Inthis case study I am trying to find out an answer for the question: what arethe tools for professionals to measure supply chain performance? Thisessay will start with a short history which will tell how the supply chain grewwith the help of technical developments on transportation and communication.
Thenit will make a briefly introduction about the supply chain risk. After thatthis essay will narrow down the map to supply risk assessment section, and discussabout three tools for professionals to measure supply chain performance.Historyof Supply ChainComparingwith the long history of commercial business, the emerge of supply chain is relativelymore recent.
In the article of A Brief History of Supply Chain, Sanyal (2012) indicated that because of thebehindhand technology and high cost, in ancient times people didn’t ship andchange goods to places that are with long distances. Productions andconsumptions happened in doorways. Along with the development of seamanshiptechnology, in the 18th century, large-scale goods were able to betransported internationally. Later in the late 18th century theIndustrial Revolution has improved the world-wide shipping significantly. Someindustrial centers began to emerge and send their products all over the world.Steamships, which were introduced by the mid-19th century, played anessential role on the establishment of the global supply network.
Steamshipsand steam trains not only helped the improvement of transportation, but alsoaccelerated the speed of communication. However, methods of communication werestill underdeveloped at that time. Although telegraphs had been invented, theestablishment of industrial structure and supply network was still stronglyrestricted by the slowly developed communication ways. After World War IItelephones became a common communication tool and international calls wererealized. In the 1950th, standardized containers were introduced andlater in newly built ports and facilities were designed to work with containerizationsall over the world. Those containers, plus telephones, improved the next stepin supply networks, they made costs of transportation and communication moreeconomic. Communication has been further improved during the next 40 years withthe help of new technologies such as mobile phones and the internet. Therefore,industries started to consider not only move their manufacturing facilities butalso service teams into regions with lower labor cost.
Introductionof Supply Chain RiskForreasons of focusing on core activities, increasing productivity, saving costsand fulfilling demands, more and more organizations prefer to outsourceproductions or services inshore or offshore in nowadays. Circumstances becomesmore complicated, therefore risk management on supply chain is urgently needed.Punniyamoorthy, Thamaraiselvan and Manikandan(2013) studied theories from various researchers and cited their point of viewsin their paper. Wilding (2003) defined Supply chain “a source of competitiveadvantage, that has driven organizations to pursue the dual goals of achievingboth value advantage and operational excellence” (as cited in Punniyamoorthy etal., 2013, p.79).
According to Jüttner et al. (2003) “Supply chain risk comprisesany risks for the information, material and product flows fromoriginal supplier to the delivery of the final product for the end-user” (ascited in Punniyamoorthy et al., 2013, p.81).
Abolghasemi,Khodakarami and Tehranifard (2015) studied several ways of riskclassifications. In the paper A NewApproach for Supply Chain Risk Management: Mapping SCOR into Bayesian Network, theyprovided some of those classifications according to differentresearchers based on different factors. For example, internal and external,qualitative and quantitative, economic and technical, and so on (p. 284).
Allthese classifications indicate that risks associated with supply chain are variousand complex, professionals need to be extremely careful when dealing with risksunder different circumstances.SupplyChain Risk AssessmentFaizaland Palaniappan defined supply chain risk management (SCRM) “the management ofsupply chain risk through coordination or collaboration among the supply chainpartners so as to ensure profitability and continuity” (2014, p.21). They alsoclaimed that “Risk management is the process of measuring or assessing risk andthen developing strategies to manage the risk”. These two authors classifiedsupply chain risk management into two main categories- risk analysis and riskcontrol. The importance of supply chain risk assessment in this map is becauseit “provides management with an understanding of where the greatest risks mayexist in order to prioritize resources for risk mitigation and management (2014,p.22).
Thereare several tools that are being used in risk assessment. Faizal andPalaniappan listed three of them- FMEA, FTA and ETA (2014, p. 23). FMEAAccordingto Siemens PLM Software (n.
d), FMEA, which is Failure Modes and EffectsAnalysis, can be used to “analyze potential failure risks within systems,classifying them according to severity and likelihood, based on past experiencewith similar products or processes” (p. 3). The white paper from Siemens (n.d)study found the following:FMEA defines the term “failure mode” toidentify defects or errors, potential or actual, in a product design orprocess, with emphasis on those affecting the customer or end user. A “failureeffect” is the result of a failure mode on the product or system function asperceived by the user. Failure effects can be described in terms of what theend user may see or experience.
The study of consequences of identifiedfailures is called effects analysis (p. 3).FMEAis processed by five steps, which are potential failures and effectsidentification, severity determination (S), likelihood of occurrenceexamination (O), failure detection (D). After completed those four steps,professionals calculate Risk Priority Numbers (RPN), which is measured by S, Oand D. RPN = S * O * DThisnumber is used to reveal problematic areas, where “the highest RPNs should gethighest priority for corrective measures.
These measures can include a varietyof actions: new inspections, tests or procedures, design changes, differentcomponents, added redundancy, modified limits, etc.” (SiemensPLM Software, n.d, p. 7).FTA Pokorádi (2011, p.36) introduces the Fault Tree Analysis (FTA) “a systematic, deductive (top-downtype) and probabilistic risk assessment tool which shows the causal relationsleading to a given undesired event, referred to as the Top Event (TE)”.According to Faizal and Palaniappan, the FTA not only measures hardwarefailures, but also detect human failures. A fault tree is “constructed byrelating the sequence of events, which individually or in combination, couldlead to the top event” (Faizal & Palaniappan, 2014, p.
23). Research by Pokorádi(2011) illustrated that the FTA can be used 1) to determine faults,fault-combinations that can occur the TE and their causes; 2) to detectespecially critical events and/or event-chains; 3) to perform reliability anddependability investigations; 4) to demonstrate failure-mechanismsillustratively (p. 36). Overall, the FTA is a diagnostic tool which can be usedto investigate the Top Events, which are the most undesirable outcomes in asystem.ETA Event Tree Analysis (ETA) is anotherrisk assessment tool that has been introduced in Faizal and Palaniappan’s paper(2014). Clifton and Ericson (2005) study found the following:Event tree analysis (ETA) is an analysistechnique for identifying and evaluating the sequence of events in a potentialaccident scenario following the occurrence of an initiating event.
ETA utilizesa visual logic tree structure known as an Event Tree (ET). The objective of ETAis to determine whether the initiating event will develop into a serious mishapor if the event is sufficiently controlled by the safety systems and proceduresimplemented in the system design. An ETA can result in many different possibleoutcomes from a single initiating event, and it provides the capability toobtain a probability for each outcome (p. 223). Accordingto Clifton and Ericson (2005), main elements of the ETA are inputs, process andoutputs. Inputs include design knowledge and accident histories on similarequipment, while outputs include mishap outcomes, outcome risk probabilities,causal source, and safety requirements. The six processes are 1) identifyaccident scenarios; 2) identify initiating events (IEs); 3) identify pivotalevents; 4) construct event tree diagrams (ETD); 5) evaluate risk paths; 6)document process (p.
228).Thosetools which were listed above are not the only tools that help professionals assessrisks. In their study, Alverbro, Nevhage and Erdeniz (2010) introduced moretools, such as Preliminary Hazard Analysis (PHA), What-if, Hazard andOperability (Hazop), and so on. Although FMEA, FTA andETA all work in the supply chain risk assessment area, their concentrations andfunctions are different. According to Alverbro, Nevhage and Erdeniz (2010), theFMEA is “a qualitative method and the results are displayed in a table. Theresults may include causes of failure, effect, frequency, severity, probabilityand recommended actions”. The FTA “can be either qualitative or quantitative…The difference is that a quantitative FTA results in an estimation of theprobability of the top event, which depends on the probabilities of the rootcauses”. Finally, the ETA is suitable for the situation of “planning anactivity and issuing licenses and permits, and can be used both quantitativelyand qualitatively” (p.