Using business complexity to handle supply chain risk: Dealing with borders of cargo liability (CORE1209)

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Summary: The dominant part of the academic literature on supply chain management assumes that decisions are based on objectivity, determinism and rational choices. They consider seldom complexity of the networks and casting defects that are due to deviating organizational structures and information systems. In order to manage complex risks companies may be willing to make decisions that reduce their own risks at the expense of other supply chain partners. That is an old maid game. The paper presents two cases, where logistics actors confine one-sided own liabilities instead of reducing risks in the whole network. The paper can be viewed here: http://www.intechopen.com.

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Full review: Rational reasoning and responsibilities stated in agreements and contracts are assumed to create baseline for decisions in supply chain management. If contracts do not give clear answers, we assume partners can be brought into a fair and impartial agreement.  In general, cooperation and information sharing are seen to produce long-term benefits for all stakeholders. These assumptions hide situations where logistics partners are prone to make opportunistic and subjective decisions.

In real life managers must be able to dynamically adapt logistics processes to unexpected harmful events, last-minute changes and rearrangements with very limited information about the situation and consequences of their decisions. One-sided simplifications are natural responses to reduce responsibilities of the company. The paper presents two cases where logistics risks are transferred at the expense of other supply chain partners. In the first case logistic company implements a camera surveillance system in own warehouses in order protect the company against inappropriate security claims (e.g. due to damages during transportation). In the second case a leading wholesaler creates strict rules how suppliers are allowed to deliver shipments in warehouses and how the wholesaler penalizes non-compliant deliveries. In both cases risk transferring strategy leads old maid game, not to mitigation of overall supply chain risks. The strategies may even increase risk and reduce motivation to collaborate in the supply chain network.

The paper illuminates possible unexpected and unwanted outcomes in the CORE project. Simplifications and narrow approaches are known to reduce supply chain resilience. First, they may lead to the loss of crucial information. Second, partners may be prone to pay more attention to own tasks and less to interdependencies with other partners. The CORE work packages that produce only technological solutions to meet minimum legislative data sharing requirements are vulnerable to the risk. The same vulnerability concerns organizational designs, where a focal company acts as a supply chain orchestrator and defines one-sided technical specifications for other trading partners. The comprehensive approach would increase visibility in the whole end-to-end supply chain and increase motivation for collaboration between partners.

Reference: D. Ekwall, F. Nilsson, 2008 “Using business complexity to handle supply chain risk: Dealing with borders of cargo liability”. In proceedings of Nofoma 2008, Helsinki

 

CORE1209

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Managing the Unexpected – Sustained Performance in a Complex World (CORE1208)

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Summary: The book highlights characteristics of organizations that are capable to improve efficiency and manage their risk in challenging operative environments. According to the writers these high reliable organizations pay especially attention to small failures, real-time operations, alternative pathways to keep going and mobilization of expertise. The book presents how quality and continuous improvement philosophy eroded in manufacturing company causing a recall of 10 million vehicles and how they recovered from the crisis. The book can be purchased here www.wiley.com.

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Full review: Logistics networks are prone to disruptions and inefficiencies due to inconsistencies in organizational structures and cultures, human nature to searching simplified answers to complex problems and lack of collective commitment and competence necessary to sustain performance under trying conditions. The book describes characteristics of mindful organizations that are capable to perform reliably in complex environment. These organizations have unique culture, capabilities for self-design, networks build on expertise, hybrid structures with special attention to redundancy and continuity, special training and routines to maintain situational awareness, mind-sets to make sense out of emerging patterns, relational strategies to adapt to local environment and efficient information processing.

The CORE project aims at utilizing real-time data in order to increase visibility over movements of shipments. This is expected to improve abilities to re-plan resources if required due to detected risks or unexpected disruptions. The paper give advises how to create an infrastructure that supports sense making, continuous organizing and adaptive management in complex environment. The infrastructure make possible to convert observations of anomalies into explicit event types, categories, routines, instructions and roles. During the process abstract management concepts get refined organization specific meanings. However, sense making, continuous organizing and adaptive management prerequisite honesty and transparency in reporting and willingness to base actions on them. Besides, observations must be integrated into reports without underestimating or belittling observations that have no immediate explanations. The book can be used as user manual how organization can make most use of new data in order to respond earlier and adapt to unexpected situations.

The CORE project itself is a complex project comprising over 60 partners, 22 work packages and hundreds of interrelated tasks. The CORE management pays special attention to ensure sustained performance. First, consortium members work with concepts that enable them to cluster observations from real-time case and identify emerging patterns (sustained awareness). Second, partners have a variety of technological and operational expertise from academic, governmental and private sector. Respectful interaction and heedful interrelating support creation of shared understanding in non-obvious cases and their explanations (sustained surfacing). Third, ambiguity is implicitly or even explicitly acknowledged and accepted to be part of the project. However, ambiguity does not stop the work. It is an active part of problem solving (sustained organizing). Forth, when the CORE demonstrations progress, new details and nuances are discovered. Concepts and case studies are continuously updated (sustained updating). Fifth, tasks and problems are ambiguous, that creates often discomfort among partners. That creates a strong propensity to simplify problems and find or even create traditional solutions. CORE Management team avoids making rigid decisions, but they give directions, which by definition are dynamic, open to improvement, self-correcting, responsive and transparently reasoned (sustained agency). Sixth, human beings tend to simplify their interpretations and underestimate how much crucial information is then lost. In addition, we tend to pay more attention to own tasks and less to interconnected tasks of other partners. CORE partners are experienced to align tasks in a way that they maximize common good (sustained variety). Seventh, the CORE project highlight continuing adaption that reduces need to make radical changes. The CORE management team encourages partners to update their conceptions through paying closer attention to demonstrations. Bsides, management team facilitates respectful interaction through workshops.

Reference: Weick, Karl E. & Sutcliffe, Kathleen M. (2015). Managing the Unexpected: Sustained Performance in Complex World. 3rd Edition.

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Assessing the drivers of change for cross-border supply chains (CORE1205)

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Summary: This paper explores the main global change drivers and how they impact on international supply chain management in the next two decades. The Delhi method is adapted to structure communication, to produce well-grounded opinions and counter-arguments, and to find consensus among selected experts. The results highlight efficient networking and business-to-business and business-to-government collaboration as core supply chain management competences. The paper can be viewed here: http://www.emeraldinsight.com.

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Full review: The study aims at identifying the main change drivers that make companies to prioritize specific indicators and metrics in order to manage their operations. The experts concluded to the following eight key drivers: internet and e-commerce, new technologies for managing movements of goods and materials, versatility of customer demands, continuing chase after low cost labor in manufacturing, tighter security regulations, emerging role of ethics in corporate decision-making, increasing security and environmental concerns, and fluctuation of energy prices. Delivery performance and perfect order fulfillment will be the most important supply chain management indicators and metrics in the future. Customers will demand more tailored products to meet their individual needs what forces companies to manage material flows with an increasing number of stock keeping units.

While companies are required to offer wide product portfolio, they are also expected to have tools to manage harmful events and risks in their supply chain network. Unforeseen threats such as natural disasters, epidemics and customs inspections must be considered when structuring supply chain networks and selecting partners in the future. Consequently, companies must share more supply chain risk related information between business and governmental actors almost in real-time.  Automated data management with streamlined system interfaces between customs and companies will be the key for real time information sharing and networking. Current data exchange and compliance initiatives have already created a foundation for automation and faster flow of customs clearance documents. In addition, better relationship management between trade operators and customs are highlighted in the study.

The CORE concepts, technologies and services are very well aligned with findings in the study. Trusted trade lanes, system based approach and data pipelines reduce need for customs inspections at international borders. Visibility tools create an integrated solution to share information and collaborate between government agencies and privates supply chain stakeholders. Over 40 experts representing customs agencies, manufacturing companies, logistics operators, technology providers and insurance sector took part in the study. The study provides good arguments that help readers to sell supply chain security initiatives, technologies and services for both private and governmental operators.

Reference: Hameri, A.-P., & Hintsa, J. (2009). Assessing the drivers of change for cross-border supply chains. International Journal of Physical Distribution & Logistics Management, 39(9), 741–761.

 

CORE1205

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Progress in combating cigarette smuggling: controlling the supply chain (CORE1203)

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Summary: The paper presents cases how government agencies have reduced illicit tobacco trade by making the industry liable for controlling their supply chains. Tobacco companies were required to monitor the movement of lawfully manufactured tobacco products in their supply chains, and even retrospectively track the route taken when products were seized due to suspected excise fraud. According the paper illicit trade was substantially reduced, if manufacturers stopped delivering lawfully manufactured tobacco products in amounts that exceeded the tobacco market in the countries with lower excise duties. The criminal market dried out due to unavailability of illicit tobacco products that had been smuggled to the countries of higher excise duties by organized criminal groups. The document can be viewed at: http://tobaccocontrol.bmj.com.

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Full review: The paper focuses on excise fraud and organized smuggling of originally legally produced tobacco products to the United Kingdom, Spain and Italy. Based on internal company documents and court judgments the authors summarize evidence how the tobacco industry was involved directly and indirectly in the large-scale excise fraud. First, the companies delivered intentionally large quantities of tobacco products to the countries of low excise tax rates and uncontrolled distribution network. Then organized criminal groups shipped the purchased tobacco products illegally through their smuggling networks into the countries of higher excise duties.

The cutting off the tobacco supply to the illicit market is the key to intervene in large-scale organized tobacco smuggling. According the article by means of legislative and punitive interventions tobacco industry was forced to implement new export polices and practices. Tobacco companies invested in tracking and tracing systems that helped to identify points where shipped tobacco products diverted from the legal supply chain to the illicit markets. The companies implemented security processes in order to clearly identify they business partners and ensure business partners had no criminal records. Government agencies increased information sharing and inter-agency cooperation on a national and international level.  The interventions led to a substantial fall in customs seizures and a rise in legal sales.

CORE project can learn two things in the article. First, the global scope and multifaceted nature of the illicit tobacco trade requires visibility over shipment processes and efficient collaboration between governmental agencies and private sector. Second, the study implies risk to investigations and punitive damages made tobacco companies to pay attention in which markets their products finally end up. In other words, enforceable measures not voluntary agreements made industry liable for controlling their end-to-end supply chain and reduce societal risk.

Reference: Lara Joossens, L., & Raw, M. (2008). Progress in combating cigarette smuggling: controlling the supply chain. Tobacco Control, 17(6), 399–404.

 

CORE1203

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Conflict resolution in supply chain security, 2009 (CORE1202)

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Summary: The paper presents a mathematical tool for conflict resolution based on conflict modeling theories. Decision and policy making on supply chain security is sensitive to technical, political, environmental, ethical and economical aspects. What aspects are emphasized depends on whom we ask. Consequently, broadly endorsed decisions and policies require balancing between these dimensions.  The presented conflict resolution approach identifies involved decision makers, their individual and collective goals and gives options how to agree on security interventions. A case study on trade facilitation and security enforcement illuminates the approach. The article can be purchased at: http://www.inderscienceonline.com.

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Full review: Conflicts are preprogrammed in supply chain security management, because different operators such as customs, port authorities, manufacturing companies, logistics providers and financial institutes collaborate with conflicting goals. For  example, a purchasing manager can be interested in ordering products manufactured in high-risk country due to lower cost while security manager might assess risks related to the seller exceeding the potential benefits. Port operation manager aims at loading and unloading cargo swiftly and safely to and from vessels under time pressure, while port security dislikes the idea of expediting shipments at the cost of inspections. Supply chain security is a multidisciplinary issue that can be addressed efficiently only through agreeing about decision-making and policy-making mechanisms.

The paper focuses on resolution of strategic conflicts that result from the interaction of different stakeholders that collaborate with different emphases in global supply chains. The approach enables conflicting parties to focus on critical aspects of the conflict resolution process. It identifies the roles of involved decision makers, individual preferences and collective goals, underlying causes of conflict and options to achieve conflict resolution. In other words, it provides bases for cooperation and collaboration between involved parties. In addition, the paper introduces a mathematical tool for conflict resolution based on conflict modeling theories.

Decision supporting tools and port security management systems are developed in the CORE project, but they do not take into consideration possible conflicting goals in the decision-making. The CORE technologies and tools assist to mitigate identified negative threats and their consequences. However, negative effects have a threshold that must be exceeded to make different actors convinced about necessity of mitigation actions and controls. For example, estimated 0.2% annual profit loss due to possible security breach may give or not a reason to risk-profile suppliers or invest in container tracking systems. Especially when the questions are more strategic than operational the related decisions are prone to have conflicting interests. The CORE project does not try to address this problematic.

Reference: Lara Gracia, M. A., & Nof, S. Y. (2009). Conflict resolution in supply chain security. International Journal of Value Chain Management, 3(2), 168–186.

 

CORE1202

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The effect of supply chain security management on security performance in container shipping operations, 2012 (CORE1201)

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Summary: The study creates a supply chain security framework that can be adapted on assessing how security management measures affect on safety and customs clearance performance in container shipping firms. Security management interventions are clustered in four categories: facility and cargo management, accident prevention and processing, information management, and partner relationship management. Findings indicated that container shipping firms that mainly focus on facility and cargo management and less on partner relationship management are generally more dissatisfied with their company’s customs clearance performance than companies that prioritize partnerships with governmental and commercial companies. The governmental agencies and commercial actors can employ supply chain security management framework, its attributes and dimensions in order to assess the supply chain security performance of container shipping firms.  The reviewed document is available at: http://dx.doi.org.

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Full review:  Several authors have clustered supply chain security measures into different categories, but only few authors have provided statistical models to test how well these categories can be used to assess benefits of security measures. The study establishes four security categories/dimensions: facility and cargo management, accident prevention and processing, information management, and partner relationship management. The results imply that partner relationship management is positively related to customs clearance performance. Further, information management and partner relationship management are positively related to safety performance. However, facility and cargo management and accident prevention and processing were not found to have substantial positive impacts on security performance what is controversial to many safety studies. Improved access control, material handling, information processing and reporting of anomalies are clearly factors that are positively related to safety performance based on several work place safety studies. The difference is probably due to questions that defined safety performance: the study addressed accidents and property damages while safety studies measure often near misses and their reporting.

The FP7 CORE project utilizes key performance Indicators (KPIs) to assess and monitor organization’s performance at the operational level. Two CORE KPI’s measure address safety and customs clearance performance, consequently the supply chain security framework can well be adapted on the CORE context. Improved access control, cargo handling, shipping information processing and reporting of anomalies can be measured by using the construct for ‘facility and cargo management’. CORE Training and education can be embedded into the factor ‘accident prevention and processing’ that captures documenting and disseminating of security information. ‘Partner relationship management’ can be tested as a mediating factor that controls how strongly implemented CORE interventions influence on organizational performance indicators in specific demonstrations. Customs agencies can consider using four dimensions of supply chain security as criteria for assessing security performance in container shipping firms. Finally the dimensions and attributes of the framework provide a tool to analyse qualitative data in the project where getting reliable quantitative data is challenging.

Reference: Ching‐Chiao Yang, Hsiao‐Hsuan Wei, “The effect of supply chain security management on security performance in container shipping operations”, Supply Chain Management: An International Journal, Vol. 18 Iss: 1, pp.74 – 85

 

CORE1201

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