Which Suppliers Really Matter to Your Supply Chain Performance?

We have certainly experienced a long list of supplier failures, whether from natural disasters, quality shortcomings (with the automotive industry being a notable example, as well as compounding pharmacies),  or even due to the Ebola healthcare and humanitarian logistics crisis, with great demand for the timely delivery of critical needs supplies for both healthcare providers and patients being unmet, not to mention the healthcare providers themselves in the form of human supply chains.

With numerous supply chains, from high tech products, to pharmaceuticals, to even food, being increasingly complex in terms of both the network topology, the number of decision-makers,  as well as the distances involved, it is high time for performance metrics and ranking tools to enable the identification of which suppliers as well as the components that they provide matter not only to the full supply chain but also to your individual firm.

First, one has to realize that this is the Era of the Supply Chain Network Economy and tools that just handle one supplier - one manufacturer are completely out-of-date. One has to be able to capture the interrelationships among suppliers, who are profit-maximizing, as well as the firms that they supply, who in turn, compete with other firms.

In our most recent paper: Supply Chain Performance Assessment and Supplier and Component Importance Identification in a General Competitive Multitiered Supply Chain Network Model, Dong Li and Anna Nagurney, that I co-authored with one of my doctoral students, who has done great work on supply chain network competition and quality, we provide a performance assessment metric for the full supply chain, and for that of an individual firm.  The metric quantifies the efficiency of the supply chain or firm, respectively, and also allows for the identification and ranking of the importance of suppliers as well as the components of suppliers with respect to the full supply chain or individual firm. The firms are differentiated by brands and our general multitiered competitive supply chain network equilibrium model with suppliers and firms includes capacities and constraints to capture the production activities. Firms may have a certain amount of capability to produce components in-house, depending on their capacities.

The supply chain network performance measure is inspired by our work on network performance assessment in a variety of network systems ranging from transportation to the Internet (see Nagurney and Qiang (2009) and the references therein) as well as in supply chains (cf. Qiang, Nagurney, and Dong (2009), and Qiang and Nagurney (2012)) but with the addition of the supplier tier, which is the focus in our paper.

Suppliers in supply chains are even vital to cybersecurity and the above graphic taken from our paper was part of the presentation that I gave last month at the Sloan School at MIT as part of the Advanced Cyber Security Workshop that I co-organized with several Isenberg School colleagues and a College of Engineering one.

Vulnerability and Resilience of Supply Chains

Resilience is a theme that resonates among researchers, practitioners, and policy-makers. Michael Batty, in his editorial,  Resilient cities, networks, and disruption,  in the latest issue of Environmental & Planning B, argues that: Resilience is a more precise term than sustainability and, although it has some rather ill-defined properties, resilience can be defined relatively unambiguously, making it somewhateasier to apply to complex systems like cities.

I would argue that sustainability is a key building block of resiliency whether it comes to cities or supply chains, which span our globe and, interestingly, my paper, "Design of sustainable supply chains for sustainable cities," is now in press in Environment & Planning B.

I have written a lot on network vulnerability, including that of supply chains, as well as robustness and synergies associated with partnerships and teaming and even mergers and acquisitions. So, when the invitation to attend the ETH Risk Center Workshop on Vulnerability and Resilience of Supply Chains -- see information below came -- I was very intrigued and accepted to speak.

I am honored to be in such a great lineup and I am sure that there will be many stimulating presentations and discussion!

The talk that I am preparing for this workshop is: Networks Against Time: From Food to Pharma. I will discuss some o fthe major methodologies, models, and applications in our latest book Networks Against Time: Supply Chain Analytics for Perishable Products.

Hope that some of you can join us in Zurich, Switzerland for the workshop next month! 

Risk Center: Vulnerability and resilience of supply chains

Workshop 2013 - ETH Risk Center: Vulnerability and resilience of supply chains

ETH Zurich (Switzerland), September 12-13, 2013

Topics

• Supply chains as economic networks and “critical infrastructures”
• Response to external shocks and inherent instabilities
• Risk reduction, disaster response management, and insurance issues

The following questions will be addressed:

• What kinds of hazards are there? What are the challenges?
• What does the interaction of regulators and the industry look like during a critical event?
• What are the critical parts in supply chains seen from the different perspectives? How can one identify them, what could be improved?

Speakers

• Prof. Dr. Yossi Sheffi, Massachusetts Institute of Technology
• Prof. Dr. Paul Schönsleben, ETH Zurich
• Prof. Dr. ManMohan Sodhi, Cass Business School London
• Prof. Dr. Anna Nagurney, University of Massachusetts
• Prof. Dr. Uta Jüttner, Cranfield University
• Dr. Till Becker, Jacobs University Bremen
• Dr. Robert de Souza, Executive Director of the The Logistics Institute - Asia Pacific
• Dr. Kamil Mizgier, UBS
• Adrian Clements,  General Manager Asset Risk Management, ArcelorMittal
• Phillip Kriegbaum, Fraport AG
• Otto Kocsis, Global Head of Technical Center Business Resilience, Zurich Insurance Group

Program

The workshop will run for two days, with an evening dinner cruise on Lake Zurich after the first day. Two sessions each day will consist of talks by invited speakers and there will be a panel discussion at the end of each day.

Preliminary program.

Poster session

The poster session offers an opportunity for an interactive presentation of your work.

If you want to present a poster, please submit a pdf file of it (max. 5 megabytes) to info-riskcenter@ethz.ch. The best posters will be selected for the poster exhibition by the program committee. The submission deadline is July 31.

Registration

Please click here for your registration to the workshop. There is a participation fee of 200 CHF. Note: The number of participants is limited.

Organizing Committee

• Dirk Helbing (ETH Zurich) 
• Wolfgang Kröger (ETH Zurich)
• Benno Keller (Zurich Insurance Company)

Organizing Team

• Petra Monsch
• Hilary Woodard
• Matthias Leiss

The workshop is sponsored by the ETH Risk Center and the Zurich Insurance Group.

 

Sustaining Supply Chains in Disasters and Post Hurricane Sandy

One week after Hurricane Sandy made landfall in the mid-Atlantic states of the United States there are still over a million electric power outages.

With cold temperatures, shortages of fuel for both vehicles and generators, and now a shelter crisis, due to so many homes being destroyed in parts of  New York and New Jersey, and major impacts on transportation infrastructure from bridges to subways, plus a nor'easter storm forecast for mid-week, I am wondering why more was not done and is not being done to help those in the recovery process.

Our relatives in New Jersey are still without power one week after losing it and friends have had to seek shelter since they are now homeless.

Clearly,  there are issues of serious resource misallocations as well as information shortages, among other shortages. Trained personnel are needed to restore power where it is needed and fuel needs to be transported and people informed as to where they can obtain it. Information needs to be provided to those who have lost their abilities to receive news and to receive communications electronically.

There are also questions, in certain communities,  surrounding how, if any, prioritization was done, in terms of restoring electric power, delivering fuel and other resources.

Commercial supply chains are different from humanitarian ones  and  we need to learn from previous disasters.

Different organizations can accomplish much more through synergistic teaming.  and it is good to see the military, including the National Guard, making extraordinary efforts to assist after this extraordinary disaster.

I was interviewed by Mr. Michael Breen for an AMS podcast on Sustaining the Supply Chain and the podcast can be accessed here.

There was also a recent special issue of the journal Transportation Research A on Network Vulnerability of Large-Scale Transport Networks in which Patrick Qiang and I published the paper, A bi-criteria indicator to assess supply chain network performance for critical needs under capacity and demand disruptions.

In this paper,  we constructed  a performance indicator in the case that demands for critical needs products (water, food, medicines, etc.) can be satis fied. We then considered the case when not all the demands can be satis fied and de fined another performance indicator. In order to assist cognizant organizations, such as governments, relevant corporations, and NGOs, to better manage critical needs supply chains, a bi-criteria performance indicator was, subsequently, proposed in this paper. This indicator synthesizes the preceding two in that it considers the following factors:

• Supply chain capacities may be a ffected by disruptions;
• Demands may be a ffected by disruptions; and
• Disruption scenarios are categorized into two types.

We also showed how our supply chain performance indicators could be applied in practice and now we are seeing yet another disaster. More severe scenarios can be expected, given climate change, which is upon us and our communities. 

Time to harness all of our energies and expertise to minimize the damages, the pain, and the suffering.

Critical Needs Supply Chains Under Capacity and Demand Disruptions

The special issue of Transportation Research A on the theme of Network Vulnerability in Large Scale Transport Networks, edited by Michael A.P. Taylor, is now published.

Our paper, "A bi-criteria indicator to assess supply chain network performance for critical needs under capacity and demand disruptions," Patrick Qiang and Anna Nagurney, appears in this issue, which is volume 46 (5), June 2012.

This paper was also highlighted in a newsletter of  the OR Society (thanks). Patrick is a faculty member at the Graduate School of Professional Studies at Penn State University Malvern and I am at the Isenberg School at UMass Amherst.

In this paper, we developed a supply chain network model for critical needs products, which captures disruptions in capacities associated with the various supply chain activities of production, transportation, and storage, as well as those associated with the demands for the product at the various demand points. Critical needs products may be defined as those products and supplies that are essential to human health and life. Examples include food, water, medicines, and vaccines. The demand for critical needs is always present and, hence, the disruption to the production, storage, transportation/distribution, and ultimate delivery of such products can result not only in discomfort and human suffering but also in loss of life. Such supplies are essential in times of disasters and emergencies.

The objective is to minimize the total network costs, which are  generalized costs that may include the monetary, risk, time, and social costs. Two different cases of disruption scenarios are considered. In the first case, we assume that the impacts of the disruptions are mild and that the demands can be met.  In the second case, the demands cannot all be satisfied. For these two cases, we propose two individual performance indicators.
 
We showed that the governing optimality conditions can be formulated as a variational inequality problem with nice features for numerical solution.

In addition, we proposed two distinct supply chain network performance indicators for critical needs products. The first indicator considers disruptions in the link capacities but assumes that the demands for the product can be met. The second indicator captures the unsatisfied demand. We then constructed a bi-criteria supply chain network performance indicator and used it for the evaluation of distinct supply chain networks. The bi-criteria indicator allows for the comparison of the robustness of different supply chain networks under a spectrum of real-world scenarios. We illustrated the new concepts in the paper with numerical supply chain network examples in which the supply chains were subject to a spectrum of disruptions involving capacity reductions as well as demand changes.

Given that the number of disasters has been growing globally, we expect that the methodological tools introduced in this paper will be applicable in practice in disaster planning and emergency preparedness.

Thanks also to Wiley for publicizing our first critical needs supply chain network paper, which focused on design, in its Asia blog on What's New in Operations Research.

How General Motors Crisis Managed the Japan Supply Chain Disruptions Post the Triple Disaster

Resilient companies are surviving by continuing to dynamically adapt to the supply chain disruptions and cascading failures post the triple Japan disaster that occurred on March 11, 2011.

To get the parts that are essential for their production processes they have been working even with the suppliers of their suppliers going upstream into the complex supply chain networks.

The New York Times is reporting, in a fascinating article, how General Motor's crisis management team, with white knuckles, resolved the crisis situation. GM, which spends about 2 percent of its parts-buying budget in Japan, identified 118 products that it needed to monitor for shortages but has resolved problems with all but five. The company’s chief executive, Daniel F. Akerson, predicted last week that the Japanese disruptions would have no material impact on G.M.’s earnings.

This is in stark contrast to Toyota, which is experiencing shortages of about 150 parts, for its North American plants, since it uses about 15% of its components from Japan.

GM was able to find alternative suppliers and to assist others in going online, even working back across multiple tiers of its supply chain, something that it had never, previously, had to do. However, there is still a chance of a shortfall in semiconductors and other electronics needed for autos and this situation is being closely monitored.

Clearly, companies must view and manage their supply chain networks as systems in their full complexities. One should move beyond the white board with green and red stickers for product and time management.

It looks as though GM will regain its place as the world's biggest auto company.

Akerson was very classy when, as quoted in the article, he said: “I want to win in the marketplace, but I want to win against a healthy and vibrant Toyota and Honda.” “Next year, we’ll put the gloves back on, and I’m sure they’ll go right back at us and we’ll go back at them.”

Our research on supply chain disruptions is relevant in this scenario. Our paper, Modeling of Supply Chain Risk Under Disruptions with Performance Measurement and Robustness Analysis, by Professors Qiang Qiang, Anna Nagurney, and June Dong, appeared in Managing Supply Chain Risk and Vulnerability: Tools and Methods for Supply Chain Decision Makers, T. Wu and J. Blackhurst, Editors, Springer, Berlin, Germany (2009) pp 91-111.

Supply Chain Disruptions, Congestion, Risk, and Foreign Affairs

Kyle Johnson, who was a Jack Welch Scholar at UMass Amherst, and graduated from the Isenberg School with a degree in Operations Management, and now works in high tech recycling, sent me an email message this past week that he thought of me when he was reading an article in Foreign Affairs and provided me with the link to it.

The article, "Japan's Disaster and the Manufacturing Meltdown -- What the Earthquake and Tsunami Revealed About Globalization," by Marc Levinson, highlights the dangers of single sourcing that the Japan triple disaster has painfully shown, which has impacted the automotive and high tech industries severely. Levinson also noted his 2008 article in Foreign Affairs, in which he presciently wrote:

“Congested shipping lanes and highways make transit times uncertain,” “and this uncertainty hurts profits.” Moreover, the push for ever-greater port security will further slow transit; physical inspection of shipping containers could delay delivery by two to three days or more. “Even if the proportion of containers pulled out of the flow of traffic is small, importers will be forced to reckon with the possibility that their goods might be delayed in transit. In some instances, importers will adjust by keeping more stocks in their U.S. warehouses at any one time.”

Just think of all the time that is now being spent to check for radiation of goods being imported from Japan!

In 2009, Drs. Qiang, Dong, and I wrote the article, Modeling of Supply Chain Risk Under Disruptions with Performance Measurement and Robustness Analysis, which appeared in the book, Managing Supply Chain Risk and Vulnerability: Tools and Methods for Supply Chain Decision Makers, T. Wu and J. Blackhurst, Editors, Springer, Berlin, Germany, pp 91-111. Our study extended previous supply chain research by capturing supply-side disruption risks, transportation and other cost risks, and demand-side uncertainty within an integrated modeling and robustness analysis framework. Moreover, we included congestion in the model and proposed a weighted performance measure to evaluate different supply chain disruptions.

Highlights of other research on supply chain risk I wrote about in an earlier blogpost, which was motivated by, in part, the frustration at the developing events in Japan and the suffering of the people there.

In our Fragile Network Economy, the identification of the performance of supply chain networks prior to disruptions and the determination of which nodes and links really matter needs to be done before disasters strike!

Lean manufacturing may be more than short-sided, it may be, frankly, foolish.

A Logistics Nightmare in Haiti Post the Earthquake and the Price of Anarchy

The New York Times is reporting today on the logistical nightmare faced by relief workers in trying to get the critical needs supplies to the victims of the earthquake in Haiti. Airplanes have had to circle from 2 to 3 hours before landing; there is no central control of distribution of supplies even after the planes land, plus many of the roads (which were not in good shape even prior to the quake) are now severely damaged if not littered with debris, and the principal port and equipment for unloading supplies have also been seriously affected. The relief workers are trying to determine alternative routes so that they can deliver the clean water, medical supplies, and food. At the same time, congestion is becoming an issue (sometimes referred to as convergence in humanitarian logistics parlance) since vehicles and supplies do not have sufficient warehousing capacity in which to offload and from which to distribute.

The situation in Haiti brings to mind a measure in network analysis, notably, in transportation and telecommunications, called the price of anarchy, which is the ratio of the total cost under user-optimizing (decentralized) behavior to the total cost under system-optimizing (centralized) behavior. We recently published a paper on transportation network robustness in the presence of degradable links in the International Transactions in Operational Research and related our new measures to the price of anarchy. Had Haiti had a more resilient and robust network infrastructure, the losses may not have been so severe.

As this article in the Times and others in the press have stated, this is a disaster of monumental proportions. What will happen in the next few hours and days will determine also how many of those who have survived will be able to go on in such horrendous circumstances.

What will transpire in the next couple of weeks and months in Haiti will be a serious case study on the interplay of development, reconstruction, and humanitarianism.

Earthquake in Haiti and Critical Needs

The worst earthquake in two centuries hit Haiti, the poorest country in the western hemisphere, yesterday. The pain, suffering, and devastation are horrific. This natural disaster is creating havoc for humanitarian operations because of the destruction of much of the infrastructure, such as roads and hospitals, in the capital, which was the hardest hit. Interestingly, the World Food Program had stockpiled food supplies in Haiti in preparation for disasters, with hurricanes, being the most expected ones. It is now also airlifting food supplies. Haiti is on an island which is also home to the Dominican Republic.

Exactly one year ago, my daughter and her classmates at the Bement School in Deerfield, Massachusetts were packing up to go on their trip to the Dominican Republic to help out in an orphanage. This year's 9th grade class at Bement is also scheduled in early February to travel there. The airport in Santo Domingo in the Dominican Republic is now being utilized to assist in Haiti's recovery. Last year, with excitement and nervous anticipation, I let my daughter travel there on a community service mission, which deeply affected all those who took part. I wonder whether this year's trip will take place given the extreme seriousness of the disaster in Haiti. She had, this past weekend, completed a huge photo montage of memories from last year's trip to the Dominican Republic that a teacher was going to deliver to the orphanage. I, in the meantime, was busy working on a research paper with a co-author on the assessment of supply chain performance in the case of disasters (an ironically timely topic) for submission to a special issue of a journal on transportation network vulnerability.

Our hearts and prayers go out to all those affected by this earthquake.

Supply Chain Disruptions and New Book

In the post below, I noted that I have organized an invited session, which will take place this Monday, at the Math Programming Symposium in Chicago. In the session, we have a presentation on supply chain risk management and vulnerability analysis, joint with Professor Patrick Qiang of Penn State University in Malvern, and Professor June Dong of SUNY Oswego. The paper that we are presenting on this topic will appear in a new book, out shortly, entitled Managing Supply Chain Risk and Vulnerability, which is edited by Professors Teresa Wu and Jennifer Blackhurst. If you click here, you will also find the table of contents, which includes our chapter, and the chapter by another Virtual Center for Supernetworks Associate, Professor Jose M. Cruz of UCONN at Storrs, who contributed a chapter on network relationships. We congratulate Professors Wu and Blackhurst on the completion of this volume!

Here is the preprint of our supply chain risk paper, which captures uncertainty associated with production costs, as well as distribution and transportation costs in multitiered supply chain networks, in which the individual behavior of the decision-makers is modeled, along with the prices that the consumers are willing to pay for the product in the case of random demands. In addition, we define robustness in this setting and provide a supply chain network performance measure.

An expansion of this chapter, with additional motivation and case examples, appears in our book, Fragile Networks: Identifying Vulnerabilities and Synergies in an Uncertain World, where we also model network systems and their vulnerability from transportation networks to the Internet, electric power supply chains, and even financial networks! In addition, we demonstrate, how through network integration, one may identify a priori, any possible synergies, which can greatly assist in the evaluation of potential mergers and/or acquisitions.

Mathematical Programming Symposium in Chicago and Reflections

We are getting ready for the International Symposium on Mathematical Programming, which will be taking place in Chicago, August 23-28, 2009. This Symposium marks the 60th anniversary of the 0-th such symposium, which also took place in Chicago. The conference is held every three years.

I have organized an invited session on Game Theory and Variational Inequalities, which includes papers on dynamic modeling of the Internet, supply chain network disruptions and vulnerability analysis with performance assessment, mergers and acquisitions among oligopolistic firms and the merger paradox, and the modeling and solution of electric power supply chains with applications to New England. The presenters in this session are: Professor Patrick Qiang, Professor Zugang "Leo" Liu, and yours truly. I have posted the presentations on the Virtual Center for Supernetworks website.

This will be a very special conference for me. I recall my first Math Programming Symposium when I was a fairly fresh PhD and the conference was at MIT in Cambridge, MA. My dissertation advisor, Dr. Stella Dafermos of Brown University, had recommended that I attend this conference and I recall fondly my excitement about presenting a single-authored paper on computational comparisons of spatial price equilibrium problems (which later was published in the Journal of Regional Science). I have always loved working at the interfaces of operations research / management science and economics. Lo and behold, a few minutes into my presentation, who comes running into the room, but none other than Professor George Dantzig of Stanford University, who is considered the founder of "operations research." He apologized for being late, I caught my breath, and proceeded with my talk. Afterwards, Professor Dantzig came up to me and told me that he had been working on such problems and he thought that my approach was great. Needless to say, his support and special thoughtfulness and kindness I have carried forward with me from that moment on!

Above I include photos of Professor Dantzig with me taken a few years back and also a photo of Professor Stella Dafermos, two giants of operations research (although height-wise they were certainly not "tall"). You can read more about Professor Dantzig, who lived to the age of 90, here.

I am delighted that two of my recent PhD students, Dr. Qiang and Dr. Liu, will be with me at this Math Programming Symposium and will be presenting papers. How wonderful to have history repeating itself!