Before Disasters Strike -- Assessing Supply Chain Performance Under Disruptions

As documented in numerous studies, as well as books, including our Fragile Networks book, the number of disasters is growing as well as the number of people affected by disasters.

Having the appropriate supply chains in place that are resilient to disruptive scenarios will not only save lives but make the disaster recovery process less painful and costly.

Along with my collaborators, notably, Dr. Qiang of the Graduate School of Professional Studies at Penn State University Malvern, and my doctoral students, Min Yu and Amir H. Masoumi, we have been developing quantitative tools and metrics for supply chains in humanitarian operations and healthcare.

In particular, we have been focusing on a broad class of products known as critical need products.

Critical needs products and supplies are those that are essential to human health and life. Examples include food, water, medicines, and vaccines. The demand for critical needs products is always present.

Our first paper on the topic, Supply Chain Network Design for Critical Needs with Outsourcing, Anna Nagurney, Min Yu, and Qiang Qiang, was published in the Papers in Regional Science 90: (2011) pp 123-142.

Critical needs supply chains also play a pivotal role during and post disasters during which severe disruptions can be expected to have occurred. Indeed, the past few decades have visibly demonstrated that disasters, whether natural or man-made, may severely damage infrastructure networks, such as transportation and logistical networks, may cause great loss to human life, and also may result in tremendous damage to a nation's economy.

Hence, critical needs supply chains are essential in both healthcare and humanitarian logistics operations. Given their importance also in terms of emergency preparedness and planning, special attention to them is needed, since their functions are so important to the well-being and the very survival of our societies.

Specifically, in the case of disruptions to critical needs supply chains, there are two primary parameters that may be seriously affected:

1. the capacities of the various supply chain network activities (production, storage, transportation, etc.) and

2. the demands for the products may not be satisfiable.


Indeed, as shown by numerous recent disasters, disruptions may tremendously reduce supply chain capacities as well as impact the demands for critical needs products.

Hence, it is essential for organizations to have performance metrics which enable them to assess what are the costs associated with supply chain disruptions under different scenarios. Moreover, will the demands be met and, if not, what can one expect to be the unmet demand?

To provide appropriate metrics and tools to organizations ranging from humanitarian ones to governmental ones as well as international bodies, as well as corporations, we have constructed a bi-criteria supply chain performance indicator that captures the probabilities of capacity disruptions under different scenarios as well as demand being unsatisfied.

The indicator is developed, discussed, and applied in our paper, A Bi-Criteria Indicator to Assess Supply Chain Network Performance for Critical Needs Under Capacity and Demand Disruptions, Qiang Qiang and Anna Nagurney, to appear in Transportation Research A: Special Issue on Network Vulnerability in Large-Scale Transport Networks.

Since the goals of supply chains for critical needs are quite different from those of commercial supply chains, they should be evaluated by distinct sets of metrics. As pointed out by Beamon and Balcik (2008), the goals for humanitarian relief chains, for example, include cost reduction, capital reduction, and service improvement (see also Altay and Green (2006)). Tomasini and van Wassenhove (2004), similarly, argued that: A successful humanitarian operation mitigates the urgent needs of a population with a sustainable reduction of their vulnerability in the shortest amount of time and with the least amount of resources.

We hope that our paper has contributed to this growing research and application domain in a rigorous way.

Our earlier work on supply chain disruptions in commercial supply chains included the paper, Modeling of Supply Chain Risk Under Disruptions with Performance Measurement and Robustness Analysis, Qiang Qiang, Anna Nagurney, and June Dong, 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.

The Robustness of Global Supply Chains and the Disasters in Japan

The New York Times has some very timely coverage of the immediate and more speculative impact on global supply chains post the earthquake-tsunami-nuclear set of disasters in Japan. The article, "Stress Test for the Global Supply Chain," begins with a very vivid account of an H.P. VP of Operations, Tony Prophet, being awaken at 3:30AM and then proceeding to triage, as in an emergency room, the potential impacts of this triple disaster on H.P.'s global supply chain. Mr. Prophet oversees all hardware purchasing for H.P.’s $65-billion-a-year global supply chain, which feeds its huge manufacturing engine. Its factories produce two personal computers a second, two printers a second and one data-center computer every 15 seconds.

Japan, as the world's third largest economy, is a key supplier of automobile components (as well as automobiles), high tech products, including integrated chips, and even raw materials such as resins that are used in integrated circuit packaging. Factories that were affected by the triple disaster are shut down in Japan creating cascading failures across the globe with GM even closing one of its manufacturing plants in Louisiana. Not only has manufacturing been disrupted but with so many of the roads impassable, not to mention ports being damaged, the transportation of goods has come to a standstill in parts of Japan. Areas where there is radiation danger with radii of 20 miles to as far as 50 miles have taken on a moon landscape of inactivity since those who have not evacuated have been told to stay indoors.

In 2009, we contributed the chapter, Modeling of Supply Chain Risk Under Disruptions with Performance Measurement and Robustness Analysis, co-authored with Professors Qiang Qiang and June Dong, to 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 (2009) pp 91-111. This study shows how to assess, a priori, a supply chain's vulnerability from a system and robustness perspective.The model formulation captures supply-side risk as well as demand-side risk, along with uncertainty in transportation and other costs. The model also incorporates the individual attitudes towards disruption risks among the manufacturers and the retailers, with the demands for the product associated with the retailers being random. We also proposed a weighted supply chain performance and robustness measure based on our recently derived network performance / efficiency measure and provide supply chain examples along with the robustness analyses. This work extends 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.

Of course, it is not only complex corporate supply chains that are now being impacted but humanitarian ones have also been deeply affected since the radiation from the Fukushima nuclear power plant has limited the arrival of necessary supplies to those in need who have not been able to evacuate. Japan has a large elderly population and their suffering is horrific. Humanitarian supply chains are different from corporate ones, since the underlying objectives in managing each of them are clearly distinct. One cannot engage in profit-maximization in the case of humanitarian operations and time is often of the essence. Hence, to assess the performance of humanitarian supply chains, Professor Qiang and I have constructed, A Bi-Criteria Measure to Assess Supply Chain Network Performance for Critical Needs Under Capacity and Demand Disruptions.

As researchers and scholars, we hope that we can assist, in a small but concrete way, through our work.

Air Travel Disruption Twice As Long as After 9/11 and Counting

The air travel disruptions and chaos due to the ash spewing from the Eyjafjallajokull Volcano in Iceland have now lasted 6 days, twice the period of time that air travel to/from the US was shut down following 9/11. Hundreds of thousands of travelers have been affected, and even the British navy was enlisted to try to ferry some of its stranded citizens (with not complete success). Flowers and farm products are rotting in warehouses in Kenya (since these usually are distributed to Europe by air cargo flights), travelers have been camped out for days in the JFK airport as well as in affected airports in Europe. Artists and musicians cannot make their appointed events in the US. Student groups from the US have had their dream trips to Europe abandoned due to the flight cancellations, and athletes have been unable to compete in the Boston Marathon and in a world skating event in France, since they have been unable to reach their destinations. Of course, academics have also been unable to give talks abroad since their flights have been canceled, as well.

Even President Obama and Chancellor Angela Merkel of Germany canceled their appearances at the funeral of President Lech Kaczynski of Poland and his wife, Maria, who, along with dozens of other Polish dignitaries, perished tragically in a place crash in Russia recently. Chancellor Merkel had to take quite the circuitous route and combination of modes of transportation (even riding a bus from northern Italy to Germany) to make it back from the US because of the air travel disruptions.

The Dow Jones Newswire is reporting that Asian chip and cellphone makers could be affected if the European air space closure does not end soon. Although most electronic products from Asia are shipped by sea, smaller products such as cellphones and ships are transported by air. Samsung spokesman James Chung, was quoted as saying in the report, If this volcano problem lasts longer than expected, it would have a direct impact on Samsung's chip and cellphone exports. The crisis is costing the European economy alone billions of dollars in lost business. Airlines, already suffering from economic woes, are sustaining losses of hundreds of millions of dollars a day.

Now The New York Times is reporting that a new ash cloud is looming from the Iceland volcano whose recent eruption has affected travel and economic activity from Beijing to New York!

While this natural event has been evolving and has impacted broad swaths of the civilized world, and has resulted in major economic damage (plus personal discomfort and dislocation for many), I have been busy at work completing a paper (in which the volcanic eruption is noted). The paper, Fragile Networks: Identifying Vulnerabilities and Synergies in an Uncertain Age, is a synthesis of my recent work with Professor Patrick Qiang on network vulnerability and robustness and how to identify which nodes and links in network systems (including transportation ones and the Internet) are the most important. The paper also discusses synergies associated with exploiting network structure from corporate mergers and acquisitions to teaming of humanitarian organizations in the case of disasters for logistics operations. The paper is an invited one for the journal, International Transactions in Operational Research, and is the topic of the tutorial that I will be presenting at the ALIO-INFORMS International Meeting to be held in Buenos Aires, Argentina, June 6-9, 2010.