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Journal Review
Paper 1
Title
: An Empirical Analysis of Supply Chain Risk Management in The German
Automotive Industry
Author
: Jorn-Henrik Thun, Daniel Hoenig
Journal : The International Journal of Production Economics
Introduction
There is a lack of work on Supply Chain Risk Management subject matter. There is a need
for empirical work in the field of supply chain risk management analyzing the main supply chain
risks and investigating instruments for an effective supply chain risk management.
The main objective of this paper is to analyze the status quo of supply chain risk
management in Germany based on a study conducted in the automotive industry. In particular, the
purpose is to investigate the relevance of different risks in terms of their probability of occurrence
and their potential impact on the supply chain. Then, the relationship between the implementation
of these instruments and different performance criteria is analyzed.
Methodology
The analysis is based on a survey with 67 manufacturing plants conducted in the German
automotive industry. After investigating the vulnerability of supply chains in general and
examining key drivers of supply chain risks, the paper identifies supply chain risks by analyzing
their likelihood to occur and their potential impact on the supply chain. The results are visualized
in the probability-impact-matrix distinguishing between internal and external supply chain risks.
Vulnerability of supply chains
Some risks are eventually underestimated in terms of their likelihood or impact on the
supply chain. A further reason might be that managers are simply not familiar with appropriate
instruments and neglect them accordingly. Finally, the difficulty to quantify the benefits of hedging
against supply chain risks might hinder the implementation of appropriate instruments. Often, the
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problem is the economic legitimation of instruments for supply chain risk management to prevent
disturbances or disruptions. Accordingly, the following hypothesis is formulated:
H11. Supply chains are regarded as being susceptible in terms of supply chain risks.
Drivers of supply chain risks
. Due to a high interconnectedness of companies and close relationships within complex
networks supply chains have become more vulnerable for disturbances. Accordingly, the trend
towards globalization must be regarded as a source for supply chain risks too. Besides complexity,
the need for a lean supply chain acts as a driver for supply chain risks as well. Lean management
approaches prove to be very efficient and seem to be indispensable in order to be competitive in
the automotive industry but they bear the risk of making supply chains vulnerable. Accordingly,
the following hypothesis is formulated:
H12. Complexity and efficiency are key drivers for supply chain risks.
Supply chain risks
In terms of internal supply chain risks, internal company risks deal with disruptions caused
by problems within the organizational boundaries of the company such as machine breakdowns or
IT problems. Here, companies are faced with the risks related to suppliers, e.g. quality problems
of delivered parts. Furthermore, the financial instability of a supplier can lead to its insolvency and
therefore can result in the total loss of a supplier. Technological changes or innovation in terms of
the product design might overstrain a supplier’s capabilities and therefore lead to disturbances at
the supply site.
Finally, external supply chain risks deal with environmental causes that can barely be
influenced and lead directly or indirectly to disturbances within the supply chain. They can be
caused by sociopolitical, economical, technological or geographical reasons. Examples are
earthquakes or hurricanes as well as terrorist attacks or political instabilities.
It is presumed that internal supply chain risks have a higher likelihood to occur than
external supply chain risks since the majority of the latter are predominantly exceptional (e.g. war
or terrorist attacks), whereas internal supply chain risks such as supplier problems or a change in
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customer demand cannot be regarded as uncommon incidents. Hence, these supply chain risks are
expected to have a higher probability. Furthermore, it is expected that external supply chain risks
such as natural disasters will show a higher impact since their occurrence is normally accompanied
by grave consequences.
Accordingly, the following two hypotheses are formulated concerning the probability and
impact of typical supply chain risks.
H13a. Internal supply chain risks have a higher likelihood to occur than external supply chain
risks.
H13b. External supply chain risks have a greater impact on the supply chain than internal supply
chain risks.
The risks can be depicted in a portfolio regarding the dimensions ‘‘probability’’ and ‘‘impact’’
based on a Likert-scale. Figure below shows the probability-impact-matrix.
Instruments of supply chain risk management
The instruments of supply chain risk management can be differentiated in preventive
instruments and reactive instruments. Preventive instruments are cause-related measurements that
strive for lowering the probability of risk occurrence. Examples for risk avoidance are the
concentration on products with constant demand and few variants or the focus on secure markets.
Furthermore, some risks, e.g. natural disasters, can be dodged geographically by locating
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production sites in safe areas. Reactive instruments are effect-oriented measurements that strive
for mitigating the negative impact of an incident. Reactive instruments do not directly act on the
risks but strive for absorbing the damage caused by a risk. Against the background of this
discussion the following hypotheses are formulated:
H14a. Companies with a high degree of supply chain risk management show a higher performance
than companies with a low degree.
H14b. There is a difference between companies using preventive instruments contrary to those
using reactive instruments in terms of performance criteria.
Result
The respondents are asked for their estimation concerning the vulnerability of their supply
chain. The average value of all respondents is 3.19 on the five- point Likert-scale. Almost 40% of
the companies regard them- selves as being highly vulnerable (point 4 or 5 on the Likert-scale).
Only every fourth manager estimates his supply chain as being little or not at all susceptible in
terms of supply chain disruptions (point 1 or 2 on the Likert-scale). Altogether it can be stated that
the majority of the managers (almost 75%) do not regard the vulnerability of their supply chain as
being low. Hence, hypothesis H11 cannot be rejected.
Furthermore, the managers are asked to give their estimations about the key developments
driving supply chain risks. Figure below depicts the results.
As it can be seen from the figure, the trend towards globalization of supply chains and the
necessity to offer many product variants have the highest mean values. Hence, factors increasing
the complexity of supply chains must be regarded as key drivers for supply chain risks. But also
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approaches for building up a lean supply chain such as outsourcing, reduction of suppliers, or a
focus on efficiency are drivers of supply chain risks. The results indicate that hypothesis H12
cannot be rejected.
In order to give empirical evidence concerning the potential risk a company might be
confronted with, the various risks are depicted in the ‘‘probability/impact’’-matrix. Figure below
shows the results of the ‘‘probability/ impact’’-matrix in terms of internal and external supply
chain risks.
As the figure indicates there are obvious differences in terms of supply chain risks. Supplier
quality problems must be regarded as most critical risk since they have both, a high probability
and a high impact. Supplier failure and a malfunction of the IT system are seen as severe problems
but are less likely to occur. The highest probability values are observed in terms of increasing raw
material prices, customer demand changes, and delivery chain disruptions. Then, hypothesis H13a
cannot be rejected, accordingly. Regarding the impact, external supply chain risks do not show
higher values. Hence, hypothesis H13b is rejected.
The comparison shows that the group with the lowest values for supply chain risk
management also have the lowest values for every single performance criterion. This leads to the
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supposition that supply chain risk management seems to improve the performance of a supply
chain, then it can be concluded that hypothesis H14a cannot be rejected. There also exist
differences between the two groups conducting supply chain risk management. The group pursuing
the instruments for preventive supply chain risk management has higher average values in terms
of an increased flexibility and decreased stocks. Furthermore, this group has higher values
concerning reactivity and cost reduction. Contrary to that, the group representing the companies
with reactive supply chain risk management instruments has higher average values in terms of the
reduction of the bullwhip effect and external disruptions resilience. Hence, hypothesis H14b
cannot be rejected.
Conclusion
The empirical analysis reveals that supply chains are predomi- nantly regarded as being
vulnerable. A reason might be the rather low implementation degree of the instruments of supply
chain risk management.
Furthermore, factors rising complexity such as globalization and product variants on the
one hand, and factors increasing efficiency such as outsourcing or reduction of suppliers on the
other hand are identified as key developments driving supply chain risks and therefore increasing
supply chain vulnerability.
Then, the analysis shows that potential risks threatening supply chains are evaluated
differently concerning their impact on the supply chain and their probability to occur. The results
reveal that internal supply chain risks are regarded as being more likely to occur and that they
would also have a greater impact on the supply chain. The latter result might be influenced by the
fact that managers estimate the impact of incidents with a higher likelihood stronger since they
implicitly reevaluate the impact based on its expectation value. However, the results indicate that
most of the risks supply chains are confronted with arise from inside the supply chain. This
indicates that managers are able to act on these risks directly.
Additionally, the study reveals that supply chain risk management has the potential to
improve supply chains in the automotive industry. A comparison of means shows that those
companies having a low implementation degree of supply chain risk management instruments have
lower average values in all of the investigated performance criteria such as resilience against
external disruptions, reactivity improvement, or flexibility.
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Journal Review
Paper 2
: Managing uncertainty – an empirical analysis of supply chain risk management
Title
in small and medium sized enterprises
Author
: Jorn-Henrik Thun, Martin Druke and Daniel Hoenig
Journal : International Journal of Production Research
Introduction
Although SMEs must be regarded as key drivers for economic growth and supply chain
risk management has gained increasing attention in the past years in academia (Ju¨ ttner 2005),
there is a lack of work on this subject matter. There is especially the need for empirical studies
analyzing particularities of SMEs, e.g. concerning key issues of supply chain risk management.
Accordingly, the purpose of this article is the identification of existing differences between largescale enterprises and SMEs with respect to supply chain risk management based on a survey
conducted in the German automotive industry. In particular, this article examines supply chain
vulnerability, drivers of supply chain risks and instruments of supply chain risk management.
Methodology
Using data from 67 manufacturing plants from the German automotive industry,
differences between large-scale enterprises and SMEs are identified. After addressing the general
question whether SMEs consider their supply chain as vulnerable, the key drivers of supply chain
risks are analyzed. Furthermore, instruments of supply chain risk management are investigated in
terms of their suitability for creating a resilient supply chain by comparing SMEs with large-scale
companies. Finally, this article examines existing differences with respect to how companies deal
with risk.
Vulnerability of supply chains
Compared to large companies, SMEs usually operate under the conditions of a weaker cash
flow and less equity reserves. Accordingly, it is more likely that they do not have the capacity to
compensate for occurring incidents or buffer themselves against supply chain risks. This is
particularly true for the German automotive industry, since many automotive suppliers are SMEs,
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which often lack private equity reserves. It is not unusual for automotive original equipment
manufacturers (OEMs) to financially support troubled suppliers. Therefore, they are expected to
have more severe issues with the vulnerability of their supply chain. Hence, the following
hypothesis is formulated:
H11: Small and medium-sized enterprises regard their supply chain as more vulnerable than
large-scale enterprises.
Several developments have forced companies to deal with risk issues in their supply chains.
The first development can be traced back to the aspect that companies need to offer a broad range
of products or variants in order to satisfy customer-specific needs leading to higher vulnerability
due to higher complexity. Another development is the trend towards globalization. Companies are
no longer in a position to focus on local markets, and must realize the potential of relationships
with suppliers as well as customers in a global context.
It can be expected that SMEs are affected by these developments. Many automotive
suppliers, of which most are small and medium-sized companies, have to follow the automotive
OEMs into their global manufacturing networks in order to stay in business without necessarily
having the potential to buffer themselves against potential problems. Through these global
manufacturing networks, automotive OEMs produce an increasing variety of products and
associated variants, which are again globally retailed. Means of productivity forces the automotive
manufacturing networks to be synchronized over many tiers, which deepens the relationship of
supplier and OEM. This often overstrains the capabilities and resources of small and mediumsized companies. Thus, the following hypothesis is stated:
H12: Small and medium-sized enterprises are affected more strongly by developments towards
complexity and efficiency of supply chains than large-scale enterprises.
In this article, the researchers differentiate between preventive instruments and reactive
instruments of supply chain risk management. As cause-related measures, preventive instruments
try to decrease the probability of a disruption within a supply chain, whereas reactive instruments
are effect-oriented by striving to mitigate the negative impact of an incident. It is expected that
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SMEs do not implement these instruments to a high degree but prefer them to preventive
instruments. Against the background of this discussion, the following hypotheses are formulated:
H13a: Small and medium-sized enterprises implement instruments of supply chain risk
management to a lesser degree than large-scale enterprises.
H13b: Compared to large-scale enterprises small and medium-sized enterprises focus on reactive
instruments rather than on preventive instruments.
Result
Before analyzing instruments of supply chain risks, estimations about the vulnerability of
supply chains and main developments driving supply chain risks will be investigated. The first
analysis examines the difference between SMEs and large-scale enterprises with respect to
vulnerability. Figure below depicts the results of the analysis.
The next analysis deals with the question of whether SMEs are affected more strongly than
large-scale enterprises by developments towards complexity and efficiency of supply chains.
As it can be seen from Figure below, factors increasing the complexity of supply chains such as
globalization and the necessity to offer many product variants must be regarded as key drivers for
supply chain risks. However, significant differences between SMEs and largescale enterprises are
not observed. Altogether, SMEs are not necessarily more strongly affected than large-scale
companies by developments
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towards complexity or efficiency of supply chains. Thus, hypothesis H12 has to be rejected.
Finally, the instruments of supply chain risk management are examined. Figure below
gives an overview of the mean values of SMEs in comparison to large-scale companies regarding
the respective suitability of the instruments for creating a resilient supply chain.
The analysis reveals that the majority of the preventive instruments are significantly
preferred by large-scale companies. Only for one instrument (suppliers with high quality), no
significant difference can be observed. For the reactive instruments, the picture looks different. A
comparison of mean analysis shows that SMEs have significantly higher average values in terms
of reactive instruments with safety stocks, overcapacity in production and storage and back-up
suppliers.
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Conclusion
The first hypothesis deals with the question of if SMEs regard their supply chain as more
vulnerable in comparison to large-scale companies. The analysis shows that SMEs are more
vulnerable. Reason for the higher values can be seen in the high dependability of SMEs on large
OEMs leading to higher risk exposure. Additionally, these companies might not have the
capabilities to compensate for occurring incidents due to a weaker cash flow and equity position.
Overall, supply chains are predominantly estimated as being vulnerable, possibly due to the rather
low implementation of supply chain risk management.
The second hypothesis investigates whether SMEs are affected more strongly by
developments towards complexity and efficiency. The results show that no significant differences
exist between SMEs and large-scale companies concerning the evaluation of the key drivers of
supply chain risks. However, the developments towards globalization and lean supply chains have
been identified as the main overall drivers. The reason for this result might be that all enterprises
examined are part of the automotive industry. Over the past decades, the automotive OEM
expanded their production network globally and internationalized their genuine regional supply
base to support that growth.
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The next hypothesis examines if SMEs implement instruments of supply chain risk
management to a lesser degree than large-scale enterprises. The analysis of the instruments comes
to the conclusion that large-scale enterprises do not regard these instruments as more suitable for
creating a resilient supply chain than SMEs. However, there is a significant difference concerning
the suitability for the kind of instruments. SMEs focus on reactive instruments such as safety stocks
or overcapacities rather than on preventive instruments such as supplier with high quality or ontime deliveries, which are preferred by large enterprises, which is tested by the last hypothesis.
Small and medium-sized companies try to deal with supply chain risks by building up
redundancies, which absorb the impact of a risk that came into effect.
Journal Review
Paper 2
Title
: Supply chain risk management (SCRM): a case study on the automotive and
electronic industries in Brazil
Author
: Mauricio F. Blos, Mohammed Quaddus, H.M. Wee, Kenji Watanabe
Journal : Supply Chain Management: An International Journal
Introduction
Many supply chain scholars believed that companies could only mitigate supply chain risk
but loss and damage could not be avoided when accident happens. However, supply chain risk
management (SCRM) has become effectively to reduce loss and damage.
This paper presents an empirical study of SCRM in automotive and electronic industries in
Brazil. The scope is formed by research methodology and results. A supply chain vulnerability
map with conclusions and future directions are given in the final section.
Methodology
A total of 72 questionnaires were developed, tested and distributed to the automotive
related industries in Sao Paulo, Rio de Janeiro and Rio Grande do Sul, Brazil. A total of 30
questionnaires were distributed to the electronic related industries in Manaus Free Trade Zone.
Positive and negative statement is used to simplify the validation of questionnaire to build the
supply chain vulnerability map. The survey sent the questionnaires via e-mail to the targeted
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respondents and some of them included face-to-face interview. The returned/ replied
questionnaires, 32 from the automotive industry and 14 from the electronic industry, represent a
total response rate of approximately 45 percent.
The following four questions are very important in building the SCVM. They are: “What
are the types of events that can disrupt the supply chain?”, “What are the characteristics of supply
chain disruptions?”, “What is the likelihood it will take place?” and “How severe will it be?”. We
then identify potential risks and their possible ramifications.
Financial Vulnerability
With the complexity of the global market, there are some disruptions that complicate
financial flows and cash management in Brazil. Of the finished goods cost, 4 percent or more is
spent on supply chain. That is a significant drag on cash flow and effective management of working
capital.
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Hazard Vulnerability
Hazard vulnerability includes internal risk drivers: malicious disruptions such as
international terrorism to external risk drivers: natural hazards such as flooding, hot weather and
heavy rain/thunderstorm.
Strategic Vulnerability
Poor-quality goods supplied were identified as one major problem for the electronic
industry. Most of the electronic companies that have quality assurance from its Asian’s suppliers
do not need to inspect the goods 100 percent and as a result, the defective parts are detected during
production time. As a countermeasure, the quality control department is called and the production
line is stopped until some corrective action (re-work) is taken.
Sometimes, re-work is needed to solve the problem. Of course there is also the problem of
production delay, but it can be settled later, as one manager from one investigated company
suggested. When the problems are not simple, the parts are scraped and the production is postponed
until the arrival of a new shipment.
Operations Vulnerability
Because of dealer distribution network failures, the investigated companies have problems
of lead times. And when it happens, the real production forecasted is substituted for an estimated
production date. Moreover, it is harder for the finance department and the banks to have clear
financial commitments. Container accident is a vulnerability that happens due to operator error
during the transportation process.
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Result
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For the automotive industry, the four quadrants show that: in financial vulnerability, debt
and credit has the highest impact with the vulnerable percentage of 35 percent; liquid/ cash has an
impact of 20 percent and the lowest impact is credit default with 5 percent. The second quadrant
is strategic vulnerability and the union regulation has the highest impact with the vulnerable
percentage of 27 percent; dealer relation has impact of 17 percent and the lowest impact is new or
foreign competitors with 2 percent. The third quadrant is represented by hazard vulnerability,
where property damage is responsible for 23 percent of vulnerability impact and it represents the
highest percentage from the group followed by building or equipment fire with a vulnerability
impact of 15 percent. The lowest impact is heavy rain/thunderstorm with 3 percent. The fourth and
last quadrant shows operations vulnerability and accounts for theft as the highest vulnerable impact
with 17 percent following by operator errors/accident damage with 15 percent. And the lowest
impact is utilities failures with 4 percent.
For the electronic industry, the four quadrants show that: in financial vulnerability, debt
and credit has the highest impact with the vulnerable percentage of 33 percent; liquid/cash has
impact of 21 percent and the lowest impact is credit default with 5 percent. The second quadrant
is strategic vulnerability and the union regulation has the highest impact with the vulnerable
percentage of 25 percent; dealer relation has impact of 18 percent and the lowest impact is new or
foreign competitors with 4 percent. The third quadrant is represented by hazard vulnerability,
where property damage is responsible for 21 percent of vulnerability impact and represents the
highest percentage from the group following by building or equipment fire with a vulnerability
impact of 15 percent. And the lowest impact is heavy rain/thunderstorm with 3 percent. The fourth
and last quadrant shows operations vulnerability and account for theft as the highest vulnerable
impact with 18 percent following by operator errors/accident damage with 16 percent. And the
lowest impact is utilities failures with 3 percent.
Conclusion
This research analyzes the SCRM and makes reference to the automotive and the electronic
industries in Brazil. A supply chain vulnerability map which shows the four quadrants (financial,
strategic, hazard and operations) of supply chain vulnerability from the empirical study on the 46
investigated industries is developed.
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