MIT CTL WHITE PAPER GLOBAL SUPPLY CHAIN RISK … · supply chain metric: on-time delivery. A lack...

MIT Center for Transportation & Logistics

MIT CTL WHITE PAPER

GLOBAL SUPPLY CHAIN RISK MANAGEMENT PART 1: DIFFERENCES IN ATTITUDES

BY DR. BRUCE ARNTZENDIRECTOR, MIT GLOBAL SCALE RISK INITIATIVE

GLOBAL DIFFERENCES IN SUPPLY CHAIN ATTITUDES | 2MIT Center for Transportation & Logistics

CONTENTSExecutive Summary ...................................................................................................................................... 3Prevention or Response? ........................................................................................................................... 4Recommended Action Points ............................................................................................................... 7Urgency Alignment ....................................................................................................................................... 7What Does it Mean: Supplier Alignment ...................................................................................... 11Recommended Action Points ............................................................................................................. 12Next Steps/Acknowledgements ........................................................................................................ 13Appendix .......................................................................................................................................................... 14


In the fall of 2009 MIT CTL conducted a global survey of supply chain risk experiences, attitudes, and risk management practices. Over 1400 supply chain professionals from 70 countries participated. The survey asked business and supply chain managers their opinions about the importance of risk prevention compared to response preparedness. Overall, 54% of respondents considered risk prevention more important, 30% viewed them as equal, and 16% considered response preparedness more important. However, there were some interesting cultural and functional differences. For example, Brazil, and to a lesser degree Portugal, considered response preparedness to be more important than risk prevention. Also, transportation managers assigned much greater importance to response preparedness than did respondents from other job functions.

The survey also examined risk tolerance attitudes. Everyone has a unique level of risk tolerance and mismatches between trading partners in this area can quickly ruin a relationship. The survey showed that most companies believe that they are successfully mirroring their customers’ sense of urgency for supply chain performance. However, the same respondents reported that their own suppliers were doing a mediocre job of this metric. The mismatch underscores that companies are out of touch with their customers and are actually performing worse than they believe.

Significant differences in attitudes about risk management exist between global trading partners based on regional, cultural, and industry influences. Most companies likely only find out about these differences when faced with a risk event. The researchers recommend that companies discuss supply chain risks, their prevention, and response preparedness with their suppliers, customers, and their own employees routinely, before a crisis occurs. This white paper is part of a series of three papers that describe the results of the MIT CTL risk survey. Each paper is accompanied by a short video. The papers and videos are available at: http://ctl.mit.edu/research/global_scale_risk_initiative.

Executive Summary


Given these disparities, why should people agree on business-related issues such as product safety, on-time delivery, and supply chain security? No two companies have the same risk priorities and tolerances. It is vital that these divisions are taken into account when operating global supply chains.

To understand the differences and implications for global business, MIT CTL carried out a global survey of supply chain risk management in the fall of 2009. Research teams in nine countries were assisted by 18 professional organizations (listed at the end of this paper). The survey was conducted in eight languages/dialects and yielded 1,461 valid responses from 70 countries. Supply chain, business, and financial managers from manufacturers, retailers, and distributors were the respondents.

This white paper describes the results of the ambitious project in two areas of supply chain risk attitudes: risk prevention versus event response, and how well suppliers and customers are aligned on the urgency of on-time delivery, a critical supply chain performance metric.

PREVENTION OR RESPONSE?The survey highlighted two schools of thought in supply chain risk management. We call the first group Preventers. They subscribe to the notion that “an ounce of prevention is worth a pound of cure.” Since these practitioners focus on prevention programs, they want to know as much as possible about the types of threats that they face and other risk characteristics such as frequency and impact. The second group is called Responders. Their philosophy is summed up in the following statement: “Despite all your planning, we still have all these disasters to which we need to respond.” These individuals claim that there are too many risks to catalog so they concentrate on a more limited subset of major failure modes.

There is wide agreement in the supply chain community that both prevention measures and response preparedness are important. But what is the right balance between the two? We asked respondents how their companies should invest resources in these areas. Globally, prevention was heavily favored over response; 54% of respondents opted for prevention, 16% chose response, and 30% gave both choices equal weight (see Figure 1). Other survey results showed that most people consider the more frequently occurring, more preventable

People around the globe disagree about many things in areas such as the environment, human rights, religion, and politics. Their value systems vary according to many factors including region, culture, education, industry, job function, gender, and age.


business-related risks to be their highest priority (as opposed to relatively infrequent disasters with external causes). We believe that this finding reflects the human tendency to devote attention to situations that the person(s) concerned can influence.

This result begs the question: Are supply chain leaders focusing too much on the risks with which they are more familiar? Also, are managers too busy creating prevention programs and not paying enough attention to ensuring that they are ready to respond to large-scale disruptions?

How should your company deploy its resources for SCRM?

There were some notable regional exceptions to this global bias toward prevention as opposed to response (see Figure 2). The most striking example was Brazil, where 53% of the managers polled favored response and only 28% preferred prevention – almost the exact opposite of the global average. No other country was even close to Brazil on this question, although Portuguese respondents showed similar leanings. By contrast, Colombia, Brazil’s neighbor, was the country most skewed toward prevention. Seventy-five percent of the Colombians selected prevention, 20% chose equal treatment for both options, and only 5% favored response.

Figure 1. Where Should Companies Invest Risk

Management Resources?

0%

5%

10%

15%

20%

25%

30%

PREVENTION VS. RESPONSE: GLOBAL

SPEND MUCH MORE EFFORT

PLANNING AND IMPLEMENTING

RISK PREVENTION

MEASURES

>> DEVOTE EQUAL EFFORT TO EACH

>>>> SPEND MUCH MORE

EFFORT PLANNING AND

PRACTICING EVENT

RESPONSEMEASURES

29%

25%

30%

8% 8%


Other factors covered by the survey that help to explain a person’s preference for prevention or response include the following:• Industry: Utilities, not surprisingly, most strongly favored risk prevention,

followed closely by metal fabrication firms and makers of transportation equipment (cars, buses, and trucks). By contrast, primary metals industries stood apart from all other industries in their strong support of response preparedness (instead of risk prevention).

• Job Function: Transportation managers favored response more than any other function followed by Services/Repair and Sales. On the other hand, R&D and Customer Service leaned most heavily toward prevention.

• Age: People in their twenties showed a slightly stronger preference for response.

• Gender: Females leant more toward response, while males gravitated toward prevention.

• Level of Education: The data shows that respondents’ preference for response increased with education level. People with a doctoral degree favored response more than any other group.

• Field of Study: According to the data, people who studied liberal arts and sciences have a slightly higher preference for prevention than do business majors and engineers.

Figure 2. National Breakdown of Preferences (“Country” refers to

the respondent’s native land)

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

EFFECT OF COUNTRY ON PREFERENCES FORPREVENTION VS. RESPONSE

USUK

SWITZERLANDSPAIN

SOUTH AFRICAPORTUGAL

MEXICOITALYINDIA

GERMANYCOLOMBIA

CHINACANADA

BRAZILAUSTRALIA

PREVENTION RESPONSE

SURVEY CHOICES WERE: 0=MUCH MORE PREVENTION; 1=MORE PREVENTION; 2=EQUAL EFFORT TO EACH; 3=MORE RESPONSE; AND 4=MUCH MORE RESPONSE.

GRAND AVERAGE: 1.41


RECOMMENDED ACTION POINTSForewarned is forearmed. Companies can leverage the survey’s findings to help secure their global supply chains against the risk of disruption. To achieve this, enterprises need to create a balanced approach to risk management that includes both prevention programs and response preparedness. • Countries, industries, and professional groups that favor response over

prevention more than the average: Brazil, Portugal, Canada, China, Primary Metals Industry, Transportation, Sales, Service/Repair, People in their 20’s, Highly Educated Managers.

• Steps to take: l Increase proactive involvement of representatives from relevant

groups in designing risk prevention programs. List and describe the pertinent risks and prevention plans.

l Use scorecards and metrics to monitor and measure compliance with risk prevention programs.

l Talk about risk prevention in quarterly review meetings.l Include rewards and penalties in contracts to provide incentives

for risk prevention compliance.• Countries, industries, and professional groups that favor prevention

over response more than the average: Colombia, India, Spain, Mexico, Fabricated Metals Industry, Utilities, Manufacturer of Transportation Equipment, Customer Service, and R&D.

• Steps to take:l Increase proactive involvement of representatives from relevant

groups in business continuity planning/emergency response plans. Develop disruption scenario planning exercises and recovery strategies. Design redundancy into supply chain systems.

l Practice response actions. Role play disruption scenarios. Spotlight and address redundant components of the network.

l Initiate external/independent reviews of business continuity plans and response preparedness.

URGENCY ALIGNMENTEach company has its own unique level of tolerance to risk that is influenced by the organization’s culture and business model, as well as the type of threat involved. Relationships between trading partners can become strained when their tolerances levels are not the same. The situation is akin to two people traveling to an airport. One is risk averse and likes to set off in plenty of time, while the other is much more tolerant and prefers to arrive just before the doors to the flight are closing. Such a mismatch can cause considerable friction.


To explore this issue, we asked respondents to rate the importance of a key supply chain metric: on-time delivery. A lack of alignment among seller, customer, and supplier on this important performance measure can be very frustrating and cause damaging misunderstandings. For example, a manufacturer’s supply chain team works through the weekend to meet a tough customer deadline, only to miss its target because a supplier did not give a high priority to delivering parts by the specified time.

Managers were polled about the importance of on-time delivery, and to what extent their customers’ and suppliers’ attitudes to this metric were in synch with their own. The questions were framed as follows:• How well do your suppliers’ share your company’s sense of urgency for on-

time delivery?• How well does your company share the same sense of urgency around on-

time delivery as your customers?

The choices ranged from “no alignment” (score = 0) to “complete alignment” (score = 4), and the global results were revealing: • 13.5% said their suppliers had no alignment, and 22.8% reported complete

alignment. The average was 2.29. • 8.3% said their own company had no alignment, and 46.7% reported

complete alignment. The average was 2.95.

When assessing one’s own abilities and attitudes, it is human nature to rate yourself as superior to other individuals. It follows that a perfectly calibrated pool of respondents who operate as both suppliers and customers should show the same attitudinal profile in both of these roles. As can be seen from the survey results, however, almost half of the companies awarded themselves a perfect score but were less generous when rating their trading partners (see Figure 3). This is clearly a mismatch between how well a supplier thinks it is doing and how well its customer thinks it is doing.


Alignment and opinions varied significantly by country (see Figure 4). The percentage of customers that said their suppliers were below average varied from lows of 17% for China and 20% for Switzerland to highs of 65% for Canada and 54% for Brazil. Are the suppliers to companies in Canada and Brazil that much worse? Or are the Canadians and Brazilians just more particular?

Figure 3. On-Time Delivery Alignment

0%

5%

10%

15%

20%

25%

30%

0%

10%

20%

30%

40%

50%

HOW WELL DO YOUR SUPPLIERS SHARE YOUR COMPANY’S SENSE OF URGENCY FOR ON-TIME DELIVERY?

HOW LONG DOES YOUR COMPANY SHARE THE SAME URGENCY AROUND ON-TIME DELIVERY AS YOUR CUSTOMERS?

0 1 2 3 4

0 1 2 3 4

CHOICES: 0=POOER ALIGNMENT, 1=>, 2=>>, 3=>>>, 4=GOOD ALIGNMENT

GRAND AVERAGE: 2.29

GRAND AVERAGE: 2.95


We can gain some insight into these differences by comparing how respondents rated themselves and rated their suppliers on alignment. Consider the two countries displayed graphically below (see Figure 5). What do we learn from this?1. The Brazilians judged both themselves and their suppliers very critically but

even-handedly: the two profiles are very similar and thus quite believable. 2. The Mexicans judged themselves very highly and their suppliers much

worse. This divergence – displayed in many countries – makes the results less credible. Are Mexican companies that much better than both their own suppliers and other Brazilian companies?

Figure 4. National Variations on On-Time Alignment

0% 10% 20% 30% 40% 50% 60% 70% 80%

PERCENT OF RESPONDENTS WHO RATED THEIR SUPPLIER’S ALIGNMENT BELOW AVERAGE

GRAND AVERAGEUSUK

SWITZERLANDSPAIN

SOUTH AFRICAMEXICO

ITALYINDIA

GERMANYCOLOMBIA

CHINACANADA

BRAZILAUSTRALIA

AVERAGE: 30%


As was the case with the prevention versus response issue, the survey found some notable differences among industries on alignment. Primary Metals gave their suppliers a much lower rating than any other industry, but also gave themselves the lowest rating for alignment with their own customers. Manufacturers of Industrial and Commercial Machinery & Computer Equipment awarded themselves the highest score for alignment with their customers; 88% believed they were above average, and only 8% believed they were below average, compared to 71% and 16% for the global population, respectively.

WHAT DOES IT MEAN: SUPPLIER ALIGNMENT?A company’s ability to respond to disruptive situations depends on its suppliers’ capacity to react just as quickly as it does. And since limiting the extent of a crisis usually requires an organization to respond rapidly, having suppliers that are in tune with the enterprise’s own sense of urgency is key to mitigating risks.

Figure 5. On-Time Alignment for Two Countries

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30%35%

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30%40%

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BRAZIL

MEXICO

POOR ALIG

NMENT

BY SUPPLIERS

POOR ALIG

NMENT

BY SUPPLIERS

POOR ALIG

NMENT

TO CUSTOMERS

POOR ALIG

NMENT

TO CUSTOMERS

>>

>>

>>

>>

>>>

>>>

>>>

>>>

>>>>

>>>>

>>>>

>>>>

GOOD ALIG

NMENT

BY SUPPLIERS

GOOD ALIG

NMENT

BY SUPPLIERS

GOOD ALIG

NMENT

TO CUSTOMERS

GOOD ALIG

NMENT

TO CUSTOMERS


RECOMMENDED ACTION POINTS• Countries and industries that report poor supplier alignment: Brazil,

Canada, Germany, S. Africa, and Primary Metals Industry.• Steps to take:

l Involve suppliers in end-to-end supply chain planning. Have them see and understand your customers’ needs.

l Involve suppliers in the design of supply chain metrics and the scorecards that you will use to measure their performance.

l Include Rewards and Penalties in supply contracts based on vendors’ scorecard performances.

l Test alignment and debrief suppliers on their performance. Discuss expectations and improvement actions.

ASK FIRST Cultural differences may not be high on your list of issues to investigate when evaluating supply chain partners, but ignoring these factors can increase the risk of a supply chain disruption.

People from different cultures, industries, and job functions hold different values when it comes to supply chain performance. Sourcing and risk managers can protect themselves from surprises by talking to their suppliers and customers. Ask these trading partners to delineate their supply chain risk management programs. Discuss various scenarios that depict urgent situations and monitor how they describe their response. The important point is not to wait until a crisis occurs to find out how your supplier really feels about prevention programs.


NEXT STEPSFeedback from supply chain risk managers indicates that their biggest need is to “efficiently identify and visually display the weakest links in the supply chain.” With minor crises happening daily, they never get a chance to assemble the “big picture” of supply chain risks across the network. MIT is continuing its work in supply chain risk management by launching a new research project with several leading companies to create “automated strategic displays” of the supply chain. The ASD project will work on creating the methods and tools to visually display a risk heat map that shows how critical risks propagate across the end-to-end supply chain. For further information, please contact Dr. Bruce Arntzen, Director, MIT Global SCALE Risk Initiative, at: [email protected], or telephone +1-617-252-6965.

Also, see the series of papers – including this one – and videos describing the results of the MIT Global Survey of Supply Chain Risk Management at http://ctl.mit.edu/research/global_scale_risk_initiative.

ACKNOWLEDGMENTS:MIT would like to thank the many professional organizations, universities, and companies that helped design, translate, and disseminate the global risk survey to their constituencies:• Association for Operations Management (APICS)• Association for Operations Management of Southern Africa (SAPICS)• BWI Center for Industrial Management (ETH Zürich)• Center for Latin-American Logistics Innovation (CLI, MIT affiliate, Colombia)• Center for Transportation & Logistics (CTL-MIT)• Council of Supply Chain Management Professionals (CSCMP)• Expologistica (Mexico)• Fudan University School of Management (China)• Global Supply Chain Council (China)• Imperial Logistics (S. Africa)• Institute for Supply Management (ISM)• Instituto de Empresa Business School (IE, Spain)• LOGyCA (Latin America)• Spanish Logistics Center (CEL-Logística)• Supply Chain Council (SCC)• Synergia (India)• University of Bergamo (Italy)• Zaragoza Logistics Center (ZLC, MIT affiliate, Spain)


APPENDIX: ADDITIONAL TABLES, CHARTS, AND GRAPHS

Each of the white papers in this series is accompanied by a video presentation on the same topic. This appendix contains the other tables, charts, and graphs which are presented in the video but are not included in the white paper.

Geographic coverage of the survey.

JOB FUNCTION

0 10 20 30 40 50 60 70 80

LEVEL OF EDUCATION

0 10 20 30 40 50

COMPANY SIZE (REVENUES $US)

0 5 10 15 20 25 30

TYPE OF INDUSTRY

0 10 20 30 40 50 60 70 80

Description of “who took the survey.” Global results.

• A TOTAL OF 2,434 PEOPLE STARTED THE SURVEY• 1,461 PEOPLE FROM OVER 70 COUNTRIES COMPLETED THE SURVEY• SIGNIFICANT RESPONSES (10+) FROM 17 COUNTRIES SHOWN BELOW• MIXTURE OF “SUPPLER COUNTRIES” AND “CONSUMER COUNTRIES”

OTHER

FINANCIAL MGT.

GENERAL BUS. MGT.

SUPPLY CHAIN MGT.

17%

28%

25%

18%

12%

OVER 20B

1B TO 20B

100M TO 1B

10M TO 100M

UNDER 10M

OTHER

UTILITY

RETAILINGWHOLESALER

SERVICE PROVIDER

MANUFACT.

13%

2%

5%

6%

8%

66%

21%

3%

10%

66%

CHI53

IND65S.AF

152 AUS20

MEX37

BRZ58

COL17

USA466

CAN23

EUR387

EUROPE:SWI 129SPA 113ITA 74UK 21POR 16NDR 12GER 12SWE 10

NO COLLEGE DEGREE

COLLEGE DEGREE

MASTER’S DEGREE

DOCTOR’S DEGREE

9%

44%

45%

3%


0%

5%

10%

15%

20%

25%

30%35%

40%

0%

5%

10%

15%

20%

25%

30%

Comparison of Global and Brazil, showing the shift toward favoring “response” in Brazil.

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Effect of job function on preference for Prevention versus Response.

PREVENTION VS. RESPONSE: N. AMERICA

EFFECT OF JOB FUNCTION ON PREFERENCE FOR PREVENTION VS. RESPONSE

PREVENTION VS. RESPONSE: BRAZIL


PLANNING AND

IMPLEMENTING RISK

PREVENTION MEASURES

GENERAL MGT.SALES

MARKETINGTRANSPORTATION

DISTRIBUTIONMANUFACTURING

OPERATIONSPURCHASING

SOURCINGCUSTOMER SERVICE

SC PLANNINGFINANCE

SERVICES/REPAIRRISK MANAGEMENT

ENGINEERINGR&D


PLANNING AND

IMPLEMENTING RISK

PREVENTION MEASURES

>> >>DEVOTE EQUAL

EFFORT TO EACH

DEVOTE EQUAL

EFFORT TO EACH

>>>> >>>>SPEND MUCH MORE

EFFORT PLANNING

AND PRACTICING

EVENTRESPONSE MEASURES

SPEND MUCH MORE

EFFORT PLANNING

AND PRACTICING

EVENTRESPONSE MEASURES

GRAND AVERAGE: 1.41


0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Effect of Industry on Preference for Prevention versus Response.

0% 10% 20% 30% 40% 50% 60% 70% 80%

Comparison of countries in their ratings of their suppliers’ alignment.

EFFECT OF INDUSTRY ON PREFERENCE FOR PREVENTION VS. RESPONSE


UTILITIES (ELECTRIC, WATER, GAS, SEWER)SUPPLY CHAIN SERVICE PROVIDERSMANUF - TRANS. EQUIP., AUTOS, TRUCKS, BUSES, & REL.MANUF - RUBBER & MISC. PLASTICS PRODUCTSMANUF - PRIMARY METAL INDUSTRIESMANUF - PHARMA., MEDICAL DEVICES & SUPPLIESMANUF - PETROLEUM REFINING & RELATED INDUSTRIESMANUF - PAPER & MISCELLANEOUS PRODUCTSMANUF - IND. & COMM. MACHINERY & COMPUTER EQUIP.MANUF - FOOD & KINDRED PRODUCTSMANUF - FAB. METAL PRODUCTS, EXCEPT MACHINERYMANUF - ELECTRONIC & ELECT.EQUIP. EXCEPT COMPUTERSMANUF - CHEMICALS & ALLIED PRODUCTSMANUF - APPAREL & OTHER FABRIC PRODUCTS

GRAND AVERAGEUSUK

SWITZERLANDSPAIN

SOUTH AFRICAMEXICO

ITALYINDIA

GERMANYCOLOMBIA

CHINACANADA

BRAZILAUSTRALIA

GRAND AVERAGE: 1.41

AVERAGE: 30%


0% 10% 20% 30% 40% 50%

Comparison of industries in their ratings of their suppliers’ alignment.

See the series of papers and videos describing the results of the MIT Global Survey of Supply Chain Risk Management at http://ctl.mit.edu/research/global_scale_risk_initiative.


UTILITIES (ELECTRIC, WATER, GAS, SEWER)

SUPPLY CHAIN SERVICE PROVIDERS

MANUF - TRANSPORTATION EQUIPMENT

MANUF - PRIMARY METAL INDUSTRIES

MANUF - PHARMA. & MEDICAL DEVICES

MANUF - PETROLEUM REFINING

MANUF - PAPER & MISC. PRODUCTS

MANUF - COMPUTER EQUIPMENT

MANUF - FOOD & KINDRED PRODUCTS

MANUF - FABRICATED METAL PRODUCTS

MANUF - ELECTRICAL EQUIPMENT

MANUF - CHEMICALS & ALLIED PRODUCTS

AVERAGE: 30%


ABOUT US

About the MIT Center for Transportation & Logistics: MIT CTL has been a world leader in supply chain management research and education for more than three decades. Combining its cutting-edge research with industry relationships, the Center’s corporate outreach program turns innovative research into market-winning commercial applications. And in education, MIT is consistently ranked first among business programs in logistics and supply chain management. For more information, please visit http://ctl.mit.edu.

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