1. Integrated Process to Manage Disruptions in Supply
Chains
Behzad Behdani1, Arief Adhitya2,
Rajagopalan Srinivasan2, 3, Zofia Lukszo1
1- Delft University of Technology, Faculty Technology, Policy and Management
2- Institute of Chemical and Engineering Sciences
3- National University of Singapore, Dept of Chemical and Biomolecular Eng

2. Risk and Disruption in Supply Chains
 Managing disruptions is part of daily operation of supply chains. Some examples
of disruptions are:
 Natural disasters, supplier shutdown, transportation delay , product recalls…
 To handle disruptions, we may:
 Do something in advance to prevent disruptions from happening or reduce their
expected impact
or/and
 Improve the capabilities to better detect and react to disruptions when they happen
 Both of these two are necssary and important and must be considered
together in the process, because:
 With investment in risk prevention, we will face with less number of disruptions or
less severe disruptions.
 Without plans and resources, the disruption management process will be very slow.
but:
 Not all disruptions are known to company and even for known ones, no company
affords to investment for all possible disruptions.
 Having resources and pre-defined plans does not seem guarantee the success in
coping with disruptions. How to use those resources and execute the plans in real-
time is also very critical.
2 Integrated Process to Manage Disruptions in Supply Chains

3. Overall Idea
 The Problem: There are two quite separate and isolated views (and
accordingly approaches) on handling disruptions in supply chains:
 Focus on what must be done before a disruption happens(pre-disruption
view called as Supply Chain Risk Management)
 Focus on what must be done after a disruption has materialized in real
world (post-disruption view called as Supply Chain Disruption Management)
However there are very few frameworks that interrelate these two views.
 Our Solution: The framework presented here aims to fill the gap and
present all relevant steps in handling “Disruptions” in supply chains in one
framework, before and after its happening.
 The Advantage: we expect this framework to provide a full picture and
systematic view for practitioners and researcher on how to face the
problems related to managing disruptions in supply chains.
3 Integrated Process to Manage Disruptions in Supply Chains

4. Towards an Integrated Framework
SC Risk SC Disruption
Management Management
Integrated Process to Disruption
SC Risk SC Manage
Management in Supply Chains
Disruptions Management
4 Integrated Process to Manage Disruptions in Supply Chains

5. Integrated Process to Manage Disruptions
in Supply Chains
Risk management starts
R1: System Definition
& Risk Identification
Risk Management Cycle
Disruption occurs D1: Disruption
Detection
Disruption Management
D4:Disruption Cycle D2: Disruption R2:Risk
R4: Risk Monitoring
Learning Reaction Quantification
Disruption is
managed
D3: Disruption
Recovery
R3: Risk Evaluation
& Treatment
5 Integrated Process to Manage Disruptions in Supply Chains

6. Integrated Process to Manage Disruptions
in Supply Chains (A Narrative)
 Managing disruptions is not a Project; it is an ongoing process with two main cycles:
Firstly, we must identify the possible disruptions in our
supply chain; then, for recognized disruptions, we
need to quantify the level of risk in terms of their
probability and severity (impact). When we have an
evaluation of risk of expected disruptions, we must
decide on how to treat them. If (after treatment)
the risks level seems acceptable, SC operations
proceed; however the level of risk must be
monitored and re-evaluated frequently due to
changes in the business environment or SC itself.
Despite enough safeguards, at a specific point, the disruption may happen. The first step to
handle the disruption is to detect it as quickly as possible. The next step is using the
resources and pre-defined plans to react to detected disruption. If the pre-defined plans are
not adequate to handle disruption, we need to find alternative solutions until we can
recover system to its normal operation. After recovering from disruption, we may learn
some lessons; for example, we may revise the plans for that type of disruption or re-
configure the supply chain in a way to reduce the probability or severity of similar
disruptions in future.
6 Integrated Process to Manage Disruptions in Supply Chains

7. R1: System Definition & Risk Identification
 The first step is to recognize uncertainties and risks that influence the SC
operation. A comprehensive “Risk Identification” process will provide a list
of “risk sources” –the disruptive events might affect the normal operation-,
possible “risk consequences” –performance measures important for SC
operation- and the main “risk drivers” –the characteristics of SC that
increase its vulnerability- for a SC.
 One Example:
Ericsson identifies and analyzes its supply chain risks by mapping the supply chain upstream,
looking at suppliers as well as products/services. The purpose of this is verifying the business
flow between Ericsson and the supplier/service provider and defining the critical parts and
risk sources in the process, i.e. products, components, sites, etc. So far, more than 10,000
components have been analyzed, mainly of first and second tier suppliers.
First, each component is classified into four different classes depending on the number of
sources. Ericsson then tries to understand the impact by looking at how long an accident will
affect deliveries. 1
[1] Norrman, A. and Jansson, U. (2004). “Ericsson’s Proactive Supply Chain Risk Management Approach After a Serious Sub-Supplier Accident.”
International Journal of Physical Distribution & Logistics Management, 34(5): 434-456.
7 Integrated Process to Manage Disruptions in Supply Chains

8. R2: Risk Quantification
 Each risk source is then quantified in terms of its influence on the
performance measures determined before and/or ranked according to
some pre-defined criteria. The quantification is mostly done by evaluating
two main risk dimensions –probability/frequency and severity- taking into
account the effects of any existing safeguards and mitigating actions.
 One Example:
To quantify the risk factors, Ericsson has developed a tool called Ericsson risk management
evaluation tool (ERMET). This system tries to combine severity(impact) and probability in a
risk map/matrix. But as calculating the “risk value” (calculated by multiplying impact and
probability) is not always easy - as the probability could be difficult to get and the value is not
always “understandable” to business people-, Ericsson is focusing on the financial impact when
assessing the risk. To get a financial value of the impact, the company calculates the business
interruption value (BIV). This value is defined by gross margin multiplied by the “business
recovery time” (BRT) plus extra costs such as idle capacity labor and equipment, inventory
carrying etc. Its aim is to also consider values such as lost goodwill. 1
[1] Norrman, A. and Jansson, U. (2004). “Ericsson’s Proactive Supply Chain Risk Management Approach After a Serious Sub-Supplier Accident.”
International Journal of Physical Distribution & Logistics Management, 34(5): 434-456.
8 Integrated Process to Manage Disruptions in Supply Chains

9. R3: Risk Evaluation & Treatment
 Based on experience, industry standards, benchmarks, or business targets ,
this step evaluates whether the risk quantified in the previous step is
acceptable. If not, additional control actions or treatment are required.
 The Risk Treatment might include mitigating actions (to reduce the
probability or severity of risk sources) or emergency/contingency
procedures/plans for the case of disruption happening. This step is
repetitive step and will continue checking different options until the risk
level is acceptable for the problem owner.
 One Example:
Sodhi & Lee present a list of risk-mitigation steps taken by Samsung Electronics. This list
includes several actions to manage the risk of different sources. For example to manage
“inventory risk”, Incentives for suppliers and for managers and global visibility are two major
taken actions. Some of other policies to handle other types of risk factors include flexible
capacity, having redundant suppliers for a bulk of its non-core components, and using
information technology to keep its supply chain from the plant to the end consumer
responsive and informed.1
[1] Sodhi, M.S., Lee, S. (2007). “An analysis of sources of risk in the consumer electronics industry”, Journal of the Operational Research Society 58 (11),
pp. 1430-1439
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10. R4: Risk Monitoring
 Once the risks have been deemed acceptable, SC operations proceed with
the appropriate safeguards and mitigating actions in place.
 The SC structure and operation do not remain stationary but changes
regularly due to, for example, new suppliers, new regulations, new operating
conditions, new products, etc. The risk management team should
continually monitor the SC for new risk sources and -if necessary-start
over from “Risk Identification” to consider the new risks arising from these
changes. It must also constantly monitor the level of risk for pre-identified
factors.
 One Example:
A supplier risk assessment framework for measuring, tracking, and analyzing supplier and part
specific risk over time for major US-based automotive manufacturer has been discussed by
Blackhurst et al. The proposed methodology calculates part and supplier specific risk indices,
can be used to analyze critical parts and suppliers to determine if and why they might be a
cause for concern, and allows part and supplier risk indices to be tracked over time to identify
trends towards higher risk levels. 1

[1] Blackhurst, J.V., Scheibe, K.P., Johnson, D.J. (2008). Supplier risk assessment and monitoring for the automotive industry, International Journal of
Physical Distribution and Logistics Management 38 (2), pp. 143-165.
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11. D1: Disruption Detection
 The first step in managing a disruptive event in SC is to detect its
happening as quickly as possible. Faster “Detection” gives more
time to an enterprise (and its SC partners) to handle “Disruption”.
 One Example:
A “real-time” tracking and analysis system helped Wal-Mart to see the surge in the demand of
US flags, lapel pins and other patriotic items after the September 11, 2001 tragedy.
Noticing this significant increase in the sales, world’s largest retailer immediately locked up all
the supplies they could find. On the evening of 9/11, the buyers at Wal-Mart had already
ordered all of the available flags in the supply chain. Other retailers like Kmart and Target
were slow to realize and respond and for a while, these items could only be found in Wal-
Mart stores. 1
[1] Pal N. and Pantaleo D. (2005) The Agile Enterprise, Reinventing your Organization for Success in an On Demand World. Springer-verlag.
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12. D2: Disruption Reaction
 After a disruption detected in SC, the first response is activating the
response plans and performing control actions that have been defined to
handle this type of disruption in “Risk Treatment” step.
 One Example:
As part of its contingency planning, Cisco not only identifies alternative suppliers for a
component, but also different components that could be substituted – and which customers
might be willing to accept products built with these substitutions.
Cisco’s business-continuity planning was put to the test when an earthquake disabled one of
its suppliers. Because it had already identified and planned for this exposure, Cisco was able to
shift to its secondary source and did not miss a single shipment.1
[1] Butner, K., (2010). “The smarter supply chain of the future”. Strategy and Leadership 38 (1), pp. 22-31
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13. D3: Disruption Recovery
 If pre-defined actions/plan cannot cope with full impact of disruption –or no
action has been defined for that specific disruption-, alternative solutions must
be considered, evaluated an implemented. This iterative process in which
disruption management options are implemented and improved frequently
(based on the feedback of their impact on managing disruption consequences)
must continue until SC gets back to its normal operation.
 One Example:
In March 2000, lightning caused a fire that shut down the Philips Semiconductor plant in
Albuquerque, New Mexico, for several weeks, leading to a shortage of components for Nokia
as one of the main customers. With a preliminary investigation, Nokia realized that the
disrupted supplies would prevent the production of some four million handsets. Nokia quickly
ascertained the availability of alternative sources for the parts. Three of the five affected parts
could be purchased elsewhere. But two of the parts came only from Philips or a Philips
subcontractor. To handle the situation, Nokia in its highest managerial level demanded Philips
to reroute its production in other plants and provide the parts. A Philips factory in Eindhoven,
and a factory in Shanghai worked to free up more capacity for Nokia’s needs.1
Moreover, Nokia quickly started redesigning the chips so that they could be sourced from
other locations.2 With the design change and intensive collaboration with its suppliers, Nokia
was able to meet its production target.
[1] Sheffi, Y., (2005).The Resilient Enterprise. Overcoming Vulnerability for Competitive Advantage. MIT Press.
[2] Lee, H.L. and Wolfe, M., 2003. Supply chain security without tears. Supply Chain Management Review, 7 (1), 12–20.
13 Integrated Process to Manage Disruptions in Supply Chains

14. D4: Disruption Learning
 After a company manages the disruption and gets back to its normal
operation, it might learn some lessons from this abnormal situation.These
lessons can be an update of its assessment of the risk of this disruption (in
terms of probability and expected severity), improvement in pre-defined
plans to handle this type of disruption or redesigning its SC to reduce this
type of risk in the system.
 One Example:
The fire of Philips plant in Albuquerque had its impact on another cell phones company,
Ericsson, as well; however, Ericsson neither had alternative sources nor was prepared and
adequately responsive to the accident. Consequently, Ericsson was not able to sell and deliver
one of its key consumer products during its booming “market window”. The company lost
many months of mobile phone production, and the accident finally had a great impact on
Ericsson’s decision to withdraw from the mobile phone terminal business.
Learning from that disruption, a formal SCRM organization has been put in place, and many

SCRM processes and tools have been developed and implemented. Today’s philosophy at
Ericsson is that “everyone is a risk manager”. 1
[1] Norrman, A. and Jansson, U. (2004). “Ericsson’s Proactive Supply Chain Risk Management Approach After a Serious Sub-Supplier Accident.”
International Journal of Physical Distribution & Logistics Management, 34(5): 434-456.
14 Integrated Process to Manage Disruptions in Supply Chains