The Rise of Networks as Market Goliaths

 

Airport hubs

Airport hubs an example of network economics in action

Many of the large companies that dominate world markets owe their strength and continuing growth to their underlying structure: a formidable network. Such networks have special economic characteristics which provide competitive advantage.

We are surrounded by networks: social networks, airline networks, highway networks, wireless networks, and numerous others. These entities contain points (“nodes”) connected by “links or “edges.”

Networks derive their strength from an interesting economic phenomenon known as the “network effect.” This is created when the addition of one element to the network (say a node or a member) improves the utility of all the network participants (nodes/members). In other words, any new element joining the community benefits the connectivity of the network as well as its member organizations.

Examples of the multiplier effect

Consider a telephone. By itself it has more value as a door stopper than a communications device; there is not much else you can do with it. However, if your significant other has a telephone and you are connected, both parties benefit from this two-way communication channel. The utility of the telephone comes from the fact that if it is ubiquitous, every person in the network can talk to each other (and teenagers do). In other words, every additional telephone connected to the network increases the ability of people to communicate.

Social networks are an obvious example of this effect. The first users of Facebook could possibly get some benefit from recording what they did that morning. But the real benefits come from the (still unexplained) deeply-rooted desire to inform others about mundane comings and goings, as more and more people join the network. As the community evolves, the next phase involves the creation of a political movement based on Facebook communications. Twitter and LinkedIn show similar growth trajectories; their value grows as the number of members increases.

Furthermore, networks create a competitive advantage and a barrier to entry. A competitor has to have a lot of money and time to build one. And the entity offers little value to users during its nascent development stage because the number of members is relatively low.

Other examples of networks include exchanges such as Match.com. In this case, as more men join the network more women become members, which attracts more men, etc. A growing population of sellers on eBay pulls in more buyers, which attracts more sellers, etc. Large networks grow because they are large. This basic network law even applies to college football. Despite its prowess, the University of Michigan football team would not attract a large following if there were no other teams to play against.

Finally, airlines provide an example of network economics. Not only do airlines try to serve multiple destinations thereby boosting the number of cities they cover, they also enter into mergers with other carriers to enlarge their networks and capture the benefits of scale and scope. Airlines also create alliances to extend their geographic reach.

The hub strategy

While the benefits of adding nodes (e.g. a city served by an airline, a person joining Facebook , an extra person with a telephone) strengthen a network, it is expensive to connect each node directly to all other nodes. To connect N telephones to each other directly, one would need ½∙N∙(N-1) connections. For, say, a million telephones, the number of connections will have to be some trillion lines. This is clearly not practical for the billions of phones in the world. Instead, the telephone system uses central exchanges to foster consolidation. Instead of ½∙N∙(N-1) connections between N phones, the central exchange needs to connect only to N nodes and thus the number of connections is only N+1.

Airlines use similar logistic in their hub-and-spoke systems. Instead of connecting every one of their origins with every destination via a non-stop flight, they use hubs. Airline travelers are painfully aware of this technique. The outcome is summed up in the well known saying about the world’s busiest airport: “When I die, I don’t know if I’ll go to heaven or hell, but for sure I’ll be changing planes in Atlanta.”

The more a network depends on physical connections the more it will use hubs to connect all the nodes in the network. For airlines, the result is higher utilization (higher load factors), better service as flight frequency increases, and the ability to serve small communities that cannot support point-to-point services.

Additional services

Once the network is in place, it can be exploited and monetized. Facebook created a revenue stream when it began accepting adverts, and LinkedIn followed a similar course when it introduced charges for job searches. Airlines charge for everything they possibly can, and, in particular, charge high fares for flights in and out of their hubs (where the frequency is high and the competition non-existent).

Microsoft Windows is an example of the direct network effects as well as the potential for additional services or indirect network effects. Once the organization became a standard across the corporate world, applications such as spreadsheets (Excel), word processing (Word), and presentation software (Power Point) became standard features with their own network effects “riding” on Windows. Similarly, once a smartphone operating system – be it iOS or Android – achieves a high enough number of users, developers write apps making the system more useful and persuading more people to use the system.

As mentioned, it is very difficult to compete with an established network by creating an alternative service. The Android operating system was successful only because Google distributed it for free to phone makers. Yet even Google with all its financial resources could not dethrone Facebook with the Google+ social network.

Physical networks exhibit the same degree of competitive strength. Take, for example, the UPS network. After building its worldwide network for over 100 years, UPS is offering logistics and supply chain management services on the back of its creation. The difficulty of competing with an existing network was clearly demonstrated when DHL entered the US domestic market in 2003 in an attempt to compete with the UPS (and FedEx) networks, only to exit in 2008 after suffering heavy losses.

Globe-spanning networks are here to stay. Having reshaped the markets in which they operate, these entities will surely continue to redefine the rules of competition.

This article can also be seen as a LinkedIn Influencer blog post.

Photo: J. Petersen, Wikimedia

A Real World Humanitarian Logistics Model

 

Floods in Colombia caused widespread damage

Floods in Colombia caused widespread damage

When a disaster such as a flood strikes, the response can be chaotic as various agencies and sources of supply converge on the stricken area. A humanitarian logistics model developed by the Center for Latin American Logistics Innovation (CLI) improves the efficiency of response efforts by taking a holistic view of these operations.

CLI researchers are now refining the model by allowing for social factors such as the influence of activist groups on relief operations. The new work is being carried out in collaboration with Antioquia University, Colombia, University of California, Davis, US, and an independent field expert in Colombian conflict zones.

The current model is driven by the need to minimize three critical features of relief operations: evacuation flow-time, distribution flow-time, and total cost.

“These elements are often managed separately rather than holistically, which gives sub-optimal results. We can use the model to take all relevant factors into account, and help relief agencies to respond more effectively to frequent disasters such as floods,” explains Christopher Mejia, Postdoctoral Associate at CLI. He worked with researchers from Tecnologico de Monterrey, Mexico, Malaga University, Spain, and Complutense University at Madrid, Spain, to develop the model.

Each essential component of a relief effort is built into the model. These activities include aid distribution, evacuation procedures, locations of emergency facilities such as distribution centers, meeting points and shelters, and pre-positioned stocks of supplies.

Another key component taken into account – and one that can be overlooked by aid agencies – is the vulnerability of specific locations. This is especially important in floods where low points in a city, for example, are more prone to flooding than locations on higher ground. Logistics networks can be severely disrupted if critical facilities such as hospitals, shelters, and infrastructure are located in these high-risk areas. The model incorporates a geographic information system that simulates outcomes like these.

A case study based on a catastrophic flood that struck the city of Villahermosa, Mexico in 2007 provides a real-world application of the model. The waters reached a height of some four meters in low-lying parts of the city, affected 160,000 people, and caused $700 million worth of damage.
A total of 129 disaster zones were evacuated during the crisis, and the operation utilized 244 shelters and one distribution center. There were 500 nodes in the logistics network.

Other characteristics of the operation that were used to test the model include the following.

  • The spatial distribution of facilities. This has a major impact on evacuation and supply operations.
  • The number of facilities and extent of available relief resources, both of which tend to be lacking in a disaster of this magnitude.
  • Costs in terms of what resources were required on the ground and the assigned budget for the response program.

The model significantly outperformed the government response program across all of the factors considered. There were also a number of important findings from the analysis. For example, as spatial distribution increases, shelter utilization rates and the number of active meeting points increases. Also, maximum evacuation and distribution flow times decrease as the number of facilities increases.

The next step is to incorporate social factors into the initial generic model to align it even more closely with real-world crisis situations.  Existing research on how social environments can shape logistics networks will be used, says Mejia.

For example, when a disaster alert is issued, people in some communities tend to ignore evacuation measures, preferring instead to stay and rely on their social networks to survive the crisis. This behavior pattern affects the extent to which shelters and other amenities are needed as well as evacuation flows. In order to counter these choices, responders need to build trust and perhaps educate local populations on the wider implications of their decisions.

The presence of political extremist or criminal groups is another social factor that can be taken into account in some countries. In Colombia, for example, FARC (Revolutionary Armed Forces of Colombia) is such a group. Extremists can impede the flow of relief supplies by stealing goods and stopping trucks. But their actions vary according to each group’s mission and strategy. In cases where they have strong local links they might actually assist in relief efforts, particularly if recognized organizations such as the United Nations and the Red Cross are involved.

Social influences like these affect important logistics decisions, including where to locate large distribution centers and how to deliver urgently needed supplies to end users. “And the flow of aid can change according to the nature of local conflicts and the way activist groups behave,” says Mejia.

The research team plans to complete the conceptual phase of the project in about six months, and if funding is in place, will begin collecting data in the field.

For more information on the project contact Christopher Meija at cmejia@logyca.org.

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How Superior Sales Samples Can Unlock Supply Chain Gains

The process for creating product sales samples can be something of an afterthought in the consumer packaged goods (CPG) industry. Yet improving this specialized supply chain can streamline new product introductions; a significant competitive advantage given the sheer number of product launches in the industry.

The MIT CTL researchers developed a method for using 3D printing technology to produce plastic injection molds quicker and at a lower cost. These molds can then generate a small number (up to 100) of high-quality sales samples much sooner than traditional steel or aluminum molds thus speeding up time to market.

In response to competitive pressures, a leading consumer packaged goods (CPG) manufacturer increased the number of product launches threefold and halved the amount of time taken to get the products to market. A year before each launch, the company would present sales samples (product mock-ups) to their largest retail customers in order to estimate demand and explore the shelf configurations required for the new items.

Capturing more accurate demand data and reducing the time spent in consumer testing represents a huge opportunity for CPG firms. Also, more reliable information on the potential for new products helps to persuade executives to support these projects.

Sales samples are usually made by an injection molding process that has long lead times and high costs, particularly when multiple iterations of the product are needed. Also, the 2D samples produced do not always provide a good representation of the final product.

The researchers devised a “pre-unit tooling process” which is an intermediate phase introduced between the primary package design and initial consumer feedback stages of the production process. Using 3D printing to make the initial molds, the new process supplied 10 to 100 shelf-quality product samples.

These high-quality sales samples lead to more accurate demand predictions, and offer more flexibility by enabling the company to solve design issues earlier in the overall launch process. Some of the test steps can be completed sooner or in parallel with other activities on the critical launch path. The 3D-generated molds can handle injected plastics that are already being used in production, thus qualifying the samples as test subjects. Streamlining the sequence of tasks in this way shaved 14% to 26% off product development timelines. The CPG firm was able to launch a product one full sales season earlier than planned by using samples from 3D-generated molds.

More accurate consumer feedback also reassures executives, and helps companies to avoid costly design freezes caused when senior managers lose faith in a new product and stall its development.

As 3D printing technology advances, the benefits of the new process will increase. For example, future printers will create more durable molds with the capacity to supply thousands of high-quality samples.

For further information on the research contact Dr. Bruce Arntzen, Executive Direcbtor, MIT Supply Chain Management Program, at: barntzen@mit.edu.

This article was published originally by Supply Chain Management Review 

Logistics Hubs as Drivers of Innovation

A European initiative aims to foster collaboration between companies in logistics clusters. Pictured is the Grupo Carreras facility in the PLAZA logistics park near Zaragoza, Spain.

A European initiative aims to foster collaboration between companies in logistics clusters. Pictured is the Grupo Carreras facility in the PLAZA logistics park near Zaragoza, Spain.

A European Commission (EC) initiative called Horizon 2020 – 2105 Smart, Green and Integrated Transport will facilitate collaboration between logistics clusters on developing supply chain solutions, particularly projects that promote environmental sustainability. In addition to helping companies bring new ideas to fruition, the initiative gives academic centers such as the Zaragoza Logistics Center (ZLC), Zaragoza, Spain, an important supporting role in unlocking the collaborative potential of these hubs.

Key players came together at the first European Logistics Clusters Forum, on October 14 -15, 2014, in Brussels, Belgium, to explore their possible involvement in the initiative. The bidding process is expected to begin early next year and run until the last quarter of 2015. The EC is providing some €18 million (about $23 million) of funding for a single large project on pan-European logistics applications.

Much effort has already gone into developing logistics clusters in Europe. For example, the Cluster Association of Innovative Logistics of Aragón (ALIA) in Spain was created by ZLC, the Aragón Institute of Technology, Aragón’s Council of Chambers of Commerce, and the Foreign Investment Office of the Government of Aragón. ALIA’s main purpose is to build on the success of PLAZA – Europe’s largest logistics park located near Zaragoza, Spain – by identifying and developing opportunities for logistics research and new alliances, and to promote the region of Aragón (for more on ALIA see the article How to Harness the Economic Power of Logistics Clusters, Frontiers fall 2013).

The creation of clusters such as ALIA involved academia, government and industry. The EC 2015 Cluster Excellence Program is driven by industry only, explains Carolina Ciprés, ZLC Director of Research Programs.

“The aim is to continue the collaboration but at a cluster level, with the participating companies developing their own action plans,” Ciprés says.

Specific plans will emerge during the bidding phase, but an example could be a project to improve the use of synchromodal transportation in Europe (where logistics service providers choose the transportation options for delivering products on behalf of shippers) says Ciprés. Countries such as the Netherlands have well developed options for road, rail, and waterway intermodal links. In Spain, however, there are relatively fewer rail options, and the challenge is to persuade rail operators to expand the number of services for shippers. It’s a chicken-and-egg problem; shippers will not provide the cargo until operators guarantee the rail capacity, and vice versa. Perhaps regional logistics clusters can collaborate on supplying the freight volumes that justify new rail services, and convince terminal operators to supply more origins and destinations. With the capacity in place, shippers and logistics service providers would be better able to make real-time decisions on the optimum intermodal routes for their cargoes.

The sharing of carrier space – called horizontal collaboration – represents another opportunity for improving the efficiency of freight operations while also reducing transportation’s carbon footprint. This type of collaboration is very difficult since it requires companies, including competitors, to pool cargoes and exchange information on relevant freight operations, thus requiring the involvement of a neutral party (or trustee). Cooperation between companies in logistics clusters could provide a collaborative platform for sharing carrier capacity over the last mile.

Although ZLC will not be directly involved in the 2015 Cluster Excellence Program, the Center will provide critical support for the participating clusters in the Aragón region.

“We will try to involve the clusters in our applied research and also in our proposals for research projects in Europe,” says Ciprés. ZLC can also offer advice on potential projects and help to demonstrate the impacts of projects that the clusters choose to pursue.

At the same time ZLC will benefit from its exposure to real-world logistics projects, and can incorporate the lessons learned into its educational and research programs. This two-way exchange will help ZLC to identify subjects for future research.

“This market-oriented approach to collaboration across logistics clusters will benefit companies as the main participants, and give academic centers such as ZLC more visibility in our regions,” says Ciprés.

For more information on the European Commission 2015 Programs contact Carolina Ciprés at ccipres@zlc.edu.es.

This article was published in the fall 2014 issue of Supply Chain Frontiers. Subscribe for free to Frontiers here.

Wanted: Innovative Responses to a New Security Threat

It is now possible for cybercriminals to take control of a vessel's GPS system

It is now possible for cybercriminals to take control of a vessel’s GPS system

The recent cyber attacks and security breaches at Target and Home Depot drew executives’ attention to the vulnerability of their companies to this type of crime. The incidents exposed some 40 million and 56 million credit cards respectively, and in the case of Home Depot, occurred despite the company’s best efforts to protect the firm.

What has this to do with supply chain management? The answer is a great deal. One of the main types of supply chain innovations (SCI) entails challenging the dominant design. In this case, that means challenging the prevailing method for supply chain security in response to the cyber security threat.

High-profile breaches such as the ones cited above have spotlighted cyber security, but awareness of the actual risks involved is still relatively limited.

This is especially true with regard to the flow of information that parallels the flow of materials, and powers all supply chains. These information streams include product details, logistics data, and customer information, as well as facts and figures on factory and retail operations and financial management.

The signs are there if we look at recent incidents and imagine the potential implications for supply chains. Here are three examples to consider.

  • After being dismissed by his employer, a wastewater plant employee in Australia hacked into the organization’s plant operations remotely and altered fluids flows resulting in a sewage release into the public waterways.
  • Just a few months ago the Zombie-Zero malware attack was discovered in several logistics and robotics firms. It had been active inside the organizations for more than one year, and was being used to observe and track conveyances on their logistics journey. The malware was found in scanners that were used by each of the firms, and was apparently embedded in a Chinese supplier’s facility. Sadly, software updates provided by the manufacturer failed to rectify the vulnerability.
  • A study on ocean-going vessels showed that clever adversaries have already figured out how to take control of a vessel using the GPS system.

These examples illustrate how attackers are capable of gaining access to internal systems to not only steal operational information that drives the supply chain, but also to control the targeted operations.

Current defenses against attacks like these are based on dominant designs for security systems. What are these models?

The dominant design for protection in the supply chain domain involves physical site security for material flows and/or conveyances. But, physical measures are of little use where cyber crimes are involved. Many of the IT systems that underpin information flows are protected by password systems, but invariably these are not very robust

There is also a dominant design for responding to supply chain security breaches. This often entails a lengthy process that starts with chartering a committee to investigate, develop, and implement a solution. The process tends to proceed relatively slowly, however. For example, Home Depot responded speedily after learning of the Target breach, but their efforts to inspect, detect, and protect were not fast enough to outpace the attackers. Companies often lack the in-house tools and resources to properly evaluate their vulnerabilities, much less respond quickly.

There are also some perceptual barriers to more effective responses. Most supply chain organizations view cyber security as an IT concern. The assumption makes sense given supply chain’s traditional focus: efficiency and effectiveness in sourcing, producing, and delivering to demand, while collaborating with upstream and downstream partners.

Ironically, however, it is these activities – enabled by integrated IT systems – that make the supply chain prone to cyber attacks. But companies have not yet learned that the threat to our systems through IT is as great as any other potential disruption.

Today, cyber adversaries not only destroy information, they can commandeer systems and use them to distribute weapons and contraband. They can engage in human trafficking or turn your business into a conduit for malware and further cyber attacks. And they are in the business of aiding and abetting the theft of cargo and competitive intelligence, and doing damage by altering information on customers and shipments.

Cyber criminals include professional gangs, business competitors, ‘hackvitists’ and nationalists intent on disrupting commerce for profit and political gain. Moreover, for every $1 that a hacker spends attempting to break into your system, the firm must spend $100 to defend itself. As a result, most firms have already lost or are losing the battle to prevent illicit access to their systems; the bad guys are already inside.

The dominant design for supply chain security decision-making and response must change if organizations are to have a chance of keeping pace with the cyber security threat.

This post was written by Jim Rice, Deputy Director, MIT CTL (jrice@mit.edu), and based on his Innovation Strategies column in the November 2014 issue of Supply Chain Management Review  

 

When the Heavy Hand of Government is Not a Burden

Responding to large-scale crises such as the Ebola outbreak requires government resources

Responding to large-scale crises such as the Ebola outbreak requires government resources

I’m no fan of Big Government, but there are some cases where a system-wide view is much more efficient than a localized, distributed view. An example in the supply chain space is US maritime policy. A broader, and more topical example, is managing the Ebola crisis.

Americans have an almost visceral dislike for large, centralized government, and for good reason. Who wants to rely on the feds to provide local services such as trash collections or trust the authorities to spend local tax revenues wisely?

But like it or not, large-scale management challenges often require large-scale government.

In the maritime example I cited above, the lack of a centralized management strategy for our nation’s port system puts us at a competitive disadvantage. One manifestation of this problem is that multiple ports on the east coast are deepening their approach channels in order to attract bigger cargo ships. The widening of the Panama Canal to enable larger ships to pass through the trade artery will generate this traffic. However, not all US ports will benefit from the Canal’s expansion, and at this point deciding which east coast facilities will gain (if any) is something of a lottery. As a result, huge amounts of investment dollars that could be put to better use, such as funding urgently needed infrastructure projects, will be largely wasted.

There are many other areas where a centralized strategy is needed. Imagine the chaos that would ensue if every state in the US had its own air traffic regulations or currencies, for instance.

The Ebola outbreak is another case in point. Responding to a crisis on this scale requires the resources and system-wide scope of national government. The results of combating the virus via a patchwork of local responses can be disastrous.

We have a glimpse of such an outcome courtesy of the states of New Jersey and New York. These states imposed strict quarantine requirements for travelers arriving on US shores from West Africa, even when the individuals show no signs of contracting Ebola. Such hastily introduced local measures are ultimately counterproductive, and don’t work anyway. What is to stop individuals from using other gateways in the region such as Baltimore or Washington DC to enter the country? And by protecting their own citizens, are NJ and NY putting the populations of neighboring states at greater risk (as well the citizens of and NJ NY)?

My colleague Dr. Jarrod Goentzel, Director of the MIT Humanitarian Response Lab, has identified other, supply chain related, problems caused by local knee-jerk reactions to the crisis (for more on this read his Humanitarian@MIT blog post Travel Bans and Stockpiling Can Cripple the Ebola Response Supply Chain).

An issue he highlights is how the local hoarding of personal protective equipment (PPE) that is critical to health workers can seriously disrupt national and international relief programs.

As the demand for PPE has soared manufacturing capacity has become constrained, and some distributors are citing supply concerns. The situation is exacerbated by local stockpiling. The State of Ohio, for example, is buffering its PPE inventories, for example.

Fighting the Ebola outbreak requires coordinated planning and prioritization. Two international organizations took the early lead in matching PPE supply and demand. Médecins Sans Frontières has led Ebola treatment on the ground in West Africa from the beginning, determining the standards for care and health worker safety and quantifying needs. The UN agency UNICEF is coordinating with key suppliers. Manufacturers have responded to these efforts by stepping up the production of PPE.

However, a few more high-profile cases could rapidly escalate stockpiling efforts in the public and private sector and across geographies, points out Goentzel. With manufacturing already running at peak capacity, supplies may begin to fall short.

Supply chain professionals know that risk pooling – where vital global inventories are co-managed as a common resource – is critical in maximizing the impact of a scarce commodity. For example, if Ohio is stockpiling PPE and Arizona gets hit with Ebola infections, Arizona may not have enough resources to fight the virus, putting the state and all other states – including Ohio – at risk. Under risk pooling, resources from central inventories flow to the region most in need to nip the outbreak in the bud.

As an alternative to stockpiling locally, decision makers in the public and private sectors should consider a pooled procurement process, says Goentzel. The effort should be led by the World Health Organization consulting with health departments in affected countries that allocate stocks to health workers most at risk.

Again, the message is clear: the Ebola outbreak is so wide-ranging that governmental organizations with the resources to combat the virus globally need to be in the front line.

That doesn’t mean we should give these organizations a blank check; there has to be accountability. And they need to be effective, a lesson that we learned recently in the US.

The United States Centers for Disease Control and Prevention (CDC) is spearheading the American response to the Ebola virus. But in the early days of the crisis the CDC’s credibility was damaged by an inept response and the lack of a well-defined strategy for dealing with the situation. The situation was exacerbated by conflicting messages from the White House.

The lesson is that while governments are indispensible in large-scale emergencies, they also have to be credible. If they are not, local authorities will take the initiative, and who can blame them?

Photo: U.S. DoD, Army Sgt. 1st Class Tyrone C. Marshall, Jr.

This article was originally published as a Yossi Sheffi Linkedin Influencer blog post

Visualizing Supply Chains in Distress

There is no better way to show the impact of major disruptions on supply chains than to convey the level of risk involved through a clear, impactful, visual device.

MIT CTL researchers Ranjana Mary Ninan and Christopher Sean Wang created such a device for their SCM Program thesis Visualizing and Quantifying Global Supply Chain Risk . They collaborated with two service providers, Sourcemap and AIR Worldwide, to develop an interactive mapping tool that evaluates operational risk, and flags the relative importance of key suppliers and manufacturers to the integrity of a supply chain.

A broader view

As the tsunami that devastated parts of Japan in 2011 and dislocated supply chains worldwide underlined, companies need to be better prepared to respond to a widening array of potential disruptions.

But persuading managers, and notably procurement professionals, to build supply chain risk into their decisions can be an uphill battle. Often procurers are so tightly focused on purchasing costs that they ignore how even low-spend components can incur high financial penalties if supplies are interrupted. A visual representation of the risks is a powerful way to educate procurement managers on the broader implications of their decisions.

Mapping the risks

The company that sponsored the research provides specialized diagnostic, measurement, and other industrial tools. The research team collected data on the bill of materials and suppliers for four products, and other information including the revenue associated with each tool and recovery times in the event of disruptions.

A world map of the supply chain for each tool was plotted, with colored nodes depicting suppliers, manufacturers, and distributors. Details such as parts numbers and the number of components sourced can be retrieved by clicking on a node.

Heat maps show the relative importance of each node in terms of two measurements. The Risk Exposure Index (REI) reflects the revenue to be lost during the recovery time to replace a disrupted supplier. Value at Risk (VAR) is the REI adjusted to account for the probability of a disruption caused by a weather event.

More informed decision-making

By aggregating internal supplier data and adding REI and VAR indices, the team created an interactive, global map of the company’s supply chain. A dynamic zoom-in feature yields more data about each node, and the data can be filtered in a number of ways, for example by component part number.

The tool enables procurement professionals to instantly assess the financial and operational costs involved when specific supply chain nodes are disabled. Also, since the risk profiles are ranked by color, it is easier to make decisions about risk mitigation strategies such as dual sourcing and introducing extra inventory. Each node shows the revenue at stake in the event of a disruption.

This visual representation of a supply chain’s vulnerabilities highlights hidden risks, and helps procurement professionals to build risk management into the supplier selection process. Also, with the benefit of the tool, purchasing departments can be more sensitive to warnings such as weather alerts, and better positioned to take preemptive action to mitigate the negative impacts of impending disruptions.

Importantly, the mapping tool is expected to yield significant financial benefits by making the supply chain more resilient and maintaining the organization’s revenue base in crises situations.

This article is part of a series of SCM Program thesis summaries published by Supply Chain Management Review

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