Using business complexity to handle supply chain risk: Dealing with borders of cargo liability (CORE1209)

Summary: The dominant part of the academic literature on supply chain management assumes that decisions are based on objectivity, determinism and rational choices. They consider seldom complexity of the networks and casting defects that are due to deviating organizational structures and information systems. In order to manage complex risks companies may be willing to make decisions that reduce their own risks at the expense of other supply chain partners. That is an old maid game. The paper presents two cases, where logistics actors confine one-sided own liabilities instead of reducing risks in the whole network. The paper can be viewed here: http://www.intechopen.com.

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Full review: Rational reasoning and responsibilities stated in agreements and contracts are assumed to create baseline for decisions in supply chain management. If contracts do not give clear answers, we assume partners can be brought into a fair and impartial agreement.  In general, cooperation and information sharing are seen to produce long-term benefits for all stakeholders. These assumptions hide situations where logistics partners are prone to make opportunistic and subjective decisions.

In real life managers must be able to dynamically adapt logistics processes to unexpected harmful events, last-minute changes and rearrangements with very limited information about the situation and consequences of their decisions. One-sided simplifications are natural responses to reduce responsibilities of the company. The paper presents two cases where logistics risks are transferred at the expense of other supply chain partners. In the first case logistic company implements a camera surveillance system in own warehouses in order protect the company against inappropriate security claims (e.g. due to damages during transportation). In the second case a leading wholesaler creates strict rules how suppliers are allowed to deliver shipments in warehouses and how the wholesaler penalizes non-compliant deliveries. In both cases risk transferring strategy leads old maid game, not to mitigation of overall supply chain risks. The strategies may even increase risk and reduce motivation to collaborate in the supply chain network.

The paper illuminates possible unexpected and unwanted outcomes in the CORE project. Simplifications and narrow approaches are known to reduce supply chain resilience. First, they may lead to the loss of crucial information. Second, partners may be prone to pay more attention to own tasks and less to interdependencies with other partners. The CORE work packages that produce only technological solutions to meet minimum legislative data sharing requirements are vulnerable to the risk. The same vulnerability concerns organizational designs, where a focal company acts as a supply chain orchestrator and defines one-sided technical specifications for other trading partners. The comprehensive approach would increase visibility in the whole end-to-end supply chain and increase motivation for collaboration between partners.

Reference: D. Ekwall, F. Nilsson, 2008 “Using business complexity to handle supply chain risk: Dealing with borders of cargo liability”. In proceedings of Nofoma 2008, Helsinki

CORE1209

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