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Supply Chain Disruptions in Sparse Transportation Networks: Does Location Matter? - TRB2009

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Supply Chain Disruptions in Sparse Transportation Networks: Does Location Matter? - TRB2009
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   Title: Does location matter?  S upply chain disruptions in sparse transportation networks   Author: Jan Husdal  Møreforsking Molde AS Britv 4, 6411 Molde, Norway Tel: +47 71214289 / +47 91248023 Email: jan.husdal@himolde.no Web: www.mfm.no Submission date: 1 August 2008 Revision date: 21 October 2008 Word count: 5637, incl. abstract and excl. 6 figures  Jan Husdal 2 ABSTRACT Disruptions of the supply chain are of particular interest in countries or regions with sparse transportation networks. Here, the supply chain can not be structured freely, but is limited by constraints, and with only a few transportation modes and links available between communities, they become extremely vulnerable, since in a worst-case scenario no suitable alternative exists for deliveries to or from communities. Thus, the structure or design of the supply chain, along with the organization and preparedness become important factors in determining if a company has a favorable or an unfavorable location. The question then arises, are businesses located in regions with sparse transportation networks more prone to supply chain disruptions than businesses located in more favorable locations? Does a sparse transportation network constrain the supply chain setup, such that it is more vulnerable and more likely to be disrupted? This paper serves as a conceptual gateway for further research into supply chain disruptions in sparse transportation networks, and develops a new framework for the categorization of supply chains, based on the number of links and modes available in the transportation network. Sparse transportation networks can be categorized as constrained supply chains with an unfavorable supply chain setup. Within the constrained supply chain framework, a company can address its locational disadvantage by either redesigning the supply chain towards a better structure, in order to gain better location, or by redesigning the supply chain towards a better organization, in order to gain better preparedness.  Jan Husdal 3 INTRODUCTION Transportation networks like freeways and interstate highways are the main backbone of modern society and play an important role in supply chains. Consequently then, the reliability of the transportation network or the reliability of supply chains is thus a decisive factor not only in terms of market outreach and competition, but also in terms of continuity, to ensure a 24/7 operation of the community we live in. Any threat to the reliability of the transportation network constitutes a vulnerable spot, a weakness in the supply chain. This vulnerability of the transportation network as part of the supply chain is of particular interest in countries or regions with sparsely populated areas, and hence, a sparse transportation network. Typically traits of such regions are few transportation mode options and/or few transportation link options for each transportation mode, for example maybe only one railway line and two roads, no port, no airport. It should not come as a surprise then that the nature of sparse transportation networks, and thus sparse supply chains, makes them vulnerable to many different kinds of internal and external risks. With only a few transportation modes and links available between population centers, these population centers become extremely vulnerable to any disruption in the transportation system or supply chain, since in a possible worst-case scenario no suitable alternative exists for deliveries to or from these communities. From  the community is as important as to  the community, since the supply chain goes both ways, meaning that no goods or supplies can come in and no manufactured goods or supplies to companies in other locations can leave. Few will question that the sender, the recipient, the freight hauler, or society at large, experience additional costs when goods or people cannot reach their destinations in time or in space. A non-functioning, or at best, badly-functioning link will impose costs on the user in terms of loss of time, additional operation costs or other costs as a result of delays and diversions. Transporters of perishable goods will also experience a loss of value. The question then arises, are businesses located in regions with sparse transportation networks in fact more prone to supply chain disruptions than businesses located in transportation-wise more favorable locations? Does the sparse transportation network influence the setup of the supply chain? Does a sparse transportation network in fact constrain the supply chain setup, such that it deviates from the ideal and thus is more vulnerable and more likely to be disrupted? This paper will not attempt to answer these questions but synthesize some of the recent literature on supply chain risk and apply it in a transportation vulnerability setting, and point towards some potentially interesting alleys for future research. As supply chains grow more and more complex and intertwined, special consideration should be given to the notion in (1)  that “should systemic financial risk lead to a serious deterioration in the world economy, the prospects for collaborative (risk) mitigation may be reversed on several fronts simultaneously as attention turns to more immediate concerns.” This could imply that supply chain disruptions are likely to increase in the near future, as companies are struggling to keep themselves and governments are struggling to keep the national economies afloat, thus jeopardizing collaborative efforts in supply chain risk management, which at present may seem less important than the immediate economic concerns. TRANSPORTATION NETWORK VULNERABILITY AND SPARSE TRANSPORTATION NETWORKS The vulnerability of transportation networks is a subject that has received increased interest within the academic community in recent years (2)(3)(4)(5)(6) , and has been the topic of several international conferences, most notably Taking up the invitation in (5)  to bring out and recognize the vulnerability in the road transportation system as a meeting point for all the different strands of transportation reliability research and other issues (p.127), the focal point of this paper is to look at the importance of transportation networks from a supply chain perspective, and how companies my overcome the disadvantages of unfavourable locations.  Jan Husdal 4 In (5) , the argument is made that studies of transportation network reliability to a large extent only seek to quantify the probability and to some degree the extent of failure, disregarding the potential for successfully handling the effects of failure, since obviously, vulnerability only then becomes a true vulnerability if the effects of failure indeed result in severe consequences. A methodology used in (6)  identifies the most vulnerable road links by means of an accessibility index that have the greatest socio-economic impact. Transferred to supply chain management this could mean that links with the greatest socio-economic impact also are the most important supply chain links. Similarly it should be possible to assess the vulnerability of transportation-dependent business in relation to their location, and hence, assess the vulnerability of a company’s supply chain at that given location. The issue of sparse transportation networks is well illustrated in the figure below, showing same-scale maps of the road network Norway (the author’s home country) and Europe, taken from an online route planner. Lack of details and missing road links aside, it is clear that Central Europe enjoys a much better denser road network than the Scandinavian countries, and Norway in particular, and hence has many more rerouting options in case of disruptions. Thus, supply chain (road) disruptions will have potentially more severe implications in Scandinavia than in the rest of Europe. FIGURE 1 The sparse road network in Norway and Sweden compared to the dense road network in Central Europe. (Source: viamichelin.com) A supply chain that is subject to a sparse transportation network can not be set up freely, but is limited by constraints, mainly transportation mode choice (air, sea, rail, road) and transportation link choice within each mode. Taking both modes and links into consideration, transportation networks or supply chains can be divided into four principal types of networks or supply chains: Free, Directed, Limited and Constrained. Figure 2 illustrates this division. FIGURE 2 Four categories of networks or supply chains, based on the number of modes (rail, sea, air, road) and number of links within the modes that are available.  In a  free  supply chain there are little or no constraints as to transportation modes and there is a dense transportation network with many possible links. In a directed   supply chain there are many  Jan Husdal 5 possible links, but few modes, thus directing the supply chain towards a certain mode or set of modes. In a limited   supply chain there are many mode choices but few links, which creates an overall limited setup. In a constrained   supply chain there are few choices as to mode and/or links and in worst case the supply chain is locked to one mode and very few, or maybe, only one link. SUPPLY CHAIN RISK MANAGEMENT AND BUSINESS CONTINUITY MANAGEMENT From a broad perspective, a supply chain is not a chain, but an interwoven network consisting of suppliers, manufacturers, distributors, retailers and end-customers, where three kinds of flows take place: material (items or goods), financial (money) and information (documents and records). In popular terms this is often referred to as “boxes, bucks and bytes”. Supply chain disruptions often focus on a disruption in the first flow (material), but a disruption with crippling effects can essentially occur in any of these flows. Supply Chain Management (SCM) , formerly known as logistics, is not a new science, but it is only in the last decade or so that supply chain vulnerability and supply chain risk management has gained attention (7),(8),(9),(10) . An excellent overview, linking supply chain management with risk management is given in (11) . Globalization is a major reason why. Sparked by global outsourcing and offshoring, different industrial sectors in different supply chains are becoming increasingly vulnerable to disruption, dislocation, total breakdown or simply failure to deliver according to requirements (12),(13)(14) . Supply Chain Risk Management (SCRM) has evolved from SCM and is a relatively new field. Nonetheless, it has many similarities with the already established field of Business Continuity Management (BCM). BCM is an interdisciplinary science and concerned with how an organization will recover and restore partially or completely interrupted critical function(s) within a predetermined time after a disaster or extended disruption. With lean and cost-effective supply chains stretched around the globe, it is easy to see how a supply chain disruption situation quickly can develop into a business continuity situation. The now classic textbook example of Nokia versus Ericsson in the Albuquerque plant fire incident shows how proactive and reactive supply chain risk management can make or break a company’s existence (15)(16) . In a sparse transportation network setting, this author contends that a well-handled supply chain or transportation network disruption can translate into business continuity, while an ill-handled supply chain or transportation network disruption can translate into business dis-continuity. That is why SCRM can and should draw upon BCM for advice. The business continuity perspective is important, since it illustrates an important point made in a report (1) , stating that even a relatively small supply chain disruption caused by a localized event may have consequences across the global economic system. The supply chain is an essential function in every organization, and when disrupted, there can be serious consequences not just for one single organization.  THE COST OF SUPPLY CHAIN DISRUPTIONS Interestingly, a study about how Norwegian businesses adapt to transportation disruptions (17)  reported that road transportation is the mode of transportation that is that most flexible in case of supply chain disruptions. This should indicate that businesses relying heavily on road transportation in a constrained supply chain setup may be less vulnerable than businesses where the supply chain is shouldered upon other modes of transport, like rail or sea. Regardless of the inherent flexibility of road transport to change routes quickly, sparse networks are more likely than dense networks to be ridden with bottlenecks (18)  that can cause severe delays or disruptions. In (19)  a point is made that the typical socio-economic impact of road network disruptions in Western Norway varies greatly, depending on a) the traffic volume, b) the actual possibilities of rerouting traffic and c) the composition of the traffic that uses the impacted road. The
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