Logisticians able to think ahead about supply chain risk

Roger OakdenGlobal Logistics, Logistics Management, Procurement, Supply Chains & Supply NetworksLeave a Comment

Climate change warning

Logisticians have a dual role. First, to effectively and efficiently provide availability of items for customers. Second is to think ahead about the potential disruptions to the organisation’s supply chains and how to mitigate the risks.

With the second objective, Logisticians are dealing with unknowns, which are difficult to evaluate, both in supply chains and the wider environment.

Complex Adaptive Systems

The increasing scope of information technology and communications systems has enabled supply chains to acquire a complexity almost equivalent to that of biological, ecological and social systems.

These systems are called a ‘complex adaptive system’ (CAS), which refers to a system that emerges over time and adapts and organizes itself without a single entity managing or controlling.

Using this structure, researchers have identified that supply networks are not a system that can be planned, managed and controlled. Instead, the main features of a Supply Network as a Complex Adaptive System (CAS) are:

  • Emergent and Cumulative: refers to the outcome of events, which cannot be predicted with any certainty and over which an organisation’s management has little control
  • Adaptable: Independent entities at the nodes and links of each supply chain respond to changing situations based on their own interests. These responses cannot be predicted with much certainty
  • Interactions are non-linear: with many ‘ifs and thens’ as in a Decision Tree diagram and it can be difficult to define system boundaries. Organisations at nodes and links in a supply network are generally ignorant concerning behaviour of the whole system, responding only to data and information that is locally available. Therefore small causes can have large results and big causes, small results
  • Uncertainty: has a lack of predictability concerning the cause and effect of events, which is emphasised with increased flows of items, money, data and information. Uncertainty (an accumulation of unstructured opinions) is the basis for Risk Management “the structured identification and assessment of uncertainties which provide potential risks within an organisation’s supply chains and the development of mitigation approaches to avoid or minimise the consequences” (source not known)
  • Uncertainties in supply chains are influenced by:
    • Complexity: built into processes, both internal (often management directed) and external, which is influenced by:
      • Breadth: number of direct Tier 1 suppliers in the supply base
      • Depth: number of Tiers of suppliers in each supply chain
      • Geography: global spread (therefore distance) from the organisation to its customers and suppliers and affected by:
        • Focus within the organisation’s operations on speed and efficiency rather than effectiveness
        • Safety margins are low concerning time, inventory and working capital
    • Variability: in patterns of demand and supply through the supply chains, at locations and in operations at individual machines
    • Constraints: restrictions and interruptions in the flows of items, money, transactions and information moving through supply chains

These factors interact and amplify each other, which increases the frequency of disruptions, with unknown outcomes. Therefore, a supply network, as a complex, adaptive system (CAS) cannot be ‘managed’, but only analysed to enable a better understanding for actions to be taken.

And each supply chain in your network is different, so a ‘cookie cutter’ approach of set solutions, such as re-shoring, increasing suppliers and inventory or standardising components, while all useful, will not provide the answer.

Identify where in your supply network lay the highest risks (maybe a tier 4 supplier that provides an essential technology to a range of tier 2 and 3 suppliers), then apply mitigation techniques to (hopefully) reduce them.

Pandemics, Organisations and People

The Intergovernmental Platform on Biodiversity and Ecosystem Services is a UN organisation established to improve the interface between science and policy on issues of biodiversity and ecosystem services. In July 2020 it released a report concerning the risks of future pandemics, which makes for sobering reading.

The report states that known pandemics and about 70 percent of emerging diseases are caused by microbes of animal origin. These have the ability to ‘spill over’ to the human population, with about five new diseases identified each year and all having the potential to develop into a pandemic. The scientist estimate that more than 600,000 viruses in wildlife have the potential to infect humans.

These figures indicate a substantial risk of pandemics occurring at some time in the future, with all the public health and economic disruptions that accompany a new disease. However, the report notes that currently, the response is to spend vast sums of money to ‘fix’ the problem and return to ‘normality’.

This approach of containment and control after a disease has emerged is not financially sustainable. It requires an approach that reduces the drivers of pandemic risk and therefore prevent the emergence of new diseases. The report identifies two main drivers:

  • Increased and unsustainable consumption in developed and emerging countries, which has generated international trade routes; global travel; road networks and urban growth, with the associated destruction of wildlife habitat and
  • Land use changes (which has caused about 30 percent of new diseases since 1960) due to the expansion and intensification of agriculture, including deforestation (with associated burning), increased livestock production, human settlements in wildlife areas and international trade in wildlife

Hanging over these drivers looms the risks associated with climate change, which has been implicated, with the movement of people and wildlife, in the emergence of new diseases.

But blaming wildlife for a disease is not correct. As the report notes…”the emergence of diseases is caused by human activities and the impact of these activities on the environment”.

The report concludes that government and private investment is required to change consumption patterns, reduce agricultural expansion, meat consumption and the mining of minerals. Companies should avoid high pandemic risk land-use change, global agriculture and the use of items derived from unsustainable trade.

These conclusion will require a transformation in global economics and therefore supply chains, that will require much political will and leadership from all countries. However, the cost is considered to be far less than the current pandemic, which could be U$16 trillion or more!

Emergent events in systems

Both Supply Networks and Pandemics from virus are complex adaptive systems, in which the term ’emergent’ is often used – that is, events cannot be predicted with any certainty; they emerge from a conjunction of events.

As the effects from emergent events are likely to be cumulative, the consequences for supply chains can be very high in terms of ongoing business relationships, investment utilisation and staff health and wellbeing.

The risks to your organisation are likely to increase in the future. It should therefore be the role of Logisticians to lead the risk management effort that demonstrates to senior management the value of a flexible and adaptive organisation, which can respond to unknown and emergent events.

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About the Author

Roger Oakden

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With my background as a practitioner, consultant and educator, I am uniquely qualified to provide practical learning in supply chains and logistics. I have co-authored a book on these subjects, published by McGraw-Hill. As the program Manager at RMIT University in Melbourne, Australia, I developed and presented the largest supply chain post-graduate program in the Asia Pacific region, with centres in Melbourne, Singapore and Hong Kong. Read More...

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