Trade-offs in Supply Chain System Risk Mitigationcbafiles.unl.edu/public/cbainternal/facStaffUploads/SRES2014Swenseth.pdf · Trade-offs in Supply Chain System Risk Mitigation

■ Research Paper

Trade-offs in Supply Chain System RiskMitigation

Q1 David L. Olson* and Scott R. SwensethCollege of Business Administration, University of Nebraska-Lincoln, Lincoln, NE 68588-0491, USA

Supply chains are critical to global operations. However, they involve many risks thatrequire consideration of trade-offs. Furthermore, consideration of the environment isbecoming critical as well. This paper views supply chain decision-making from a systemperspective, using multiple criteria decision-making as a framework. Systems perspec-tives of supply chains are discussed. Criteria and factors are reviewed for green supplychain management, supply chain risk, and supply chain efficiency. Selected papersbalancing criteria in supply chain decision-making are reviewed with the purpose ofdemonstrating risk and environmental criteria with efficiency. The conclusions discusshow systemic features are demonstrated by these decision-making criteria. It is contendedthat consideration of systemic trade-offs will lead to sounder supply chain decision-making. Copyright © 2014 John Wiley & Sons, Ltd.

Keywords supply chain management; risk management; environmental factors; criteria; trade-offs

PROBLEM STATEMENT

Globalization has played a major role inexpanding the opportunities for many manufac-turers, retailers, and other business organizationsto be more efficient. The trade-off has alwaysbeen the cost of transportation, as well as theadded risk of globalizing, complicated by ecolog-ical issues. Supply chains make participants morecompetitive, in part, leading to an emphasis onservices related to the products being made.Supply chains link together specialists, with a dy-namic integration of often reasonably independent

entities to work together to deliver goods andservices. Goods and services seem ever less dis-tinguishable, making the old dichotomy of oper-ations passé.

News media in the past few years have identi-fied many cases where supply chains faced risk.In 2010, the Eyjafjallajokull volcano in Icelandshut down transportation across most of Europe.Supply chains were disrupted, as transportation(logistics) is a key to linking production facilitiesin supply chains. Supply chains often dependon optimized lean manufacturing, requiringjust-in-time delivery of components. These sys-tems are optimized, which means elimination ofslack to cover contingencies such as volcanicdisruption of air flight. Bloomberg Businessweekestimated the economic impact of Eyjafjallajőkull

*Correspondence to: David L. Olson, College of Business Administra-tion, University of Nebraska-Lincoln, Lincoln, NE 68588-0491, USA.E-mail: [email protected]

Q2▪▪Copyright © 2014 John Wiley & Sons, Ltd.

Systems Research and Behavioral ScienceSyst. Res. (2014)Published online in Wiley Online Library(wileyonlinelibrary.com) DOI: 10.1002/sres.2299

Journal Code Article ID Dispatch: 24.06.14 CE: Joy Ann LlaboreS R E S 2 2 9 9 No. of Pages: 15 ME:

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to be in the billions of dollars and cited the needfor supply chain flexibility through multiplesourcing, flexible manufacturing strategies, andlogistics networks capable of alternative routing.

On 11 March 2011, an earthquake north ofTokyo led to a catastrophic tsunami thatdestroyed most of a rich area of advanced tech-nology manufacturing. It also severely damageda nuclear power plant, which at the time ofwriting still saw damage control efforts. Whilethe worst impact was in terms of Japanese lives,there also was major impact on many of theworld’s supply chains. Organizations such asSamsung, Ford Motor Company, and Boeingfound production disrupted because of lack ofkey components from Japan. Japanese plantsproduced about 20% of the semiconductors usedworldwide and double that for electronic compo-nents. Toshiba produced one quarter of the nanoflash chips used. On 14 March 2011, Toshiba hadto halt operations as a result of power outages.

Modern supply chains need to develop waysto work around any kind of disruption. Wars ofcourse lead to major disruption in supply chains.Tariff regulations can have an impact as well. In2002, Honda Motors spent $3000 per ton to airliftcarbon sheet steel to the USA after tariff-relatedsupply disruptions. In January 2011, Volkswagen,Porsche and BMW supply chains in Germanywere taxed by surging demand. Volkswagen hadto halt production as a result of engine and otherpart shortages. This was not because of naturaldisaster or war, or any other negative factor, butrather to booming demand in China and theUSA. On the other hand, there are pollution issuesin China affecting supply chains (Birkin et al.,2009), and improved energy efficiency in China iscritical (Pan et al., 2012).

Supply chains can offer great value to us asconsumers. Competition has led to better prod-ucts at lower cost, enabled by shipping (by landand air as well as sea) over supply chains.Outsourcing allows producers to access the bestmaterials and process them at the lowest cost.Lean manufacturing enables cost efficiency aswell. Both of these valuable trends lead togreater supply chain exposure. There is a needto gain flexibility, which can be obtained in anumber of ways:

• Use of diversified sources to enable use ofalternatives in quick response to disruptions

• Flexible manufacturing strategies allowingoptions to produce critical products in multi-ple locations with rapid changeover capability

• Flexible product design to reduce complexityand leverage common platforms and parts,thus reducing exposure to supply disruption

• Global logistics networks to access low costand low risk through multiple routs andcontingency shipping plans.

Economically efficient supply chains push thetrade-off between cost and risk. The lowest costalternative usually is vulnerable to some kind ofdisruption. Some of the economic benefit fromlow cost has to be invested in means to enableflexible coping with disruption. Enterprise riskmanagement (ERM) is a systematic, integratedapproach to managing all risks facing an organi-zation (Wu and Olson, 2010). ERM seeks toprovide the means to recognize and mitigaterisks. Insurance evolved to cover many risks,natural or human-induced. With time, it has beenrealized that many risks can be prevented, ortheir impact reduced, through loss-preventionand control systems, leading to a broader viewof risk management than simple insurance.In this sense, risk management can focus onidentification of better ways and means ofaccomplishing organizational objectives ratherthan simply preservation of assets or risk avoid-ance. Supply chain risk management is interestedin coordination and collaboration of processesand activities across functions within a networkof organizations.

This paper takes a system view of supply chainrisk. Supply chains involve a number of trade-offs, to include balancing efficiency, risk, andgreen factors. This system perspective in generalis described, followed by review of mitigationstrategies within supply chain decisions. Greensystemic aspects of supply chains are compared,along with supply chain strategies that enablebetter dealing with risks and supply chain effi-ciency. Some of the risk and environmentalcriteria considered in various supply chain deci-sions are reviewed. Conclusions synthesize thesesystems aspects of supply chains.

RESEARCH PAPER Syst. Res.

Copyright © 2014 John Wiley & Sons, Ltd. Syst. Res. (2014)DOI: 10.1002/sres.2299

2 David L. Olson and Scott R. Swenseth

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SYSTEMS

Systems are collections of interrelated partsworking together to accomplish one or moreobjectives. In systems, output is not simply thesum of component parts. There are many sys-tems of interacting parts where viewing thewhole tells us more than simply looking at thesystem’s components (von Bertalanffy, 1969Q4 ).Components are affected by being in the system,and the sum of the system output is greater thanwhat the sum of individual outputs would havebeen without being in the system. Systems arepurposeful, meant to do something. The distinc-tion of systems thinking is a focus on the whole,viewing the interactions of structure (systemcomponents and relationships), function (out-comes), and process (activities and knowledge—Gharadajedaghi, 1999Q5 ). System thinking enablesunderstanding the interdependency of thosesystem elements working together in somelarger environment. Analysis involves taking sys-tems apart, explaining part behaviours, andaggregating parts back into a whole with betterunderstanding.Thinking in terms of simple relationships is

linear thinking—permanently classifying some-thing as good or bad no matter what the levelor the context. As an investment, it has had itsups and its downs. We have argued that sugaris a good thing but only in small quantities. Goldis considered valuable by almost everybody andtherefore must be always a good thing. Well,not necessarily (price is related to scarcity). Theanalytic approach seeks to decompose problemsin a divide-and-conquer manner, a reductionistframe-of-mind.The system view on the other hand, seeks

a broader, more complex view. Systems areassemblies of interacting parts. As in the analyticapproach, the system approach starts withidentifying these parts. However, the systemsapproach looks at the assembly, recognizing thatparts are affected by being in the system, that theassembly of parts does something (has purposeand output in that it does something that some-body cares about). There is a planetary systemwithcomplex gravitational forces impacting the mas-sive bodies within it. Exchange of gravitational

pull across these bodies affects their paths. Riversystems basically consist of water and the ground;they flow over with a water cycle involving evapo-ration and precipitation and filtering obtained bypassing through the earth. This system providesus with what we need to drink, to irrigate, and totransport (as well as problems to control duringperiods of abnormal drought or flood). We havecomplex communication systems, which haveevolved from town criers through radio and televi-sion to a complex involving cable television, directTV, and a myriad of internet connectivity options.We have economic systems that have evolvedwithso much interconnectivity that housing bubblesfrom California can be caused (or cause) similarcorrelated defaults around the globe.

A quick definition of a system is a set ofelements (entities, things) working together(interacting) for some common purpose (imply-ing some means of systemic control). There aremany types of supply chains, ranging from tradi-tional material-flow focused systems such asthose involved in oil, steel, nuclear power, andaluminium. Retail-oriented systems such asgroceries and Wal-Mart have gained more recentemphasis. System components can be defined as

• Elements—the atomic system parts, such asmines, refineries, smelters, and demands inaluminium supply chains; farms, transporta-tion, food processing, and retail outlets in foodsupply chains; cells in a human body; individ-ual voters in a political system. Finer elementscan always be identified. What is an elementdepends on perspective.

• Subsystems—systems are usually part oflarger systems. A bauxite mine is itself asystem within a macro-level aluminium sys-tem. The bauxite mine system might focusmore on royalty sharing (impinging on politi-cal systems) as well as environmental concernsrelated to restoring mines to their previousgreen state.

• Control mechanisms—Control can be providedby regulation, as in the food supply chain. It caninvolve market control as in the aluminiumsupply chain. Banking systems have rules thatare either imposed by governmental entities orby bank management to preserve the fiscal

Q3

Syst. Res. RESEARCH PAPER


Trade-offs in Supply Chain System Risk Mitigation 3

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health of the bank and in good times at least toseek more profit. As the past decades haveshown us, banking systems have imperfectcontrol. Humans have fairly good naturalcontrol systems, but not all of us are fortunateenough to avoid health issues, many of whichare beyond individual ormedical system control.

• Environment—systems exist within somedomain of interest. Those systems involvinghuman decision-making would have an inter-nal domain, with an external environmentbeyond decision-maker control. Human bod-ies have brains and nerves for control and takeactions to preserve the system when facedwith infections and other bad things. Bodiesalso exist within environments such as theweather or war zones. Brains may direct thebody to stay where it is warm, or to avoidwar-zones and high-crime areas, but that isthe brain avoiding negative environments,not internal system control.

• Linkages—elements and subsystems are linkedby relationships defining system structure andenabling system performance. In aluminiumsupply chains, mines are usually located incountries with various forms of political controlover mines, which, in turn, feed into large firmswith the capital to build refining processingsystems or the massive quantities of electricityneeded for smelting. Linkages are needed forinteraction, which also enables feedback (a partof system control).

System elements are organized into somestructure, which is a hierarchy of relationships.Structures within human organizations can in-clude policies, rules, procedures, reporting rela-tionships, and information networks. Thesestructural elements provide a framework withinwhich feedback can occur, enabling the system tolearn. Brains monitor our bodies through nerves,which signal problems that the brain analysesand responds to by signalling organs to react invarious ways. The brain might not have superior-ity in any sense, but by necessity might haveauthority to direct organs to do things, and maybeeven influence decisions to do healthier things.This view was based on a system perspectivewhere system structure denotes the components

and relations constituting an entity. They usedthe term organization to denote relations amongsystem components.

Systems have some purpose or objectiveof accomplishing something. Human systemsmight seek the objective of living a good andproductive life for some extended period (notforever—no human system has done that norshould they probably want to, but some spanwhere individuals can accomplish somethinguseful like raising a family, or creating some sortof art, or working with other people to make abetter world for others).

Systems also face constraints—restrictionsinhibiting how systems perform. Banking sys-tems face regulations, which may be the controlmechanism for a superior political system. Policesystems consist of constraints, with many ruleswe have to obey in order to stay out of trouble.Criminals may have the purpose of maximizingtheir wealth but are constrained by policesystems from doing so. Planets are constrainedby the sun’s gravity from flying off as theyplease. Medical systems are constrained by thecomplexity of human bodies from simplisticcures for diseases. Some can figure out how tobypass constraints, but constraints had somepurpose for some system somewhere.

System views clearly have a strong contribu-tion to study of green supply chains. There areusually conflicting objectives between traditionalfocus on profitability and new issues of sustain-ability. Wang et al. (2011) provided a multi-objective optimization model for green supplychain network design. Kessler et al. offered anetwork analysis model for global supply net-works focusing on risk identification and devel-opment of mitigation strategies. Supply chainsconsist of businesses collaborating to createcustomer value through synchronized activity.Supply chains offer high levels of efficiency inlowering cost (or for that matter, reducing risk).Challenges facing supply chains include devel-oping a network structure and means to controlcollaboration in dynamic environments. Supplychains have been viewed as complex adaptivesystems capable of responding to events thatdisrupt efficiency, to include ecological needs.(Pathak et al., 2007).




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Li et al. (2010) reported a modelling frameworkfor supply chains operating in an environmentsubject to macro (external) and micro (internal)constraints. Macro constraints formed the rulesunder which the firm operated, which were stablein the short run, although potentially dynamic inthe long run. These included the economic,political, cultural, legal, regulatory, and marketstructures. Should a firm fail to meet expectationsof performance in any of these structural areas, itcould not survive. The micro constraint firmsfaced were dynamic in the short-run. Theyincluded demand, supply, cost, price, lead time,service, and competition. The firm operated inseven areas (strategy, organizational structure,resources, business processes, organizationalculture, products, and fitness). Li et al. developeda discrete-event simulation of an evolutionarymodel and used thismodel to simulate firm fitness(survival) over 250 demand periods.Complexities arise in technology (Feenberg,

1999). The internet was created to assure commu-nication links under possible nuclear attack andhave done a very good job at distributing data.It has also led to enormous opportunities toshare business data and led to a vast broadeningof the global market. That was an unintended ben-efit. Some unintended negative aspects includebroader distribution of pornography or expeditedcommunication in illegal or subversive organiza-tions. ThreeMile Island in the USA saw an interac-tion of multiple failures in a system that was tootightly coupled (Perrow, 1999). Later, Chernobylwas even worse, as system controls acted counterto solving the problem they were designed toprevent. We try to create self-correcting systems,especially when we want high reliability (nuclearpower; oil transportation; airline travel—both inthe physical context and in the anti-terroristcontext). However, it is difficult to make systemsfoolproof, especially when systems involve com-plex, nonlinear interactions, conditions that seeminevitable when people are involved.

GREEN SUPPLY CHAIN SYSTEMS

Systems were presented as a framework foranalysis of supply chain risk in many places, toinclude Olson and Wu (2008, 2010a). Seuring

(2004) compared concepts of industrial ecology(IE), life cycle management (LCM), integratedchain management (ICM), and green or environ-mental supply chain management (ESCM).

IE recognizes the integration involved in supplychains. Green aspects of products lead to indus-trial ecosystems. IE considers interactions be-tween human activities and the environmentthrough systems, with models to optimize thetotal life cycle of a product. Emphasis is onrecycling all inputs other than solar energy inefforts to minimize waste. Physical materialand energy flows are the focus to minimizeadverse impact on the environment. Saridogan(2012) reported a study showing cost savingsin food supply chains, motivated by changingregulations combinedwith strategic and compet-itive needs in industrial ecosystems. Genoveseet al. (2013) studied the impact of green criteriain the important supply chain decision ofsupplier selection, finding that while the impor-tance is widely recognized, practice in Englishmanufacturing g firms is lagging.

LCM is an integrated framework of concepts andtechniques to address environmental, economic,technological and social aspects of products,services, and organizations. LCM links environ-mental criteria with an organization’s strategiesand plans to achieve business benefits. The man-agement view integrates environmental issuesinto company decision-making. The engineeringview seeks optimization of environmental im-pact over the product life cycle. The leadershipview seeks to create a more politically correctorganizational culture. Kumar Singh et al. (2008)discussed an integrated life cycle assessmentcapable of evaluating green supply chains in thesteel industry. Mollenkopf et al. (2010) foundcontradictory strategies when they examinedgreen, lean supply chain research and concludedthat a system approach considering multiplefunctions was needed to properly evaluatestrategic impact.

ICM is the management of material flows in agoal-oriented, integrated, and efficient manipu-lation of material flows. Targets are derived




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from ecological and economic domains consid-ering social aspects. Goals are set either at thefirm level, the supply chain level, or the publicpolicy level. ICM considers production, con-sumption, distribution, and ultimate productdisposal. Features of ICM are material flowsresulting from economic activities as well asthe institutional framework shaping productionand consumption. The ICM framework consistsof the product chain as a network of actors, theoptions available to reduce ecological productimpact, and assumptions of actor behaviourover the product chain. Liu et al. (2012) proposedhub-and-spike integration of green marketingand sustainable supply chain management,reporting empirical results and finding that thisapproach provided improvements through moredirect information, material, and funds flows.

ESCM for an individual firm is the set ofpolicies, actions, and relationships applied inresponse to concerns about the natural environ-ment over the entire product life cycle. A fullyintegrated extended supply chain into asemiclosed loop including product and packagerecycling, reuse, and/or remanufacturing. Zhuet al. (2012a) examined GSCM practices onChinese manufacturing firms, finding that itwas important for manufacturers to coordinateenvironmental, economic, and operational per-formance. Chinese manufacturing firms weresurveyed, indicating that it is important for thiscoordination to occur. The same research group(Zhu et al., 2012b) used a Bass diffusion modelto evaluate the impact of International Organi-zation for StandardizationQ6 certification andeco-labelling practices in Chinese firms. Supplychains can be viewed from the process perspec-tive or the product perspective. ESCM canscreen suppliers by environmental performance.Cervera and Flores (2012) showed how greensupply chain strategy can not only providesecurity relative to ecosystem issues likeglobal warming or natural disasters but alsocan lead to more profitable operations. Chanet al. (2012) also found that GSCM pays,based on study of 194 operations in China,as did Green et al. (2012) in a study of 159manufacturers. Green et al. also found that

while GSCM enhance economic sustainability,they also positively impact society throughenvironmental improvement.

SUPPLY CHAIN RISK CRITERIA

Lee and Preston (2012) provided a very interest-ing report of the impact of the Icelandic volcanoon global supply chains (refer to Olson and Wu,2013). That was only one natural event amongmany that have massively disrupted supplychains. Human-induced events such as wars alsohave massive impact. Consideration of supplychain risk and environmental factors calls forsome sort of framework. An integrative frame-work involves system elements of politicalagenda setting, product design strategy, a naturalsystem vision, and an operational actor network.Supply chains enable manufacturing outsourcingto take advantages of global relative advantages,as well as increase product variety (Wu et al.,2011). There are many risks inherent in this moreopen, dynamic system. Supply chains involvemany risks (Olson and Wu, 2010b). Cucchiellaand Gastaldi (2006) divided supply chain risksinto categories of internal (involving such issuesas capacity variations, regulations, informationdelays, and organizational factors) and external(market prices, actions of competitors, manu-facturing yield and costs, supplier quality, andpolitical issues). Tomlin (2006) considered inven-tory, single sourcing from a reliable supplier, andpassive acceptance as three optional strategies forsupply chain risk mitigation. There are broaderalternatives. Guming and Cahoon (2011) Q7assessedinventory and sourcing, contingency rerouting,recovery planning, and business continuity plan-ning within wheat supply chains. Chen et al.(2013) studied supply chain collaboration as a riskmitigation strategy. A number of published articleshave described risk mitigation strategies forvarious supply chain contexts. Table T11 displayssome commonalities among reported views ofsupply chain mitigation strategies.

Chopra and Sodhi developed a matrix tocompare relative advantages or disadvantagesof each strategy with respect to types of risks(2004). Adding capacity would be expected to




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reduce risk of needing more capacity of courseand also decrease risk of procurement and inven-tory problems but increases the risk of delay.Adding inventory is very beneficial in reducingrisk of delays and reduces risk of disruption, pro-curement, and capacity but incurs much greaterrisk of inventory-related risks such as out-dating,spoilage, carrying costs, etc. Having redundantsuppliers is expected to be very effective atdealing with disruptions and also can reduceprocurement and inventory risk but can increasethe risk of excess capacity. Other strategies hadno negative expected risk impacts (increasingresponsiveness, increasing flexibility, aggregatingdemand, increasing capability, or increasingcustomer accounts) but could have negative costimplications. Tang (2006) emphasized robustness,giving nine strategies that have proven useful incoping with supply chain disruption. Kahn andBurnes (2007) Q9and Wagner and Bode (2008 hadsimilar strategies listed for the supply chaincontexts they considered. Q10Majoj and Mentzer(2008) took a slightlymore customer–managementperspective, while Oke andGopalakrishnan (2009) Q11

focused on retail supply chains. Any strategy willhave downsides. The costs and benefits in eachspecific case are often difficult to quantify, espe-cially because of the factor of competitiveness.Each organization needs to consider its overallbusiness strategy. Firms that desire to focus on alimited number of products for strategic reasonswill find little value in the postponement strategy.

EFFICIENCY ASPECTS OF SUPPLY CHAINSTRATEGIES

Mollenkopf et al. (2010) examined relationshipsamong green, lean, and global supply chain strate-gies. They argued that a system approach is neces-sary to capture the complexity of a supply chain ina global supply chain environment. Measurementtools were called for to facilitate implementationof lean and green initiatives. While past modelshave been proposed for system components, con-sideration of the overall system is needed, to si-multaneously consider green, lean (efficiency),risk, and green aspects of supply chains in a holis-tic fashion. Such an integrated LCM approach

Table1Su

pply

chainrisk

mitigatio

nstrategies

Cho

praan

dSo

dhi

(2004)

Tang

(2006)

Kah

nan

dBurne

s(2007)

Wag

neran

dBod

e(2008)

Man

ujan

dMen

tzer

(2008)

Q8

Oke

and

Gop

alak

rishna

n(2009)

Addcapa

city

Mak

ean

dbu

yreve

nueman

agem

ent

Exp

andwhe

reyo

uha

vecompe

titive

adva

ntag

eAddinve

ntory

Strategicstock

Buffers

Safety

stock

Red

undan

tsu

pplie

rsMultiplesources

Mon

itor

supp

liers

Droptrou

blesom

esu

pplie

rsIncrease

resp

onsive

ness

Inform

ation

sharing

Con

ting

ency

plan

ning

End

toen

dvisibility

Increase

flexibility

Prod

uctPo

stpo

nemen

tProd

uctdifferen

tiation

Lateprod

uct

differen

tiation

Delay

resource

commitmen

tSu

pply

flexibility

Pool

dem

and

Flexible

supp

lyba

seMultiplesourcing

Increase

capa

bility

Outsource

low

prob

ability

dem

and

Morecu

stom

ers

Early

supp

lier

invo

lvem

ent

Inform

ationsharing

Sharing/

tran

sfer

Awaren

ess

Risktaking

Insu

ranc

eHed

ge(insure,

dispe

rseglob

ally)

Supp

lier

dev

elop

men

tDroptrou

blesom

ecu

stom

ers




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seeks to involve efficiency and environmentalsustainability into firm decisions over product lifecycles (Linnanen et al., 1995Q12 ; Wolters et al., 1997).Firms implementing such integrated strategiesinclude Wal-Mart, Caterpillar, and Toyota thatwere cited by Mollenkopf et al. (2010).

There are differences in basic approaches tosupply chain aims. Lean supply chain is associatedwith the idea of zero inventory and adoption ofjust-in-time manufacturing. The focus is on costminimization, through continuous reduction orelimination of waste. Extension of lean principlesto supply chain operations are challenging, as deci-sion-makers have a harder time seeing through theadded complexity and uncertainty involved insupply chains, as no decision-maker can have allnecessary knowledge over the entire supply chain(Liu et al., 2013).Q13 Hines et al. (2004) suggested inter-net-enabling technology as a means to improvelean supply chain decision-making. These authorssuggested integrated supply chain decision-making, synchronizing decisions towardsmutuallydefined goals (following Manuj and Sahin, 2011).

A related idea is agile where the aim is tobe flexible, capable of rapidly responding tochanges in demand, either volume or variety(Lin et al., 2006; Agarwal et al., 2007). Agilesupply chains integrate business partners to reactquickly, driven by customized products andservices through integrating organizational struc-tures, information systems, logistics processes,and world views. Baramichai et al. (2007) arguedthat key agile supply chain enablers are relation-ship configuration, visibility of information, andevent-driven management. Christopher (2000)argued that agile manufacturing has relativeadvantage under conditions of low levels ofdemand predictability and high variety require-ments. Kisperska-Moron and de Haan (2011)reported experiences of a Polish consumer goodsdistributor, evaluating conditions where agileapproaches (providing flexibility and competi-tiveness) outweighed the expense involved inmature market environments.

Leagile supply chains have been proposed as ahybrid between lean and agile (Naylor et al.,1999) using market knowledge and virtually inte-grated operations to exploit opportunities in vol-atile marketplaces in an efficient (lean) manner.

Lean manufacturing can be applied upstreamwith agile response downstream, leading to theneed to identify the transition (decoupling) point(Amir, 2011). This decoupling point is the point inthe material flow stream to which the customerorder penetrates. In buy to order systems, thisdecoupling point will be far upstream, close tothe raw material supplier. In ship to stock sys-tems, on the other hand, the decoupling pointwill be more downstream, close to the retailer.Naim and Gosling (2011) exhaustively examinedpublished research on leagile supply chains.Droge et al. (2004) found that short lead timesand volume flexibility, key leagile characteristics,led to improved market share and financial per-formance. Van der Vorst et al. (2001) reported acase in food supply chains with inflexible needsto cover demand along with uncertainty whereleagile opportunities were found limited.

Resilient supply chains turn the lean focus oncost minimization to the aim of developingcapacity to overcome challenges from unexpecteddisturbances ( Q14Carvalho and Machado, 2009). Leansystems aim for zero inventories, which are unableto respond well to unexpected material shortages(Christopher and Peck, 2004). There is a sacrificeof maximum profit in resilient systems, whichmake them less appropriate for very stable supplychain environments (Al-Masjhari et al., 2001 Q15).

A highly popular and politically correct aim intimes of concern about global warming is environ-mentally sustainable green supply chain manage-ment, seeking to reduce environmental risks andimpacts and improving ecological efficienciesacross the supply chain while simultaneouslyachieving profit and market share objectives (RaoandHolt, 2005). Such systems have been proposedto include green product design, material sourcingand selection, marketing, consumption, manufac-turing, and deliver, considering the completeproduct life cycle. Srivastave (2007) Q16provides a re-view of such efforts. While there clearly is interestin green supplier selection, Genovese et al. (2013)found little evidence of practice among top 100manufacturing firms in the South Yorkshirecounty of England. Genovese et al. also provideda comprehensive review of green criteria foundin some 28 green supplier selection problemjournal articles.




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SUPPLY CHAIN DECISIONS AND CRITERIA

We propose criteria as a means to understandmanagerial consideration of systemic featureswithin supply chains, to include risk managementand environmental factors.Wewill review selectedreports of multiple criteria considered in supplychain decisions, looking for systemic features ofhierarchy, group process as a means of feedback,and organization of criteria in terms of feedback.Systemic aspects of supply chains have been

considered by many. Seuring (2004) consideredthe roles of actors, material flows, and time inhis examination of environmental aspects. Sys-tems tools, such as social network analysis, com-plexity theory, and complex adaptive systems(Kessler et al., 2012) can help understand the oper-ational, financial, and strategic aspects of supplychains. Wang et al. (2011) presented a multi-objective network optimizationmodel consideringCO2 emissions and cost. Saridogan (2012) pro-posed green supply chain management as a wayto focus on the trade-offs among cost (specificallytransportation cost) and environmental factors insupply chains in Turkey. Almost all supply chainmodels considering multiple criteria considersome aspect of profitability or efficiency.Multi-criteria analysis of supplier selection is a

widely studied issue (Moskowitz et al., 2000;Kulak and Kahraman, 2005; Talluri et al., 2006;Wu and Olson, 2008a, 2008b; Deane et al., 2009).Almost all papers considering multiple criteriadecisions in supply chains consider some aspectof efficiency. We can find a number of multiplecriteriamodelling papers focusing on supply chainrisk. There are others focusing on environmentalconsiderations. We use some of these papers todescribe our view of their system aspects. Weorganize around the basic elements (in additionto cost) of risk mitigation and environment.

Risk

Olson andWu (2010a, 2010b)Q17 presented five caseswhere multiple criteria were used in supplychain decisions. These cases were usually appliedto evaluate alternative suppliers, either relativelyas sources of various types of risk, or in a selec-tion decision. One case, by Gaudenzi and

Borghesi, applied analytic hierarchy process(AHP) in a different mode, to assess a risk score-card for organizational departments. Olson andWu examined these five studies in terms of valueanalysis, applying multiple criteria decision-making to these supply chain decisions.

Wu et al. (2006) applied an enhanced AHPmodel for inbound supply risk analysis. Twosuppliers were compared on 18 risk factors. TheAHP analysis was applied but could be replicatedby the following SMART rankings and relativeassessments of importance:

Risk Rank

Cost 1Quality 2On-time delivery 3Continuity of supply 4Engineering/production 5Second-tier supplier 6Demand 7Internal legal issues 8Natural/man-made disasters 9Politics/economics 10

Gaudenzi and Borghesi (2006) used AHP in thestyle of a business scorecard. While the authorsgave a good discussion of criteria and its compo-nents, the data they provide for relative weightsreferred only to the top level factors of on-timedelivery, completeness, correctness, and damage/defect-free products. They also gave examplesdemonstrating scoring of departments within theorganization on each of these four criteria bymanagerial subjective assessment, as well as usinga more metric-driven model. Furthermore, theygave ranges for relative weight importance. Noadjustment was necessary to keep weights withinrange for the set of weights assigning complete-ness the greatest weight.

Criteria On-time first Completeness first

On-time delivery 0.36 0.22Completeness 0.29 0.43Correctness 0.21 0.21Damage/defect free 0.14 0.14

The Guadenzi and Borghesi article presentsan interesting application of multiple criteriaanalysis to something akin to business scorecard




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analysis, extending it to provide a potentialdepartmental assessment of relative degree ofrisk faced.

Blackhurst et al. (2008) focused on a method toidentify specific areas of risk by product and bysupplier. They used multi-criteria analysis but notwith the intent of selecting suppliers, but ratheridentifying degree of risk. They provided data thatwould be applicable to supplier selection consider-ing risks. First, they gave a list of criteria. Based onthe data provided in their paper, we can infer thefollowing risks, ordered by importance:

Risk Rank

Defects/million parts 1Ease of problem resolution 2–3Timeliness of corrective action 2–3Fire 4Product complexity 5Labour availability 6–7Supplier bankruptcy 6–7Labour dispute 8–10Political issues 8–10War and terrorism 8–10Value of product 11Earthquake 12–13Flood 12–13

Kull and Talluri (2008) used AHP to evaluaterelative supplier ability to respond to risks. Theresults were then fed into a goal programmingmodel to select the preferred supplier fromthree, each of which had some aspect of risk

where they were superior. Five general risk cat-egories were identified, each of which consistedof multiple aspects.

Schoenherr et al. (2008) examined a decisionconcerning supplier selection. The decision in thiscase was to consider five variants of outsourcing:

(1) Sourcing-finished goods from Mexico(2) Sourcing-finished goods from China(3) Sourcing parts from China and assembling in

the USA(4) Sourcing parts from China, assembling in a

Mexican maquiladora without investment(5) Sourcing parts from China, assembling in a

Mexican maquiladora with investment

The decision involved 17 criteria:

Risk factor Sub obj Main obj Rank

Product cost Cost Product 1Product defect rate Quality Product 2Order fulfillment risk Service Partner 3Transportation risk Environment 4American National Standards Institute Q18compliance Quality Product 5Competitor cost Cost Product 6Supplier fulfillment risk Service Partner 7On-time/budget delivery Service Partner 8Logistics risk Service Partner 9Sovereign risk Environment 10Wrong partner risk Management capabilities Partner 11Overseas risk Management capabilities Partner 12Supplier risk Management capabilities Partner 13Demand risk Service Partner 14Supplier management Management capabilities Partner 15Natural disaster/terrorism Environment 16Engineering and innovation Management Capabilities Partner 17

Risk Category Rank

Quality management Quality 1Reliable material availability Delivery 2Reliable cycle time Delivery 3Protection against natural disaster Delivery 4Excess capacity Delivery 5Legal/environmental control Quality 6Power in the relationship Cost 7Flexibility in processes Flexibility 8Cost management capabilities Cost 9Stable supply market Confidence 10Information systems Confidence 11Good relations/communications Confidence 12Research capabilities Flexibility 13Stable currency Cost 14




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http://www.ansi.org/

Environment

Kainuma and Tawara (2006) used a multipleattribute utility theory (MAUT) model to capturepreferences of decision-makers in a stochasticmodel of a lean and green supply chain. Thevalues included in the MAUT model were mana-gerial (return on assets and customer satisfaction)and environmental (life cycle assessment) perspec-tives. Computer simulations were used to reflectuncertainties of demand.Gnoni et al. (2011) applied an analytic network

process (ANP) model for environmental perfor-mance evaluation within a supply chain. Theyconsidered supply chain elements to be sup-pliers, producers, and customers. The evaluationprocess was based on management performanceindicators, operational performance indicators,and environmental condition indicators. Thespecific context studied was glass production,and the evaluation system was viewed as adecision support system. ANP was applied to

allow feedback within the supply chain. TheANP model allowed feedback within and acrosscategories. The point of the model was to suggestgreen supply chain management strategies bestadopted at each supply chain level.

Environmental Criteria

Thun andMűller (2010) reported an empirical studyof green supply chain management in the German

automotive industry. Goals of green supply chainmanagement considered are shown in Table 1.Table 1 Green supply chain management goals(Thun and Műller, 2010)

GoalAveragerelevance

Averagerealization

Efficient resource usage 4.30 3.55Environmentalprotection

4.20 4.02

Cost reduction 4.13 3.49Competitive advantage 4.13 3.36Fulfillment of legalregulations

3.86 4.18

Image improvement 3.75 3.65Quality improvement 3.75 3.48

AHP and data envelop analysis Q19(DEA) werecombined by Raut (2012) to evaluate the envi-ronmental performance of suppliers. The modelwas demonstrated with a tire supply chain inIndia. Supplier selection criteria used were thefollowing:

AHP weights was generated by surveying sixmembers of teams selecting purchasing vendorsand applied to eight available suppliers. DEAwas used to combine these six decision-makers,generating scores that could be used to rank-order available suppliers.

CONCLUSIONS

This paper is interested in system elements oftrade-off decisions among efficiency, risk, and

Green quantity policy Inventory and capacity

Delivery Performance, flexibility, geographic proximity, safety and securityGreen quality policy Certifications and awards, material rejection rate, product durabilityService Warranty policies, payment flexibility, product reliability, response time,

repair and return rateGreen E&D capability Internal R&D processes (green projects), information system, standard

compliance, design capability, green partnerships, green patentsGreen production facilities Ability to expedite, to maintain product, product variety, capacity and

capability, process flexibilityEnvironmental price Material costs, maintenance costs, operating costs, transportation costsEnvironmental issues Safety equipment, fatalities, hazard assessment records, regulatory recordFinancial strength Operating margin, stockholder equity ratio, cash flow per share, gross

profit margin, inventory turnoverGreen human resource management Entrepreneurial creativity, organizational leadership, managerial

commitment to environmental performance, staff training inenvironmental targets




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ecological elements in supply chain decision-making. We reviewed a number of multiplecriteria decision-making models that consideredthese factors. These reveal a number of systemcomponents in such supply chain decisions.

The elements of supply chain systems occur ata number of levels. Each decision would involvea physical flow of material, with the transporta-tion system consisting of a variety of elements.The decisions we have focused on include ele-ments of criteria, specifically efficiency, risk, andenvironmental factors. One could also look atthe human elements, individuals in various rolesof the decision-making process, to include aggre-gations of some humans into groups (such asfirms or regulating agencies).

The presence of subsystems with respect to thecriteria is clear. Kull and Talluri (2008) includedtwo levels of criteria, with the higher levelconsisting of cost, delivery, flexibility, and confi-dence, and three of these higher level factors usedto group more detailed lower level risk factors.The lower level groupings represent a form ofsubsystem in the context of decision criteria.Schoenherr et al. used three levels of AHP criteria,the highest of which consisted of broad perspec-tives (partner, product, environment).

Control measures were also present. Gaudenziand Borghesi (2006) offered a variant of a busi-ness scorecard, a traditional means of managerialcontrol. The Blackhurst et al. (2008) applicationwas for purposes of identifying where supplychain risks were, a direct component of thecontrol process. TheQ20 Raut (2012) study wasrelated to control in that it provided a tool toevaluate supplier environmental performance,which would have the purpose of modifyingfuture relationships within using supply chains.Cabral et al. (2012) offered their model as a toolto select lean, agile, resilient, and green systemsthrough identification of key performance indica-tors. Kessler et al. (2012)’s social network analysismodel of global supply chains gave measures forinventory efficiency, production efficiency, andmarketing efficiency. These measures are ori-ented around profitability and do not reflectmeasures for risk and environmental impact.

The system aspect of environment can beviewed as supply chain decision-making context.

Analytic hierarchy process centres on thehierarchy of criteria, and MAUT uses a similarframework. Importance of criteria (weights) isrelative in both. Both weights and scores in thesemodels depend on context. Further context isimportant for specific applications. If scores onavailable alternatives are equivalent on a specificcriterion, this criterion will not matter for this setof alternatives. However, it may matter if newalternatives are added or existing alternativesimproved. Decisions can be supported by usingAHP or MAUT to focus on improvement ofexisting alternatives. The score matrix providesuseful comparisons of relative alternative perfor-mance. If decision-makers are not satisfied withexisting alternatives, they might seek additionalchoices through expanding their search ordesigning them. The criteria with the greatestweights might provide an area of search, andthe ideal scores provide a design standard.

Systemic linkages are a key to some of themodels proposed. Feldman and Soyka (1997)found that adopting a more environmentallyproactive posture leads to significant favourableimpact on investors’ perceptions of the firm’srisk. Rao and Holt (2005) found that greeningdifferent phases of the supply chain leads togreen supply chain integration, ultimately lead-ing to better economic performance and compet-itiveness. Risk mitigation and cost involve acomplex trade-off. In the short run, buying insur-ance impinges on profitability if those risksbothering decision-makers do not come about.The key to risk management is to find the opti-mal probabilistic policy that yields the greatestexpected value in terms of outcome and probabil-ity. Thus, in the long run, you could view riskmitigation as completely compatible with profit-ability. Models can aid in examining thesetrade-offs. System aspects of sourcing risk wereaddressed by Canbolat et al. (2008) and byKessler et al. (2012), who proposed a networkanalysis model demonstrated in the context ofsupply chain risk mitigation. ANP uses feedbackloops and was used in the published studies byGnoni et al. (2011) and Cabral et al. (2012). Othermodels based on system linkages were offeredby the social network model of Kessler et al.(2012). Cabral et al. (2012) applied an ANP model




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to select the most appropriate practices and keyperformance indicators of supply chain perfor-mance considering lean, agile, resilient, and greensystems. Performance indicators for operations(inventory levels, quality, customer satisfaction,and time), economics (cost, environmental cost,cash flow), and the environment (business waste)were evaluated in terms of supply chain practicesassociated with each of these systems. ANP wassuggested because of interdependence amongsupply chain participants. The methodology wasapplied to a Volkswagen Autoeuropa automotivesupply chainThus, we argue that system components of

supply chains are very important in consideringtrade-off decisions where efficiency (to includelean aspects), risk, and environmental consider-ations need to be considered. Such decisions are evermore important, and focusing on and understand-ing systemic features can be very useful in arrivingat better supply chain management decisions.

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Q13 AUTHOR: “Hines et al. (2004)” is cited in text but not given in thereference list. Please provide details in the list or delete the citationfrom the text.

Q14 AUTHOR: “Carvalho and Machado, 2009” is cited in text but not givenin the reference list. Please provide details in the list or delete the citationfrom the text.

Q15 AUTHOR: The citation “Al-Mashari et al., 2001” (original) has beenchanged to “Al-Masjhari et al., 2001”. Please check if appropriate.

Q16 AUTHOR: The citation “Srivastava (2007)” (original) has been changedto “Srivastave (2007)”. Please check if appropriate.

Q17 AUTHOR: The citation “Olson and Wu (2010)” (original) has beenchanged to “Olson and Wu (2010a, 2010b)”. Please check if appropriate.

Q18 AUTHOR: “American National Standards Institute” was provided as thedefinition for “ANSI”. Please check and change as necessary.

Q19 AUTHOR: “Data envelop analysis” was provided as the definition for“DEA”. Please check and change as necessary.

Q20 AUTHOR: “Raut (2012)” is cited in text but not given in the referencelist. Please provide details in the list or delete the citation from the text.

Q21 AUTHOR: Reference “Carvalho et al. (2010)” is not cited in the text.Please indicate where it should be cited; or delete from the reference list.

Q22 AUTHOR: Reference “Holweg (2007)” is not cited in the text. Pleaseindicate where it should be cited; or delete from the reference list.

Q23 AUTHOR: Reference “Raul (2011/2012)” is not cited in the text. Pleaseindicate where it should be cited; or delete from the reference list.

http://www.ansi.org/

USING e-ANNOTATION TOOLS FOR ELECTRONIC PROOF CORRECTION

Required software to e-Annotate PDFs: Adobe Acrobat Professional or Adobe Reader (version 7.0 or above). (Note that this document uses screenshots from Adobe Reader X) The latest version of Acrobat Reader can be downloaded for free at: http://get.adobe.com/uk/reader/

Once you have Acrobat Reader open on your computer, click on the Comment tab at the right of the toolbar:

1. Replace (Ins) Tool – for replacing text.

Strikes a line through text and opens up a text box where replacement text can be entered.

How to use it

Highlight a word or sentence.

Click on the Replace (Ins) icon in the Annotations section.

Type the replacement text into the blue box that appears.

This will open up a panel down the right side of the document. The majority of tools you will use for annotating your proof will be in the Annotations section, pictured opposite. We’ve picked out some of these tools below:

2. Strikethrough (Del) Tool – for deleting text.

Strikes a red line through text that is to be deleted.

How to use it

Highlight a word or sentence.

Click on the Strikethrough (Del) icon in the Annotations section.

3. Add note to text Tool – for highlighting a section to be changed to bold or italic.

Highlights text in yellow and opens up a text box where comments can be entered.

How to use it

Highlight the relevant section of text.

Click on the Add note to text icon in the Annotations section.

Type instruction on what should be changed regarding the text into the yellow box that appears.

4. Add sticky note Tool – for making notes at specific points in the text.

Marks a point in the proof where a comment needs to be highlighted.

How to use it

Click on the Add sticky note icon in the Annotations section.

Click at the point in the proof where the comment should be inserted.

Type the comment into the yellow box that appears.

USING e-ANNOTATION TOOLS FOR ELECTRONIC PROOF CORRECTION

For further information on how to annotate proofs, click on the Help menu to reveal a list of further options:

5. Attach File Tool – for inserting large amounts of text or replacement figures.

Inserts an icon linking to the attached file in the appropriate pace in the text.

How to use it

Click on the Attach File icon in the Annotations section.

Click on the proof to where you’d like the attached file to be linked.

Select the file to be attached from your computer or network.

Select the colour and type of icon that will appear in the proof. Click OK.

6. Add stamp Tool – for approving a proof if no corrections are required.

Inserts a selected stamp onto an appropriate place in the proof.

How to use it

Click on the Add stamp icon in the Annotations section.

Select the stamp you want to use. (The Approved stamp is usually available directly in the menu that appears).

Click on the proof where you’d like the stamp to appear. (Where a proof is to be approved as it is, this would normally be on the first page).

7. Drawing Markups Tools – for drawing shapes, lines and freeform annotations on proofs and commenting on these marks.

Allows shapes, lines and freeform annotations to be drawn on proofs and for comment to be made on these marks..

How to use it

Click on one of the shapes in the Drawing Markups section.

Click on the proof at the relevant point and draw the selected shape with the cursor.

To add a comment to the drawn shape, move the cursor over the shape until an arrowhead appears.

Double click on the shape and type any text in the red box that appears.

Documents

Trade-offs in Supply Chain System Risk Mitigationcbafiles.unl.edu/public/cbainternal/facStaffUploads/SRES2014Swenseth.pdf · Trade-offs in Supply Chain System Risk Mitigation