Severity of Supply Chain Disruptions
We already know that supply chain disruptions can be quite costly, and have not only direct but also indirect effects (eg. on stock prices). So do all supply chain disruptions have the same effect on the focal company? Of course not, but what are the driving factors that influence the impact?
In their conceptual note Craighead et al. (2007) analyse the factors of the impact supply chain disruptions.
As many companies, the authors take the view that supply chain disruptions are inevitable and at some point in time some part of the supply chain will fail. The important question therefore is:
How and why one supply chain disruption would be more severe than another
To answer this question the following methods are employed, to get an holistic image of the relevant factors.
Analysis of the supply chain and interviews with managers from different firms within the supply chain
- Semi-structured Interviews
Interviewing experts from different industry sectors
Refinement of the results found in the first two phases
As a result the following supply chain design characteristics which influence the severity of disruptions have been found:
- Supply Chain Density
SC density corresponds to the geographical spacing of nodes within a supply chain. The severity of a supply chain disruption within a supply chain appears to be positively related to supply chain density.
- Supply Chain Complexity
The authors propose that disruptions to complex supply chains are more severe than disruptions to relatively less complex chains.
- Node Criticality
This refers to the importance of a node for value creation. And the authors propose that a disruptions of more critical nodes will very likely be more severe.
Furthermore the following supply chain mitigation capabilities were found to influence supply chain disruption severity:
- Recovery Capability
Can be defined as the coordination of supply chain resources to return the SC to a normal and planned level of product flow. Obviously, a supply chain with a greater recovery capability should experience relatively less severe disruptions.
- Warning Capabilities
This is the capability to (early) detect a disruption and distribute the information within the supply chain. The proposition here is that the severity of disruptions is decreased by better warning capabilities.
The authors explain the reasoning and evidence for each of their propositions and they have been very careful describing their results, using words like “[SC density] appears [to have an effect]”. This is very necessary!
Even though the author employed various methods, there is no method which improves the statistical significance of the sample. So, the methods are used to support theory building and not theory testing.
On the other hand, this does not reduce the validity of the theory, but further testing will be needed.
Craighead, C.W., Blackhurst, J., Rungtusanatham, M.J., & Handfield, R.B. (2007). The Severity of Supply Chain Disruptions: Design Characteristics and Mitigation Capabilities Decision Sciences, 38 (1), 131-156