The Uncertainty Framework

• Marshall Fisher introduced the matching of supply chain

strategies to the right level of demand uncertainties of
the product

• A simple but powerful way to characterize a product

when seeking to devise the right supply chain strategy is
the "uncertainty framework."

• This framework specifies the two key uncertainties faced

by the product—demand and supply.
The Uncertainty Framework
Supply Uncertainty Demand Uncertainty Demand Uncertainty
Low (Functional Products) High (Innovative Products)

Low (Stable Process) Efficient SCM Responsive Supply Chain

• Focus on producing highest cost • Flexibility to respond to shift in
efficiencies demand
• Fast moving consumer goods(FMCG) • Fashion industry

High (Evolving Process) Risk-Hedging SCM Agile SCM

• Focus on sharing resources like • Responsiveness + risk hedging
resource pooling • Globalization / mergers
• QATAR LNG Contract • Tesla, Micro chips, Covid Vaccine,
Space and Arm Industry
Efficient Supply Chains
• Utilize strategies aimed at creating the highest cost
efficiencies in the supply chain

• For such efficiencies to be achieved, non-value-added

activities should be eliminated, scale economies should
be pursued, optimization techniques should be
deployed to get the best capacity utilization in
production and distribution

• Information linkages should be established to ensure

the most efficient, accurate, and cost-effective
transmission of information across the supply chain.
Responsive Supply Chains
• Utilize strategies aimed at being responsive and flexible to
changing and diverse needs of the customers

• To be responsive, companies use make-to-order and mass

customization processes as a means to meet the specific
requirements of customers

• The customization processes are designed to be flexible

• Internet has enabled very accurate and timely capturing of

highly personalized requirements of customers as well as fast
transfer of order information to the factory or customization
centers for the final configuration of the product
Risk-Hedging Supply Chain
• Utilize strategies aimed at pooling and sharing resources in a supply chain
so that the risks in supply disruption can also be shared

• A single entity in a supply chain can be vulnerable to supply disruptions,

but if there is more than one supply source or if alternative supply
resources are available, then the risk of disruption would be reduced

• A company may want to increase the safety stock of its key component to
hedge against the risk of supply disruption, and by sharing the safety stock
with other companies who also need this key component, the cost of
maintaining this safety stock can be shared. Such inventory pooling
strategies are quite common in retailing, where different retail stores or
dealerships share inventory
Agile Supply Chain

• These are supply chains that utilize strategies aimed at being

responsive and flexible to customer needs, while the risks of
supply shortages or disruptions are hedged by pooling inventory or
other capacity resources

• These supply chains essentially have strategies in place that

combine the strengths of "hedged" and "responsive" supply chains

• They are agile because they have the capability to be responsive to

the changing, diverse, and unpredictable demands of customers on
the front end, while minimizing the back-end risks of supply
disruptions.
Copyright © 2016 Pearson Education, Inc. 7
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Risk and
Uncertainties in
Supply Chains

Risk comes from not knowing which cog in your Supply Chain is in trouble
Warren Buffet
Uncertainty and Risk
• Uncertainty means that we can list the events that might happen in the future, but
have no idea about which will actually happen or their relative likelihoods.

• Risk means that we can list the events that might happen in the future, and can give
each a probability

• The key difference is that risk has some quantifiable measure for future events, and uncertainty
does not

• When you feel that a new product might sell well, you have uncertainty; when a market survey
says that there is a 70 per cent chance of it selling well, you have risk

17
Supply Chain Complexities
• Globalization
• Increasing variety of products
• Fragmentation of supply chain ownership
• Decreasing product life cycles
• Increasingly demanding customers
 2. Establishing the Context

1. Communication and Consultation

Risk Assessment

7. Monitoring and Review

3. Risk Identification

4. Risk Analysis

5. Risk Evaluation

6. Risk Treatment
The Five Sources of Risk

Environmental Risk

Supply-Side Risk Process Risk Demand-Side Risk

Network/Control Risk
The Five Sources of Supply Chain Risk

Demand Risk Supply Risk Process Risk

• Loss of major accounts • Dependency on key suppliers • Manufacturing yield variability

• Volatility of demand • Consolidation in supply markets • Lengthy set-up times and
• Short life cycles • Quality and management issues inflexible processes
• Innovative competitors arising from off-shore sourcing
• Potential disruption at 2nd tier level • Equipment reliability
• Length and variability of • Limited capacity/bottlenecks
replenishment lead-times
• Outsourcing key business
processes

Network/Control Risk Environment Risk

• Asymmetric power relationships • Natural disasters
• Poor visibility along the pipeline • Terrorism and war
• Lack of collaborative planning and forecasts • Regulatory changes
• Bullwhip effects • Tax, duties and quotas
• Strikes
Cyberattack: The Maersk Global Supply-Chain Meltdown
• On June 26, 2017, Jim Hagemann Snabe had just arrived in California, where
he was scheduled to speak the next morning on global risks and uncertainty
at Stanford University’s Directors’ College.

• As he skimmed the participants’ handout, he took note of the usual suspects:

inflation, trade, energy price fluctuations, monetary policies, macroeconomic
trends, and strained markets. Unbeknownst to Snabe, an event unfolding
halfway across the globe was about to challenge those conventional notions
of risk.
• That night, while fast asleep in his Palo Alto hotel room, Snabe was suddenly
jolted from his slumber by an incoming call on his cellphone. The Maersk
chairman glanced at the iPhone dock on his bedside, which read “4:00 a.m.”
in a dim blue digital font. Who could be calling at this hour, he wondered.

• “We’ve suffered a major cyberattack!” exclaimed the caller. “The network is

down for the entire company—every system, in every location around the
globe.” Not even the telephone lines were spared. Maersk, which accounted
for 18 per cent of global container shipping, had gone dark.
REFERENCES

Chapter 2, Supply Chain Performance

Supply Chain Management (3ed.) by Chopra, Meindl and Kalra

https://hbsp.harvard.edu/product/97205-PDF-ENG

https://profit.pakistantoday.com.pk/2021/12/26/airlift-may-have-hit-a-billion-but-is-it-for-real/

https://www.reuters.com/business/energy/qatarenergy-signs-27-year-lng-deal-with-chinas-sinopec-2022-11-
21

https://www.wired.com/story/notpetya-cyberattack-ukraine-russia-code-crashed-the-world