Abstract – Today’s globalized, leaner and just-in-time supply chains are more vulnerable to natural and man-made disasters. The business environment is continuously varying which produces risk and to manage this risk, it requires resilience. This paper proposes a new framework for supply chain resilience that leverages existing knowledge and offers a better understanding of the available notion in literature. It incorporates flexibility, adaptability, collaboration, visibility and sustainability as the major pillars for resilient supply chains. This framework provides a new means to evaluate ‘supply chain fitness’ and also provides critical insights for decision making by minimizing the negative impact of unavoidable risk events. Thus it incorporates event readiness and provides an efficient response.

Keywords - : Resilient supply chain, Risk Management, Supply chain fitness, Sustainable supply chain management, Vulnerability

I. Introduction

Recent events like financial crisis and natural disasters have strongly demonstrated that a disruption affecting an entity anywhere in the supply chain can have a direct impact on an organization’s ability to continue its operations. Supply chain disruptions can arise from many sources including external sources such as natural disaster (cyclones, earthquakes, tsunami’s) and internal sources such as fire at a manufacturing plant, loss of a critical supplier , operational contingencies and an act of terrorism, which have the potential to adversely influence supply chain, thus leading to loss in revenue. The global reach of supply chains, increased outsourcing, shorter product life cycles, reduction of supplier base, reduced buffers and demanding customers have made supply chains vulnerable [1].In globalized economy, manufacturers are practicing concepts of lean manufacturing keeping minimum inventories and following “just-in-time” production and keeping ultra-low quantities of parts on hand to avoid holding expensive stocks of parts. Recently, after the destructive earthquake and tsunami that struck northeastern Japan on March 11, 2011 major manufacturers around the world sprang into action. From General Motors Company’s technical center in the Detroit to the Memphis headquarters of package delivery giant FedEx Corporation, teams of employees scrambled to assess the impact on staff, factories and goods. Plant shutdowns across Japan following the earthquake, tsunami and nuclear crisis threaten supplies of everything including semiconductors and car parts to the

manufacturers across the globe. All these have resulted in supply chains facing increasing risks and becoming more vulnerable. Although the issue of risk has perhaps been contained in the management of supply chains over a long period of time, supply chain vulnerability and its managerial counterpart, supply chain risk management (SCRM) are still a relatively new area of management research [2].

Minimizing the Vulnerabilities of Supply Chain: A new Framework for Enhancing the Resilience

Umang Soni1, Vipul Jain2

Department of Mechanical Engineering, Indian Institute of Technology Delhi, New Delhi, India (umangsoni.iitd@gmail.com; vjain@mech.iitd.ac.in)

To reduce this risk, supply chains must be multidimensional and multidisciplinary designed to incorporate event readiness, provide an efficient and effective response, and should be capable of recovering to their original state or even better state after disruption. This is the basic feature of resilient supply chain. It is a subject of interest in relatively new emerging disciplines such as SCRM and sustainable supply chain management (SSCM) because resilience is the key to developing a strategic plan that is sustainable and capable of producing results that are better than less resilient competitors [26]. In addition resilience is not just concerned with recovery, flexibility, or crisis preparedness; it is also a distinct source of sustainable competitive advantage [11]. In order to validate the need for resilient supply chains, one needs to have an operational definition of the phenomenon of resilience as well as an understanding of the key elements and capabilities that characterizes it [1]. Apart from introductory section, this paper is organized in the following manner: In section II, supply chain vulnerability analysis is done. The concept of supply chain resilience is addressed in section III. A new supply chain resilience framework is explained in section IV. Section V explains supply chain fitness concept and in section VI Working of NK model is explained, finally, in section VII the conclusion is presented.

II. Vulnerability Analysis in Supply Chain Vulnerability is defined as “unexpected deviations from the norm and their negative consequences” [3]. Mathematically, vulnerability can be measured in terms of “risk”, a combination of the likelihood of an event and its potential severity [5]. Other definitions given in literature are: Supply chain vulnerability (SCV) is the susceptibility of the supply chain to the likelihood and consequences of disruptions [6]. It therefore captures the risk exposure of the supply chain and is often conceptualized together with supply chain. Thus it can be stated that, something that is “at risk, is vulnerable”. By addressing the vulnerability of the supply chain, the supply chain risks are addressed [7].

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Supply chain experts suggest that the key to manage disruption’s risk is to understand and to access company’s vulnerabilities. This evaluation involves answering questions like: What can go wrong? What is the probability of that happening? What are the consequences if it does happen? Vulnerability is highest when both the probability of occurrence of an event and the impact of disruption are high, whereas, low consequence events represents the lowest level of vulnerability and requires little planning or action. This has been explained by vulnerability framework explained by Sheffi and Rice as shown in figure1.

Fig 1: Vulnerability framework in supply chain [5]

The vulnerability framework can direct management attention and assist them to prioritize planning accordingly. These frameworks must be reorganized as new threats appear in the supply chains. The probability of intentional disruptions (adaptive threats) and the resilience to these threats will change with company’s action [5]. For example, an improved and efficient human resource policy can minimize strike outs of labor forces, the availability of additional systems and multiple suppliers may affect the severity of potential supply disruption.

III. Supply Chain Resilience The conventional means to manage uncertainty is risk management, which is especially challenging when threats are unpredictable. Planned threats such as terrorism can even adapt to new security measures. At the same time, organizations are accepting broader responsibility for the social and environmental impacts of their supply chains. The entire enterprise has a role to play in creating and maintaining supply chain resilience. Supply chain risks can even result from poor environmental and social performance by firm and its suppliers which can result in costly legal action. Dimension of risk relates to the notion of corporate social responsibility (CSR) and the extent to which supply chain members’ reputation and image can be tainted by the

actions of another member who engages in activities that result in public sentiment or outcry or, even worse, is accused of criminal behavior where liability extends up and down the supply chain [28].A resilient supply chain has the capacity to overcome disruptions and continually transform itself to meet the changing needs and expectations of its customers. Supply chain resilience aims at developing the adaptive capability to prepare for unexpected events and to respond to disruptions and recover from them [8].It is based on the basic assumption that not all risk events can be prevented. Resilience should be on every manager’s must-have list “because anyone who is really in the game messes up at some point” [9].Supply chain resilience addresses the supply chain’s ability to cope with the consequences of unavoidable risk events in order to return to its original operations or move to a new, more desirable state after being disturbed [6].Supply chain resilience can also be defined as “the adaptive capability of the supply chain to prepare for unexpected events, respond to disruptions, and recover from them by maintaining continuity of operations at the desired level of connectedness and control over structure and function [8].

High

Supply chain resilience focuses on the system’s adaptive capability to deal with temporary disruptive events. These disruptions imply a certain level of turbulence [10] and uncertainty in the supply chain which together cause threats to the current operations [4]. Depending on the magnitude of these threatening events, the terms disruption, crisis or even disaster are used. The adaptive resilience capability has been structured along the three distinct disruption phases into the supply chain “readiness”, “responsiveness” and “recovery” [5].Furthermore, all definitions share the view that resilience means to respond and recover at the same or better state of operations and thus includes system renewal [11]. A very basic definition of resilience can be found in engineering: “the tendency of a material to return to its original shape after the removal of a stress that has produced elastic strain” [12]. However, it may be advantageous for a supply chain not to return to its original “shape” subsequent a disruption, but rather to learn from the disturbance and adapt into a new configuration. In the ecological sciences, the standard definition of resilience is “the ability for an ecosystem to rebound from a disturbance while maintaining diversity, integrity and ecological processes [13]. The concept of adaptability is crucial to living systems, and supply chains may be seen as a network of “living” systems. Based on this systems concept, four major characteristics of resilient systems are proposed as: diversity, efficiency, adaptability and cohesion [14]. Companies with market power that respond quickly to disruption have the opportunity to coagulate their leadership position. The investment in resilience for such companies is typically justified due to the high margins associated with such strong market positions. Fundamentally, organizations can strengthen their resilience by either building in

High Vulnerability

Probability

Low

Supplier Loss,

Economic Crisis Transportation

Failure

Earthquake,

Tsunami, Strikeout Flood

Low Vulnerability

HighLow ImpactLow Impact

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redundancy or building in flexibility. Redundancy is the concept of keeping some resources in reserve to be used in case of a disruption. Like using safety stocks, multiple suppliers etc, it is like an insurance premium. Some authors propose “redundancy” as a separate formative resilience capability [5]. Flexibility is the concept of building organic capabilities that can sense threat and respond to them quickly. In addition to building resilience it provides competitive advantage also.

IV. Supply Chain Resilience Framework

The supply chain resilience framework explained here, shows that to enhance the resilience of a supply chain it should have capabilities like flexibility, adaptability, collaboration, visibility and sustainability. These are intangible dynamic supply chain capabilities that can hold supply chain disruptions and can also generate competitive advantage in normal routine operating times. The framework is shown in Figure 3.

Fig 3: Framework for supply chain resilience

This resilient framework will minimize risk (probability of hazard occurrence), vulnerabilities (exposure and susceptibility to losses) and hazards (potential threat to human and their welfare). Detailed explanation of all the elements of resilient framework is done below. Flexibility is defined as “being able to bend easily without breaking” and, as such, has been defined as an inherent part of resilience [15].Flexibility ensures that changes caused by the risk event can be absorbed by the supply chain through effective responses. Some researchers

include “velocity” and speed into their flexibility definition and emphasize that flexibility means doing things fast [15]. Visibility refers to the capability of “being perceived by the eye or mind” [16]. It has been also defined as “the identity, location and status of entities transiting the supply chain, captured in timely messages about events, along with the planned and actual dates/times of these events”[17]. Supply chain visibility addresses information about entities and events regarding end-to-end orders, inventory, transportation and distribution as well as any events in the environment [4]. Visibility ensures confidence into the supply chain and prevents over-reactions, unnecessary interventions and ineffective decisions in a risk event situation [18]. As such, visibility is related to effective disruption response and recovery, effective responses supported by supply chain visibility helps companies to offset non-availability and mitigate the negative impact on cost targets. Collaboration means “to work jointly on a common project”. Since supply chain resilience is a network-wide, inter- organizational concept, its influential potential have to adopt the attitudinal inclination of the parties to line up forces in the case of a risk event. Collaboration is related to visibility in the sense that it includes the parties’ keenness to share even sensitive risk and risk event-related information [19]. As such, collaboration contributes to reduced uncertainty and event readiness. Furthermore, collaboration has been suggested as the “glue that holds supply chain organizations in a crisis together” [20]. It prevents opportunistic behavior on behalf of individual parties which would adversely affect the whole system’s response capability. For example, decision synchronization and incentive alignment as two of the architectural elements of supply chain collaboration are essential for effective system-level disruption responses [21]. Thus collaboration is equally important after a disruption is overcome, in order to share experiences among the parties. Such post disruption collaboration is likely to have an effect on the system’s ability to deal with future disruptions along all three phases: before, throughout and after the event. Lack of trust and collaboration are major barriers to successfully introducing flexibility into the supply chain. Although many business enterprises have adopted sustainability goals, the actual development of sustainable systems remains challenging because of the broad range of economic, environmental and social factors that need to be considered across the system life cycle. In industries shareholders and analysts have become sensitized to a company's ecological and social “footprint”, including global issues such as climate change and poverty. Sustainability is not an end state that we can reach; rather, it is a characteristic of a dynamic, evolving system [22]. Individual products or enterprises cannot be deemed sustainable in isolation, although they can make important contributions to the fulfillment of specific human needs. Achieving a sustainable society will require cooperative efforts among industry,

Resilient Supply Chain

Visibility

Transparent

Information sharing

Collaboration

Team Spirit

Common objective

Adaptability

Recovery

Readiness

Sustainability

Environmental

Social

Economic

Minimize Maximize

Flexibility

Amendable

Responsive

Risk

Vulnerability

Hazard

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government, and public interest groups to ensure not only sustainable production systems but also sustainable consumption patterns on the part of individuals and institutions and perhaps the essence of sustainability is resilience, the ability to resist disorder [8].

V. Supply Chain Fitness

This supply chain resilience framework will provide a new means to evaluate supply chain fitness (SCF). The fitness landscape theory was first recognized by Sewall Wright (1932), who created some of the first mathematical models of Darwinian evolution. He observed a link between a micro property of organisms and a macro property of evolutionary dynamics. To describe this epitasis (the effect of one variable on another) .Wright proposed a fitness landscape metaphor in which a population of organisms would evolve by moving towards a higher fitness peak. Similarly supply chains will evolve by moving towards higher resilience peak, i.e. from population A to population B as shown in Figure 3.

Fig 3: Supply chain evolution landscape [27]

One specific model, the NK model was devised to examine the way that epitasis controls the “ruggedness” of an adaptive landscape [23]. With this model, N represents the number of elements in a system and K represents the number of linkages each element has to other elements in the same system. This formal, but simple representation allows the model to be applied to other complex systems. To have better understanding of the biological meaning of fitness and its relevance to supply chain strategy, Table I presents a definition of fitness and four related terms [24]. Each definition is translated into a supply chain context.

VI. Working of NK Model

For any element i, there exist a number of possible states which can be coded using integers 0, 1, 2, 3, etc. The total number of states for a capability is described as Ai. Each system (strategy) s is described by the chosen states s1, s2 …sN and is part of an N-dimensional landscape or design

space (S). The K parameter in the NK model indicates the degree of connectivity between the system elements (capabilities). It suggests that the presence of one capability may have an influence on one or more of the other capabilities in a firm’s supply chain strategy. In the resilience framework described in this paper we have: N=5 (Five capabilities: flexibility, visibility, adaptability, collaboration and sustainability); A=2 (two possible states such as the presence (1) or absence (0) of a capability); K=N-1=4,(each capability will affect the other four capabilities in the strategy).With these parameters the design space is AN= 25=32, which provides thirty two possible supply chain strategies, each of which is allocated a random fitness value between 0 and 1 ( See table 2 , where few strategies (6 out of 32) are explained for reference). A value close to 0 indicates poor fitness, while a value close to 1 indicates good fitness. The fitness values can then be plotted as heights on a multidimensional landscape, where the peaks represent high fitness and the valleys represent low fitness. Thus, it can be stated that, SCF is the capability to survive by demonstrating resilience to the changing environment by being more flexible, visible, adaptable, collaborative and sustainable. Strategic change is assumed to be a process of moving from one strategy to another in search of an improved fitness. This can be called as “Resilient walk” towards high fitness. As N=5, Boolean hypercube can be used to map the strategic design space (See figure 4). The fitness values (Assigned random value) shown in Figure are taken from the work of Tan [25] who carried out an NK analysis of the Manufacturing Excellence 2000 competition data in the UK. Figure 4 uses a binary notation to represent the presence (1) or absence (0) of a capability. For example, strategy 00011 indicates that the capabilities adaptability and sustainability are present, while the capabilities flexibility, visibility and collaboration are absent. The base strategy 00000 is at the top of the diagram, while the maximum strategy 11111 is at the bottom of the diagram. As a supply chain firm’s strategy aggregates additional capabilities, it descends into the lower parts of the diagram. The assigned fitness value for the various combinations of capabilities is represented by the bracketed figure. Lines are used to connect two immediate neighbors and the direction of the arrowhead indicates an increase in fitness. The dotted lines represent the route from 00000 to 11111 that have the greatest gain in fitness with each move. The dashed lines with double arrows indicate two neighboring strategies with the same fitness. When all the arrowheads are directed to a single strategy, this is considered an optimal strategy (either local or global). The framework thus developed will help organizations in improving the resilience and reducing the vulnerabilities.

Less Resilient Population A

More Resilient Population B

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VII. Conclusion

Thus it can be concluded that resilience is an obligatory feature of a supply chain in order to endure in the short term as well as to provide the ability to adapt to change and blossom in the long term. Organizations are struggling to survive in recessions and disruptions, but the one who is fittest will not only survive but will dominate its competitors also. Hence, supply chain resilience framework will provide a new means to evaluate supply chain fitness as well as critical insights for decision making by minimizing the destructive impact of unavoidable risk events. Future research should also

compare the approach of organizations pre and post disruption event because the attitude and risk perception influence the willingness to take any precautions.

Table 1: NK Model Notation

Notations Evolutionary Biology

Supply Chain Strategy 

N The number of elements or genes of the evolving genotype. A gene can exist in different forms or states

The number of capabilities that constitute the supply chain strategy .In the resilient framework defined in this paper there are five capabilities: flexibility, visibility, adaptability, collaboration and sustainability

K The amount of epistatic interactions (interconnectedness) among the elements or genes.

The amount of interconnectedness among the capabilities defined.

A The number of alleles (The alternative forms or states) that a gene may have.

Number of possible states a capability might have.

C

Coupledness of the genotype with other genotypes

The co-evolution of one strategy with its competitors

Table 2: Supply Chain Strategy as Five Bit String

System (Strategy)

Element 1 (capability 1)

Element 2 (capability 2)

Element 3 (capability 3)

Element 4 (capability 4)

Element 5 (capability 5)

Assigned random fitness

value

00000 Absent Absent Absent Absent Absent 0.33

10000 Present Absent Absent Absent Absent 0.42

11000 Present Present Absent Absent Absent 0.53

11100 Present Present Present Absent Absent 0.62

11110 Present Present Present Present Absent 0.73

11111 Present Present Present Present Present 0.86

937

Fig 4: A Boolean hypercube of five supply chain capabilities

Supply Chain Fitness

11111 (0.86)

Flexibility Visibility Adaptability Collaboration Sustainability

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