companies such as Dell and Amazon dynamically change the pricedepending on the supplies and customer demand.

Modular products also help in demand management as such products use common

modules that assemble to form final products. Using modularity and postponement, companies

can reduce the number of components required to make variety of final products. Fewer

components can reduce the effect of compounded service levels. Thus the firm can achieve a

high service level with limited inventory of components.

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Natural Accident Non-terrorist

C a t a s

t r o p

h e s

I n f r a s t r u c t u r e

D

e s t r u c t i o n

T r a n s p o r t a t i o n

D

i s r u p t i o n

H

e a l t h H a z a r d

E x t r e m e W e a t h e r

N

a t u r a l F i r e s

I n d u s t r i a l A c c i d e n t s

T r a n s p o r t A c c i d e n t s

S t r i k e s

E n v i r o n m e n t a l

A

t t a c k o n

I n f r a s t r u c t u r e

V

i o l e n c e , M a s s

Strategies

E x a m p l e s

E a r t h q u a k e s

H u r r i c a n e s , f

l o o d s

S t o r m s , w i n d s ,

l a n d s l i d e , s n o w ,

r a i n , a v a l a n c h e s

E p i d e m i c , f a m i n e

C o l d w a v e , e x t r e m e

t e m p e r a t u r e

E r u p t i o n , v o l c a n o ,

f o r e s t f i r e s

G a s l e a k a g e

T r a i n d e r a i l m e n t ,

a i r p l a n e c r a s h

W o r k e r s s t r i k e s ,

p o l i t i c a l s t r i k e s

C h a n g e s i n

g o v e r n m e n t

s p e n d i n g , l

i f e s t y l e ,

t e c h n o l o g y

P o w e r ,

c o m m u n i c a t i o n , a n d

p u b l i c s e r v i c e s

B o m b i n g p u b l i c

Locate facilities at safe locations H H H L M H M L H L H MChoose suppliers located at safe locations H H H L L M M L M VL H MChoose robust suppliers H H H - H H H H L L H M

Choose robust transportation M M H - L M H H L - M MEstablish secure communication links H H - - - M L L - - M LEnforce security - - - - - - H M H - H H

P r o a c t i v e

Efficient human resource management - - - - - - H H H - H HEnhance visibility and coordination M M H M M H H H M L L Increase transportation visibility M M H L M H H L - H L Monitor and react to weather forecasts - H H H H H - - - - - - Act according to terrorist threat level - - - - - - - - - - - -

A d v a n c e

W a r n i n g

Monitor trends: customer preferences,regulations, and technology - - - - - - - - - H - -

Maintain multiple manufacturing facilitieswith flexible and/or redundant resources M M H L H M H H M - H L

Carry extra inventory M M H - H H H H H - H H

Secure alternate suppliers H H H - M H H H H - H H Choose flexible transportation options M M H - VL M H H L - M MMaintain redundant critical components M M - - L L L L VL - H L Standardize/simplify processes M M M H M M M H M M H Product Design for product commonality,controlled architecture, and postponement H H H M H H H H M H H

Influence customer choice H H H H H H H H H H H H H

C o p i n g

Insurance against various risks H H H VL H H H H H - H L

Table 3 . Interrelationship of strategies and catastrophe types.

High (H), Medium (M), Low (L), or Very Low (VL).

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Table 4 . Interrelationship of strategies and vulnerability breeding factors.

Vulnerability Breeding Factors

StrategiesGlobali-zation

Decentrali-zation Outsourcing

Reduction inNumber ofSuppliers

JITPractices

Locate facilities at safe locations M M M L HChoose suppliers located at safe locations H H H H HChoose robust suppliers H M M H M

Choose robust transportation M M M M H Establish secure communication links L L L - VL Enforce security - - - - -

P r o a c t

i v e

Efficient human resource management - - - - - Enhance visibility and coordination H H L M HIncrease transportation visibility M L M M HMonitor and react to weather forecasts L M H H H Act according to terrorist threat level L L L - M A

d v a n c e

W a r n i n g

Monitor trends: customer preferences,regulations, and technology - - - - - Maintain multiple manufacturing facilitieswith flexible and/or redundant resources M M M M L

Carry extra inventory M M M H HSecure alternate suppliers M M M H HChoose flexible transportation options H H H H HMaintain redundant critical components - - - - HStandardize/simplify processes H H M L LProduct Design for product commonality,controlled architecture, and postponement M L L L L Influence customer choice - - - - -

C o p

i n g

Insurance against various risks M M M M M High (H), Medium (M), Low (L), or Very Low (VL).

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Investment in mitigation planning needs justification by appropriate cost/benefit analysis,

which requires an estimation of losses and benefits in numerical quantities. In many cases this isnot easy to calculate. Another difficulty is a lack of understanding of potential long-term effects.

For example, to mitigate the risk of disruptions, companies can increase inventory. This can be a

short-sighted strategy. Increased inventory may not be an economical alternative as it may result

in quality problems from waste of resources, higher rejection rates, and poor management. Such

a strategy may make a company worse off than a catastrophe. Therefore, more research is needed

in identifying the potential long term deleterious effects of various strategies. Section 7 identifies

such research issues.

7. Research Problems in Disruptions ManagementThis section describes 16 important problem areas for future research on managing disruptions in

a supply chain. Some of these research problems have been examined to some extent, while

others are new to the supply chain management paradigm, and have not yet attracted the

attention of operations management researchers. We also identify types of catastrophes that can

be mitigated by addressing these issues.

Build and analyze a catastrophe database, which includes affected regions, economic

consequences, and industries affected . Such a database can aid in identifying the possibility

and severity of disruptions for a company located in a specific region. Complex operations and

dependencies between various businesses make it difficult to identify the catastrophes that might

affect them. For example, extreme cold may kill honey bees, which may result in a low honey

production. Cold weather may not affect fruit yield, but a low number of bees could affect the

yield by reducing flower pollination. The Inter-university Consortium for Political and Social

Research and the Center for Research on the Epidemiology of Disasters maintain databases fornatural and terrorist catastrophes. The National Counterterrorism Center maintains a publicly

accessible database of all terrorist events worldwide. However, these databases lack an explicit

identification of the affected regions and industries. Information from such databases could be

modeled or used to provide useful results for industry risk mitigation.

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Well maintained databases can help to plan for possible major terrorist events, industrial

and transport accidents, and health hazards. These can also facilitate in making better decisions

such as location of facilities, choice of transportation routes and media, and location of suppliers.

Identify which catastrophes affect each type of business and what their effects are. A

catastrophe may affect businesses differently, causing disruptions to varying extents. Moreover,

a business is not affected by all catastrophes. Therefore, there is a need to identify a list of

catastrophes, for each business type, that can cause substantial losses and thus should be planned

for. For example, before the outbreak of SARS in 2003, it was very difficult to predict its effects

on the airline and electronics industries worldwide. Empirical studies, using the statistics of past

disruptions, can help identify the catastrophes that can affect a business.For each industry, an analysis outlining the duration (average and range), probability, and

severity of catastrophes can help in justifying the need for mitigation techniques. Identification

of the effects can also help in evaluating the monetary losses associated with catastrophes.

Kleindorfer and Saad (2005) emphasize the importance of fit between a company and the

mitigation strategies used. They conclude that while choosing mitigating strategies for various

companies, one size will definitely not fit all.

Develop models that can rank various catastrophes, based on their severity and possibility,

for a business located at a geographical location. A business may benefit by a ranking of

catastrophes based on severity and probability. Such a ranking may help managers to identify

catastrophes that should be planned for each individual location. It can also help in capacity and

location planning decisions. For example, some businesses plan for continuity of operations

when a particular location is affected by catastrophes. The location of facilities could be chosen

to reduce the possibility of simultaneous disruptions at multiple locations.

Identify indicators that can forecast potential disruptions. Such indicators could be an

abnormal variation in supplies or demand, change in fuel prices, disruptions in related industries, political changes, and technological developments. An indicator of supply shortage is an increase

in security level from yellow to orange, which often results in extended delays for components

and supplies to enter the US. Once identified, indicators can help a company align its strategies

and resources, in advance, to mitigate disruptions.

Develop methods to evaluate the risks of various unknown events. It is difficult to identify

the possibility and the impact of certain less-familiar disasters such as a dirty bomb. The effects

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of these catastrophes can be understood by identifying similar catastrophes that have occurred in

the past. For example, learning from the effects of the Sarin gas attack in a Tokyo subway could

help in assessing the disruptions caused by a biological attack. Developing such evaluation

methods can help in mitigating catastrophes such as terrorist attacks, severe industrial accidents,

and climate changes. Sodhi (2005) developed a general method for risk measurement, which can

be used for applications such as capacity allocation and demand planning. von Winterfeldt

(2006) developed a decision analysis framework for Hurricanes of the scale of Katrina.

Evaluate the effectiveness and appropriateness of JIT in an environment prone to

disruptions. JIT systems have been effectively used by many companies. Despite this, there

have been numerous examples of JIT system failures when faced with a catastrophe-proneenvironment. See Section 5. Techniques such as JIT, Six-Sigma, and TQM help to decrease

system variability. Perhaps, with the increase in volatility in operating environment, there is a

need to re-analyze the suitability of JIT systems and identify conditions under which such

systems are appropriate (or not).

Find optimal inventory policies in uncertain environments. Much of research identifies

optimal inventory policies while considering a stationary demand process. Unexpected events are

not consided. Disruptions, of the magnitude of port strikes, Katrina, and 9/11, are rarely

addressed in the literature. Uncertainty increases the complexity of these analyses, thereby

making it difficult to identify optimal inventory policies. Various policies for expediting,

subcontracting, setting order-up-to levels, and reorder points need further investigation (Schmitt

and Stecke, 2003). Nevertheless, it is important to analyze supply chains considering not-so-rare

disruptions caused by, for example, extreme cold or heat, transport accidents, terrorist attacks,

and increased security at the borders.

Investigate the justification of globalization, outsourcing, and reduction in the number of

suppliers while considering the possibilities of disruptions. Proponents of globalization andoutsourcing often fail to consider the increased risks that are induced because of the global

spread of modern supply chains. Moreover, supply chain theorists often analyze the cost benefits

of such strategies without considering possible disruptions that might happen at an offshore

supplier because of political, sociological, or climatic catastrophes. In Section 3, we showed that

offshore businesses, when compared to businesses located inside the US, have a higher chance of

becoming a terrorist target. The possibilities of disruptions because of larger distance between,

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for instance, a supplier and a manufacturer, as well as border restrictions also increase the risks

associated with an overseas supplier. Researchers should develop models to analyze disruptions

at various stages of a supply chain. Such analyses can help compare various alternatives that

differ in the level of risk, for example, of choosing either an overseas or a local supplier. These

analyses can also aid in building supply chains that can mitigate catastrophes such as overseas

terrorist attacks, transport accidents, and government border restrictions. Chopra et al. (2005)

studied the effect of bundling the uncertainties arising from alternate suppliers. They showed that

bundling hurts a supply chain by underutilizing a reliable supplier.

Establish measures to evaluate the effectiveness of various catastrophe mitigation

strategies. Catastrophe mitigation strategies aim to reduce the effects from disruptions but oftenrequire capital investments. The benefits of these strategies, however, can be difficult to

quantify. Managers should be interested in determining a tradeoff between investment in

mitigation techniques and benefits achieved. To find such tradeoff, there is a need to develop

global measures of the effectiveness of catastrophe mitigation. Moreover, it is not clear as to how

the performance of various response or recovery strategies can be evaluated.

Identify how much and what kinds of flexibilities and redundant resources are required or

are useful to mitigate risks. Redundant and flexible resources are sometimes used to mitigate

disruptions. The amount and kinds of resources, however, can vary depending on many factors

including industry, location of facilities and markets, customer preferences, and laws, to name a

few. Therefore, the identification of the amount and kinds of these resources is difficult.

Capacity decisions should consider planning for disruptions.

Identify industry best practices for mitigating risks in a supply chain. A compilation of such

strategies for many industries and catastrophes can help managers in choosing mitigation

strategies appropriate for their companies. For example, identifying effective strategies to

mitigate effects of hurricanes or terrorist attacks can provide managers with a benchmark tocompare their companies preparedness and mitigation abilities.

Identify strategies that can be used to react to government warnings for increased terror

alerts. An elevated threat of terrorist attacks often results in delays of shipments to enter or leave

a country. Such warnings may affect daily operations because shipping delays can starve a

supply chain for components or raw materials. Therefore, if a terror alert is expected to last for a

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long time, a company may benefit by arranging alternate sources of supplies, for example, local

suppliers.

Investigate the role of supply chain coordination while considering disruptions. Current

supply chain literature addresses coordination while considering variations in demand and price.

Prevalent coordination mechanisms do not hedge a supply chain stage against disruptions. The

effects of a catastrophe are not symmetrical in a supply chain. For example, a relatively small

disruption at a manufacturer may not affect a customers operations as the lead time between

these stages may provide a cushion to absorb the disruptions. However, a disruption at a

customers facility is more likely to affect the manufacturer because of increased bullwhip.

Examine how expediting affects the long term performance of a supply chain. A disruptionat a stage of a supply chain affects other stages by creating shortages of supplies or demand. A

short term solution to reduce shortages, often used by managers, is to expedite orders. However,

the effect of expediting on the long term performance of a supply chain has not yet been studied.

Schmitt and Stecke, 2003, show that for and assembly supply chain expediting can undermine

the long term performance. Expediting of orders may increase the magnitude of a bullwhip

effect. Moreover, with expediting, the effects of a disruption may last a longer time, when

compared to a supply chain without expediting.

Identify effects of disruptions on bullwhip. The bullwhip effect has been studied under

restrictive assumption of a stationary demand process (Lee et al., 1997, Chen et al., 2000, and

Meters, 1997.) However, disruptions cause the demand to be non-stationary. It is intuitive that

non-stationary demand could add to the amplification. To our knowledge, researchers have not

yet addressed bullwhip while considering disruptions.

Study various supply chain network structures while considering the possibility of a

disruption. Modern supply chains have diverse structures. These structures vary depending on

many factors including process, product, and market characteristics. These structures should beanalyzed considering disruptions at various stages. Brown et al. (2003) analyze the performance

of a power distribution network when certain parts of a grid is unavailable because of a

disruption. This type of modeling and analysis is popular in the military and are useful in

designing strategies for the battlefield when a part of an army is not operational. Network

structure analysis while considering disruptions can be useful in designing critical facilities such

as power plants, communication media, and water distribution facilities. These can also be used

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to analyze supply chain performance when a stage, i.e., a supplier or manufacturer, is

unavailable. The advantages of component commonality and postponement strategies should be

evaluated. Santoso et al. (2004) provides an algorithmic approach to design supply chains

considering uncertainty. They provide methodology to compare alternate supply chain designs

and find the ones that have least uncertainty.

In summary, to help make a supply chain robust to disruptions, there is a need to address the

research problems identified in this section. In recent times, among CEOs across the world, there

has been an increased awareness and focus on risk management in supply chains

(PricewaterhouseCoopers, 2004). Such a focus shows the need and desire for businesses to

addresses risk management in supply chains.

8. ConclusionsWe conclude by suggesting implications of our research for managers and academicians. This

research stresses the need for higher awareness of catastrophes and their effects on supply chain

operations. We compile catastrophe and economic data from various sources to reveal

information of managerial importance. We show that the monetary losses caused by catastrophes

are increasing, especially for businesses. This implies that industry needs strategies and tactics to

handle disruptions. We contribute to the understanding of supply chain management by

identifying prevalent practices that are often attributed for higher efficiency during normal times

but that can hinder operations during catastrophes.

From a managerial perspective, this research is appealing because it provides a

comprehensive set of mitigating strategies that can help reduce the risks of disruptions. The

strategies presented can be used for proactively managing, developing advance warnings, coping,

and surviving a catastrophe. We also reveal potential benefits of these strategies during normal

times, which are important for their economic consideration and justification. Managers should

focus on identifying strategies best suited for their companies. We develop various tables to help

managers determine the supply chain components that could be affected by catastrophes and

choose strategies to mitigate catastrophes and to overcome the vulnerability causing factors.

We hope that this study and the research problems identified will provide impetus for future

work on understanding, developing, and quantitatively analyzing mitigating strategies. While we

present qualitative strategies, future research should focus on quantifying the costs and benefits

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to businesses. There is an abundance of literature on supply chain efficiency, but very little that

studies their operations during catastrophes. Case studies outlining past successes and failures of

companies during catastrophes and identification of their strengths and weaknesses can help in

identifying good mitigation practices. These can also reveal survival strategies that can help in

fast and cost effective recovery, after disruptions, to normal operations.

AcknowledgementThe authors would like to thank Tom Schmitt at the University of Washington at Seattle for

communicating ideas that increased the contributions of this paper.

ReferencesAlexander, D., Natural Disasters , Taylor & Francis Books, Ltd., London, UK (1993).

Alles, M., Amershi, A., Datar, S., and Sarkar, R., Information and Incentive Effects ofInventory in JIT Production, Management Science , Vol. 46, No. 12, pp. 1528-1544(December 2000).

Bier, V. and von Winterfeldt, D., Terrorism Risk Analysis, Risk Analysis , forthcoming,(2006).

Chapman, P., Christopher, M., Juttner, U., and Peck, H., Identifying and Managing SupplyChain Vulnerability, Logistics and Transport Focus , Vol. 4, No. 4, pp. 1-5 (May 2002).

Chen, F., Drezner, Z., Rya