Assessment of Disruption Risks in Supply Chains

Background

The 2008 airport closure in Thailand is an example of disruption risk in transportation links. Air shipments of electronic products from Thailand were re-routed to airports in nearby countries. This resulted in increased lead-time and transportation cost. The earthquake and tsunami in northeastern Japan and the massive floods in Thailand in 2011 are examples of disruption risks that disrupted both facilities and transportation links. They impacted organizations worldwide and forced industries to re-evaluate their global supply chain practices in order to manage disruption risks (Ravindran & Warsing, 2013).

Managing supply chains under disruption risks has become a challenge for both practitioners and researchers. In a report by Harvard Business Review Analytic Services (2011), 89% of companies indicated that natural disasters have been among the top risks over the last three years. From a research perspective, many scholars have attempted to improve supply chain decision-making through risk identification, risk assessment, and risk mitigation. Interested readers are referred to Chapters 7 and 8 in Supply Chain Engineering: Models and Applications by Ravindran and Warsing (2013) for a comprehensive discussion of managing risks in global supply chains.

The airport closure, earthquake, and floods discussed earlier are well-known examples of external risk to supply chain networks. However, these risks are not the only factors influencing supply chain disruptions. Thailand’s massive floods in 2011 have shown that supply chain disruptions are provoked by a country’s conditions and a lack of effective risk management practices. Geographically, Thailand’s industrial zones are flood-prone, and the country has experienced brief and minor floods from time to time. However, the 2011 monsoon season caused unusual heavy rains in many areas. Poor urban planning, political instability, deforestation, and poor floods mitigation led to an ineffective response to the crisis (Ye & Abe, 2012). Seven industrial estates built on low-lying lands were severely inundated with water, creating profound losses at several companies. Even companies whose facilities were not damaged had to suspend production due to difficulties in obtaining parts from suppliers that had been directly impacted by the floods. The suspensions then spread to other production sites worldwide; Toyota and Honda were forced to halt production in several countries (Fuller, 2011; Ye & Abe, 2012).