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To cite this article: Yong-fei Ma, Li-wen Chen, Shao-dong Meng & Cong-qin Yi (2014) A study on
the risk control of supply chain under the background of globalization, Journal of Industrial and
Production Engineering, 31:4, 221-228, DOI: 10.1080/21681015.2014.934304
Download by: [Universiti Sains Malaysia] Date: 24 November 2016, At: 18:50
Journal of Industrial and Production Engineering, 2014
Vol. 31, No. 4, 221228, http://dx.doi.org/10.1080/21681015.2014.934304
A study on the risk control of supply chain under the background of globalization
Yong-fei Maa, Li-wen Chena*, Shao-dong Mengb and Cong-qin Yic
a
School of Economics and Management, Hebei University of Technology, China; bShangHai Customs College, ShangHai, China;
c
ShangHai Customs College, GuiZhou University, ShangHai, China
(Received August 2013; revised March 2014; accepted May 2014)
Using modeling approach of the complex network to construct a supply chain network model, this paper has mainly
studied the problem of disruption risk control of supply chain under the background of globalization. The simulation
result of the supply chain network model showed that the supply chain network is scale-free. The key nodes in the
supply chain network can be identied by calculating the centrality of the nodes. Detailed results demonstrated that the
ability of resist disruption risks and the network resilience of a supply chain can be improved by adding redundancy of
the supply chain network and keeping a high level of collaborative working of the key suppliers.
Keywords: risks control; supply chain; complex network; key nodes
able to capture the complex interactions among consequences for the individual company, the supply
decision-makers [15]. chain, and society. In supply networks, complexity
The complexity associated with multiple hand-offs in regards both the complexity of the supply network struc-
global supply chain increases the probability of disrup- ture and the complexity of the relationships among sup-
tions [9]. Supply chain disruptions are the result of risks ply network members [3]. Experts agree that supply
in supply chain risk, often engendered suspends or fail- chain complexity is real and that it negatively impacts
ure of the supply chain, logistics, production, informa- business. They acknowledge that the real causes of com-
tion ow, and capital ow. The important factor-driven plexity are many and varied: customer tailored, elaborate
supply chain disruptions occurred are natural disasters, products, multiple nodes and links, uncertainty in fore-
operational accidents, terrorism, political instability, and casting, etc.
the complex relationships between the members of the Complexity experienced in a supply chain increases
supply chain system (both cooperation and competition). its vulnerability to disruptions [4]. Demand-side, supply-
According to the structure of the supply chain, disrup- side, and catastrophic events can be considered the
tion risks in supply chain can be divided into supply dis- drivers of supply chain vulnerability. The demand-side
ruptions, logistics disruptions, coordination disruptions, drivers include demand uncertainty, customer depen-
and demand disruptions. Supply disruptions refer to dence, and disruptions in physical distribution of prod-
supplier delays to provide material or inventory shortages, ucts to the end-users (customers). The supply-side
which lead to downstream companies production stag- drivers include supplier business risks, production capac-
nated or even paralyzed. Logistics disruptions refer to ity constraints on the supply market, quality problems,
something happened to the products in transit from the technological changes, and product design changes. Sup-
supplier to the customer, product damaged in transit, or ply chain risk may be the outcome of unexpected varia-
that suppliers do not delivered the products on time, tions, such as capacity constraints, machine breakdowns,
which leads to downstream companies appeared produc- uncertain yields, quality problems, a re, or even natural
tion interrupt. Demand disruptions are the temporary or disasters occurring in a supplier facility [1]. The
permanent loss of demand caused by the extension of the increases in interrm dependence, as well as longer and
activities or interruption or serious inventory of down- more complex supply chain setups with global opera-
stream enterprise, which affects the upstream enterprises. tions, have increased the vulnerability of the chains to
Coordination disruptions are the risks caused by poor unexpected events [11]. The degree of the vulnerability
coordination between the members of the supply chain. of a supply chain is determined to a large extent by the
Typically, the disruption risk is an unexpected sudden degree of complexity of the network [13]. Therefore, the
interruption in the supply chain [12]. Although the proba- complexity existing in supply chain structure, elaborate
bility of occurrence is relatively small, the inuence to supply chain management, outsourcing of business, and
supply chain is far-reaching [6]. Generally, the more com- the instability of the external environment are all depen-
plex the supply chain network is, the more links in the dent on information technology, which all make supply
supply chain, and therefore, greater disruption risks in the chains vulnerable to diverse risks.
supply chain. As the number of constraints (e.g.
bottlenecks) in the supply chain from supplier to end cus-
tomer increases, the difculty of disruption detection and 3. Modeling supply chain complex network
recovery increases. However, the probability of an event
3.1. Basic theory of complex network
occurring may be reduced by effective supply chain plan-
ning and collaboration, quick response for supply chain A complex network represents a wide range of real-
redesign, and information visibility effectiveness. world systems occurring in nature [17], such as techno-
logical networks, biological networks, social networks,
and the economy, and has been attracting increased inter-
2.2. Complexity and vulnerability in supply chain est in recent years. In this section, we developed a
networks weighted complex network model, and the features of
Recent growth in globalization has created more com- this weighted model will be discussed further.
plex supply chains with the greater risks. With competi- A complex network can be represented as a graph
tion, shifting from companies to supply chains, it has G = (V, E) with a set of vertexes (V) connected by a
become very important for the individual company to be set of edges (E). For a weighted network, suppose w is
a member of a competitive supply chain. It has therefore the correlation between two vertexes and wij represents
become essential for the individual company in the sup- the correlation between node i and node j. The weight
ply chain to nd out what consequences different supply of the edges represents the intensity of the connection
chain design and management alternatives have for the between the two vertexes, and higher wij demonstrates
competitiveness of the supply chain and of the company a more intensive connection. Suppose the distance
and to actively promote alternatives with high competi- between node i and j is dij = 1/wij, then a higher weight
tiveness. Disruptions can rapidly have severe negative of the edge joining node i and j indicates a shorter
Journal of Industrial and Production Engineering 223
distance between them. The strength of vertex i is the connecting with node i is a function of the
sum of the weights of the edges indexed on i: weights of Si, that is to say:
X
Si Wij Y Si
j2Ci P
j Sj
where i is the neighbor vertexes of node i. Point inten- P
n!i
sity indicates that the node has a point of strength proba- where si j2V i wij is the sum of all the edges
bility distribution P(s). Shortest paths are used to dene indexed on node i.
a measure for topological importance of a node or an If the node N represents a retailer and has the proba-
edge, namely the betweenness centrality. bility of 1 .
(4) Suppose is the attraction factor of a node,
3.2. Modeling the supply chain using a weighted reects the quality of products, exchange time,
complex network and service quality. At each time interval, fol-
lowing the joining of a new node N to the net-
In a supply chain network, nodes represent different sub-
work, every node i (including N) in the network
jects, which could be the manufacturers, suppliers, retail-
selects m other nodes. The probability that node
ers, and customers, while the edges represent the
i selects node j is
collaboration and competitive relationships among these Q s d
subjects. The weights of the edges could be the trading Pj s d. If node i selects j but not vice versa,
k
i!j
volume and the strength of a node indicates the impor- k6i
tance of a subject in the supply chain. For example, if a the connection between the two will not be established
manufacturer is the only supplier in the world, the corre- or the edge weight remains unchanged if there is already
sponding node representing this manufacturer will have a connection between them. Otherwise, if two nodes
very high strength. This often occurs with key suppliers select each other simultaneously, then the edge weight
who control a core technology. For example, the earth- increases by 1, that is to say:
quake in Japan has delayed the supply by many Japanese wij wij 1
companies, which in turn has greatly affected the auto-
motive industry worldwide. Even, Chinas local compa- Figure 1 is the initial supply chain network with the
nies and those of Europe or the United States were manufacturer and the core, and Figure 2 is the model of
affected in a certain extent. These indicate that the supply chain with the manufacturer as the core which has
Japanese automotive suppliers have an important strength 100 nodes, and Figure 3 is the model of supply chain with
in the supply chain and their disruption could cause the the manufacturer as the core which has 500 nodes whose
breakdown of the whole supply chain. weight distribution is shown in Figure 4. As shown by the
In a traditional complex network, every vertex can tted curve, the weight in a supply chain follows the
be connected by every other vertex and all the vertexes power law distribution. That is to say, a node tends to
have the same nature. In supply chain networks, vertexes interact with nodes with higher weights. With the expan-
are different from each other due to their represented sion of the network, these nodes will nally have more
subjects, including suppliers, manufacturers, and custom- connections than the other nodes and are the hubs. But
ers. The characteristics of these subjects therefore a weightier node would not passively interact with lighter
affected the connections that could occur in the network. nodes and the core enterprise would take all the factors
In a supply chain with complex networks, manufac- into consideration, such as the quality of the suppliers
turers are hubs and other companies join the network. merchandise, services and price, and so on.
The connections among the vertexes are generated based As shown in the gure, suppose that the probability
on their intentions, regardless of the physical distance. of a new node represents a supplier () is 0.50, the initial
The model is a dynamic network in which edge weights weight of the new node (w0) is 0.10, the initial attraction
change as the collaboration intensities change, which in
turn rene the edge weights and affect the overall topo-
logical structures of the network. A model is constructed
as follows:
(1) at t = 0, the network has m0 vertexes and e0
edges,
(2) at every time interval, a new node N joins the
network and connects with the node w in the fol-
lowing ways, where w m0 and depends on N.
(3) If the node N represents a supplier and has a
Figure 1. Initial supply chain with the manufacturer as the
probability , the probability of node N
core.
224 Y.-f. Ma et al.
V4
V26
43
V3 35 V23
30
66
V5 V22 V25 V28
58
43
V2
24
V21
75
36
V31
26
30 V6 30 V24
V1 V7 25 V27
54
47
V15 V17
28
22
52
36
50
V30
V9 48
64 V
V18 45 32
V8 38
45 28 V16 V29
36
V11 V10 30
4
65
15
42
V13 45 V36
62
30 V35
V20 20
V14 V34
40
V38 V39
then the average shortest path of the network will be chain network. Reducing the risk of interruption of sup-
changed. If node i is more important, there will be more ply chain network is to optimize the network design, to
shortest path via node i, and decrease the value of the improve the elasticity of the supply chain network, to
weight connecting to node i, the average shortest path ensure the rapid recovery of the supply capacity at a crit-
of the network will be smaller. The weights decreased ical node failure, and to take measures against the risk of
the network structure as shown in Figure, comparing interruption of the supply chain network for critical
with the change of mean network shortest path, then the nodes. So, when the supply chain encounters an interrup-
importance of nodes could be quantied. Normalized tion, it can quickly revert to the initial state before the
importance of node i can be represented as interruption occurs. The primary premise to enhance the
Ii 1 li =L, where L is the shortest paths in the initial exibility of the supply chain is to understand the struc-
state. Rank top 10 important nodes in the supply chain tural characteristics of the supply chain network, includ-
network; the result is shown in Table 1. This method is ing supply chain nodes and the lines between them,
similar to the method of betweenness centrality, but the especially the key lines, and this helps to determine the
computational complexity is much smaller than the weak links of the supply chain and the risk factors to the
betweenness centrality. implementation of monitoring and risk management mea-
As can be seen from the table, while the weights of sures, so that a network node failure can still maintain
node V15 are smaller, it plays a role as a bridge across the continued operation of the network. On one hand, it
the network; similarly as a key supplier, it also needs to is necessary to maintain close contact with key suppliers
take protection measures. to learn the suppliers supply capacity, to reduce the
probability of risk occurring by co-operation, and infor-
mation sharing, to strengthen the awareness of risk man-
4.3. Building the resilient supply chain agement measures, and to make sure that various
Disruptions typically create a bottleneck at one of these enterprises can more clearly understand the changes in
nodes that can, in effect, shutdown the entire supply the supply chain risk through information sharing and
No. ID The node strength values sort ID Average shortest path change sort
1 V18 2.29 V18 0.2659
2 V8 1.76 V16 0.2266
3 V10 1.53 V8 0.2181
4 V33 1.52 V17 0.1716
5 V21 1.5 V33 0.1565
6 V27 1.47 V15 0.1557
7 V16 1.32 V7 0.1410
8 V29 1.27 V35 0.0951
9 V17 1.25 V10 0.0729
10 V7 1.15 V27 0.0709
Journal of Industrial and Production Engineering 227
exchange of the supply chain. On the other hand, to it is necessary to measure the importance of the nodes in
enhance the elasticity of supply chain networks in the the supply chain network, and then supply chain risk
risk of downtime occurs by selecting a key node in managers can easily discover which suppliers are
multi-source suppliers and safety stock strategy. In order strongly interconnected (critical) [18]. Disruption risks in
to improve the elasticity of the supply chain network, it supply chain could be managed by working closely with
should at least have a backup supplier to maintain a rea- key node enterprises and improvement of network resil-
sonable level of stock. ience and exibility can be achieved through the use of
To reduce the disruptions, the chains vulnerabilities a multi-skilled workforce, versatile equipment, and the
and bottlenecks, where there is a limit of capacity and development of closer relationships with suppliers and
where alternative options may not be available, e.g. ports customers to accommodate last-minute changes.
capable of taking large container vessels or central distri-
bution facilities which identify potential weaknesses and
Acknowledgments
key suppliers in their supply chain, should be addressed
The authors would like to thank Professor Chih-Hsing Chu for
[14], and the network that connects the business to its sup- offering precious inspiration, and wish to thank Mr Will Denny
pliers and their suppliers and to its downstream customers for his translation contributions to this paper.
should be mapped. Resilience can be achieved either
through redundancy to the key suppliers or keeping a high
level of collaborative working to the key suppliers includ- Notes on contributors
ing monitoring their nancial and operational health and Yong-fei Ma, a PhD student of School of Economics and
management, Hebei University of Technology, has been
even working with them to reduce their vulnerabilities.
working in the World Customs Organization Asia Pacic
From complex network perspective, supply chain Intelligence Liaison Ofce in Beijing since March 2010. He
disruption risk model design is based on two was actively involved in international cooperation, training and
considerations: In the case of supply chain disruption research while serving in China Customs service.
risk model, we optimaly design the supply chain model Li-wen Chen, Shao-dong Meng, and Cong-qin Yi are all profes-
based on the principle of exibility. In order to identify sors in Chinese universities, who are very specialized in supply
the key nodes and critical path in supply chain, the char- chain operational improvement and technology initiatives.
acteristics of supply chain network structure should be
understood rstly, then determine the vulnerabilities in
the supply chain, and take measures to enhance the anti- References
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