Supplier Failure Research Articles

Organization of the drug supply chain in state health services: potential consequences of the public-private mix

To assess the consequences of private outsourcing on the overall supply and filling of prescriptions in state health services. The research was conducted using quantitative and qualitative techniques in 13 states. The information was collected through interviews and direct observation. The interviews were carried on staff of state health services related to the drug supply chain and users of health services. The quantitative approach examined the percentage of stocked full recipes in a sample of users. States that have opted for the fully outsourced model, and properly monitored this choice, have increased the supply of drugs to their users and guaranteed the supply in the care units in charge. Other states with the outsourced model have multiple problems: direct purchase of drugs not included in the basic drugs catalogue, failure of suppliers and shortage of supplies in the laboratories that provide the company. The main disadvantages identified in all models were: the subordination of the medical criteria to administrative criteria, insufficient planning based on local care needs, heterogeneous procedures, insufficient knowledge of regulations and lack of normativity. The results indicate that the incorporation of private providers in the drug supply chain may not be the solution to bring down the shortage faced by health services, especially at the hospital level. The shift to outsourcing models has developed without incorporating evaluation mechanisms and the consequences that this transition can have on state health systems must be investigated more deeply.

Supply management and corporate social responsibility: the challenge of global chain traceability

The sustainable supply chain has become a major research topic and has given rise to a large number of academic works. These studies focus on how supply management integrates environmental, social and economic criteria allowing a network of interlinked organizations to achieve long-term economic viability. The objective of this research is to explore the paradigm shift that buyers must undergo when adopting a sustainable development approach. This new vision extends and surpasses the traditional dyadic buyer-supplier relationship that has historically dominated the field leading to a new global supply chain dynamic. The case of the Cité des Sciences et de l'Industrie in Paris is used to question the ability of a hub firm to ensure component traceability from first-tier and second-tier suppliers and thus consolidate their corporate social responsibility (CSR) strategy. Indeed, second-tier supplier failure to comply with CSR requirements, even if the first-tier suppliers meet these requirements, may damage customer perception of the hub firm's strategic positioning. This research mobilizes the agency theory conceptual framework to illustrate that hub firms tend to trust first-tier suppliers with verifying CSR requirements in the upstream supply chain to reduce direct agency costs (monitoring and bonding expenditures). If this approach becomes widespread, it is highly likely that CSR expansion along the global supply chain will be ineffective.

Failure Risk and Quality Cost Management in the Choice of Single versus Multiple Sourcing

The advantage of multiple sourcing to protect against supplier failures arising from undependable products due to latent defects is examined using a model with non-linear external failure costs. Prior research has focused only on supplier failures arising from unreliable supply, such as late/insufficient/no delivery. I derive a closed-form characterization of the optimal production quota allocation for the LUX (Latent defect-Undependable product-eXternal failure) setting. The allocation determines the optimal supply base, with intuitive properties that hold under a mild requirement. The requirement includes the special case of equal procurement costs charged by suppliers but also allows unequal costs without any particular order. The key result of the paper is a necessary and sufficient condition determining whether single or multiple sourcing is optimal. Another condition is obtained to determine the exact size of the optimal supply base, provided the mild requirement holds. With minor modifications, the results also hold when a buyer-initiated procurement contract can be used to elicit private information on the suppliers’ unit variable production costs.

Managing Change in Difficult Times

Management The recent economic crisis provided a sense of urgency that helped organizations everywhere to successfully implement changes that would have been difficult otherwise. Companies spanning all global geographies and across all market segments, including energy, are being forced to examine the fault lines in their business under the pressure of sharply reduced demand, the failure of suppliers and partners, limited access to finance, and other consequences of the downturn. Many firms find this an inauspicious environment in which to attempt fundamental change in processes, behaviors, or structures, for fear of subjecting the organization to even greater strain. Others, however, see the crisis as a unique opportunity to achieve just that. To assess the degree of change that firms have been experiencing since the onset of the economic crisis, and how they are handling its internal consequences, the Economist Intelligence Unit surveyed more than 500 European and US executives in July and August 2009 as part of Celerant Consulting’s second annual global survey on change. More than half (59%) of global business executives who responded to the survey say that the current economic crisis has revealed shortcomings in their organization that they are attempting to redress and two-thirds (66%) of participants state that their organization is using the crisis as an opportunity to drive change that would have been difficult to achieve in better times. Maintaining Change Programs During times of economic uncertainty it is common for companies to attempt to simply weather the storm and not invest in organizational changes that will ultimately result in more efficient and effective business practices. However, the survey reveals that only 6% of firms have suspended change programs—structured approaches to implementing and managing change within a company—as a result of the financial crisis and the majority (60%) of firms are continuing with and even accelerating existing change programs while also launching new ones. There is a danger, however, that firms are using the crisis to launch change initiatives too rapidly, with too heavy a focus on short-term objectives which yield only one-time saving rather than creating sustainable cost improvements that will continue over time. More than half of respondents in the survey confirmed this.

Further Motivation for Continuous Improvement in Just-In-Time Logistics

In the supply chain literature, little work has been done on modeling the propagation pattern of quality defects in supply chains. We quantitatively model a defect bullwhip effect in supply chains that can be addressed logistically by reducing time intervals between product deliveries. We explicitly consider the cause and effect of this defect bullwhip effect and demonstrate analytically that there is a strong incentive for practitioners to continuously reduce shipment size. We also consider production characteristics such as the frequency of supplier failure and stringency of the buyer's inspection process. Implications for managers are suggested.

System-oriented supply chain risk management

Due to increasing turbulence in global sales and supply markets, today's supply chains are exposed to numerous risks. Companies have discovered that a systematic management of potential incidences, e.g. supplier failures and unexpected demand changes, holds a competitive advantage. However, risk management in global supply chains is very complex. This article contributes to the existing literature by making this complexity more manageable through the introduction of a system-oriented view into supply chain risk management (SCRM). Two new, interrelated modelling approaches are proposed: a Supply Chain Risk Structure Model describes the system that determines the causes and effects of supply chain risks, i.e. the factors and their relationships. The second model, the Supply Chain Risk Dynamics Model, is used to model the possible dynamics of the risk development. This article also demonstrates how these models integrate into a SCRM process framework. A case study with three companies shows the feasibility of the approach.

Disruption‐management strategies for short life‐cycle products

AbstractSupplier diversification, contingent sourcing, and demand switching (whereby a firm shifts customers to a different product if their preferred product is unavailable), are key building blocks of a disruption‐management strategy for firms that sell multiple products over a single season. In this article, we evaluate 12 possible disruption‐management strategies (combinations of the basic building‐block tactics) in the context of a two‐product newsvendor. We investigate the influence of nine attributes of the firm, its supplier(s), and its products on the firs preference for the various strategies. These attributes include supplier reliability, supplier failure correlation, payment responsibility in the event of a supply failure, product contribution margin, product substitutability, demand uncertainties and correlation, and the decision makes risk aversion. Our results show that contingent sourcing is preferred to supplier diversification as the supply risk (failure probability) increases, but diversification is preferred to contingent sourcing as the demand risk (demand uncertainty) increases. We find that demand switching is not effective at managing supply risk if the products are sourced from the same set of suppliers. Demand switching is effective at managing demand risk and so can be preferred to the other tactics if supply risk is low. Risk aversion makes contingent sourcing preferable over a wider set of supply and demand‐risk combinations. We also find a two‐tactic strategy provides almost the same benefit as a three‐tactic strategy for most reasonable supply and demand‐risk combinations. © 2009 Wiley Periodicals, Inc. Naval Research Logistics, 2009

Long-Term Contracts Under the Threat of Supplier Default

Contracting with suppliers prone to default is an increasingly common problem in some industries, particularly automotive manufacturing. We model this phenomenon as a two-period contracting game with two identical suppliers, a single buyer, deterministic demand, and uncertain production costs. The suppliers are distressed at the start of the game and do not have access to external sources of capital; hence, revenues from the buyer are crucial in determining whether default occurs. The production cost of each supplier is the sum of two stochastic components: a common term that is identical for both suppliers (representing raw materials costs, design specifications, etc.) and an idiosyncratic term that is unique to a given supplier (representing inherent firm capability). The buyer chooses a supplier and then decides on a single- or two-period contract. Comparing models with and without the possibility of default, we find that, without the possibility of supplier failure, the buyer always prefers short-term contracts over long-term contracts, whereas this preference is typically reversed in the presence of failure. Neither of these contracts coordinates the supply chain. We also consider dynamic contracts, in which the contract price is partially tied to some index representing the common component of production costs (e.g., commodity prices of raw materials such as steel or oil), allowing the buyer to shoulder some of the risk from cost uncertainty. We find that dynamic long-term contracts allow the buyer to coordinate the supply chain in the presence of default risk. We also demonstrate that our results continue to hold under a variety of alternative assumptions, including stochastic demand, allowing the buyer the option of subsidizing a bankrupt supplier via a contingent transfer payment or loan and allowing the buyer to unilaterally renegotiate contracts. We conclude that the possibility of supplier default offers a new reason to prefer long-term contracts over short-term contracts.

Changing risk preferences in supply chain inventory decisions

The risk preferences of managers may cause their inventory ordering decisions to deviate from the optimal policy. Past studies in operations management have produced mixed results. This study examines this proposition using decision data collected from a supply chain experiment. This article finds that changing the risk preferences of managers with respect to demand changes and supplier failures is a significant behavioural factor in explaining deviations in ordering decisions. This result provides an additional behavioural cause in explaining the bullwhip effect in supply chains. It also provides insights on the challenges for reducing the bullwhip effect in supply chains.

The risk of second-tier supplier failures in serial supply chains: Implications for order policies and distributor autonomy

As organizations decrease inventory, the potential impact of a supply disruption increases. However, due to supply chain structural changes, the likelihood of a disruption may be less. Additionally independent supply chain actors may react to policy changes, changing supply chain configurations and perhaps reducing loss magnitudes. If risk is a product of likelihood and magnitude, does higher inventory reduce an organization’s supply related risk? This paper examines the supply risk issue within the context of a second-tier supply failure, and is grounded in inventory and resource dependency theories. By evaluating risk assessment in a simulation environment, exploratory findings suggest that increased inventory in a tiered supply chain can sometimes increase supply risk rather than decrease it. Managerial insights into the effects of supply chain stability and coordination are provided. By taking a systems perspective of supply risk management, organizations will be better able to manage supply risk concerns.

Supply Chain Risk Management

The existing models utilise a mean value approach with deterministic failure cost to determine the optimal number of suppliers in the presence of supplier failure risks. The mean value approach assumes, the firm has a linear utility function with respect to the supply disruptions. For major disruptions that could threaten the survival of the firm, the linearity assumption is questionable. Furthermore, the operating cost of working with the suppliers and the financial loss cause by failure of suppliers are subject to uncertainty. This article utilises the mean-variance approach to determine the optimal set of suppliers in the presence of supplier failure risks. The importance of cash-flow variability in the supplier selection/planning process is considered explicitly. Our methodology allows us to balance the two desirable, but conflicting objectives of cost minimisation and service levels achieved. Furthermore, traditional risk management tools like insurance are incorporate into the optimal suppliers' selection process.

Manufacturing firm reaction to supplier failure and recovery

PurposeManufacturing firm reaction to a supply failure is important because buyer dissatisfaction may induce related development or switching costs. The purpose of this paper is to ask: what is the impact of a supply failure and recovery on manufacturing firm dissatisfaction with the supplier?Design/methodology/approachA case study approach is used based on interviews of key informants, examining four US manufacturers classified by industry type (aerospace and electronics) and firm size (large and small).FindingsManufacturing firm dissatisfaction increases relative to the accumulated impact of the supply failure, and is reduced when the manufacturer has slack to absorb the failure or shares blame for it. The supplier's failure recovery reduces dissatisfaction to the extent that it demonstrates the supplier's long‐term commitment to the relationship. The findings indicate that attributes of the failure, the failure recovery, and context must be taken into account when considering how a supplier's recovery may ameliorate the negative impact of a supply failure.Research limitations/implicationsThe results are constrained by the number of cases we collected and by the limitations of retrospective interviews.Practical implicationsThe findings suggest that manufacturers can over‐react to a failure because of the perceptual nature of risk, or under‐react to a failure because of excess slack or switching costs.Originality/valueThis paper adds significant detail to our understanding of how supplier failure and recovery impact a manufacturer's dissatisfaction with a supplier, the antecedent to costs involved with supplier development or switching.

A supplier allocation model considering delivery failure, maintenance and supplier cycle costs

Supplier decision-making is a critical component of supply chain management given the recent increased reliance of many organizations on their suppliers. This paper presents a decision model that optimizes the allocation of demand across a set of suppliers by considering the expected losses due to supplier failure to deliver, the purchasing costs, and the cost of maintaining a set of suppliers. In the case of multiple sourcing, the model takes into consideration the ability of suppliers to increase their output when one or more suppliers fail to deliver. A sensitivity analysis is performed to illustrate the model's behavior with regards to parameters such as the probability of supplier failure, the cost of supplier failure, and the output flexibility of the suppliers. Finally, we present an application case where the model's potential to analyze the supplier demand allocation decision is demonstrated.

The optimal number of suppliers considering the costs of individual supplier failures

This paper utilizes the decision tree approach to determine the optimal number of suppliers in the presence of supplier failure risks. Previous proposed models have considered only two states of nature: all suppliers fail to deliver and not all suppliers fail to deliver. In practice, however, there is clearly a partial loss associated with the failure of any individual supplier. We present models that allow a more realistic decision-making process by taking into consideration the independent risks of individual supplier failures when the probability of failure for each of the suppliers is equal as well as the case where the probability of failure from each of the suppliers is not equal. We also consider various levels of supplier failure probability and possible procurement or operating cost savings gained from using less reliable suppliers. The results indicate that when suppliers are highly reliable, sole sourcing is the lowest cost approach under all experimental conditions. However, as the suppliers become less reliable, additional suppliers may be required to obtain the lowest cost. Finally, it was shown that only in the extreme conditions of unreliable suppliers, high loss to operational cost per supplier, and low ability to mitigate the failure from a partial set of suppliers, having a large number of suppliers is an effective strategy.

Durability, value, and reliability of selected electric powered wheelchairs

Fass MV, Cooper RA, Fitzgerald SG, Schmeler M, Boninger ML, Algood SD, Ammer WA, Rentschler AJ, Duncan J. Durability, value, and reliability of selected electric powered wheelchairs. Arch Phys Med Rehabil 2004;85:805–14. Objective To compare the durability, value, and reliability of selected electric powered wheelchairs (EPWs), purchased in 1998. Design Engineering standards tests of quality and performance. Setting A rehabilitation engineering center. Specimens Fifteen EPWs: 3 each of the Jazzy, Quickie, Lancer, Arrow, and Chairman models. Interventions Not applicable. Main outcome measures Wheelchairs were evaluated for durability (lifespan), value (durability, cost), and reliability (rate of repairs) using 2-drum and curb-drop machines in accordance with the standards of the American National Standards Institute and Rehabilitation Engineering and Assistive Technology Society of North America. Results The 5 brands differed significantly ( P≤.05) in durability, value, and reliability, except in terms of reliability of supplier repairs. The Arrow had the highest durability, value, and reliability in terms of the number of consumer failures, supplier failures, repairs, failures, consumer repairs and failures, and supplier repairs and failures. The Lancer had the poorest durability and reliability, and the Chairman had the lowest value. K0014 wheelchairs (Arrow, Permobil) were significantly more durable than K0011 wheelchairs (Jazzy, Quickie, Lancer). No significant differences in durability with respect to rear-wheel-drive (Arrow, Lancer, Quickie), mid-wheel-drive (Jazzy), or front-wheel-drive (Chairman) wheelchairs were found. Conclusions The Arrow consistently outperformed the other wheelchairs in nearly every area studied, and K0014 wheelchairs were more durable than K0011 wheelchairs. These results can be used as an objective comparison guide for clinicians and consumers, as long as they are used in conjunction with other important selection criteria. Manufacturers can use these results as a guide for continued efforts to produce higher quality wheelchairs. Care should be taken when making comparisons, however, because the 5 brands had different features. Purchased in 1998, these models may be used for several more years. In addition, problem areas in these models may still be present in newer models.

The Risk Management Decision in the Total Business Setting

This paper attempts to (1) recast risk management theory in light of the complex objectives of modern corporations and (2) suggest that risk management theory needs to merge with traditional financial theory in order to bring added realism to the decision making process. In regard to the former, it is observed that normative risk management decision models overlook the behavioral realities and resulting complex corporate objectives involving considerations of profitability, growth, solvency, and social responsibility and such subsidiary issues as the trusteeship concept, satisficing, and the maintenance of financial mobility. In regard to the latter, the compartmentalization of the study of pure and dynamic risk behavior is inappropriate in light of modem financial theory which views the firm as an integrated unit where all of the cost and revenue aspects of a business problem are analyzed simultaneously through an appropriate model. Traditionally, risk management has been segregated from the remainder of financial theory, the reasoning being that the analytical and statistical problems surrounding the treatment of pure risks1 differ from those involving other production cost and revenue uncertainties. This isolation has implied that pure risk costs2 and production costs are unique, and therefore that optimal production deciRobert I. Mehr, Ph.D., is Professor of Finance in the University of Illinois. Dr. Mehr is a Past President of A.R.I.A., a founder of both the Risk Theory Seminar and of the Pacific Insurance Conference, and is a Past Director of the American Finance Association. Stephen W. Forbes, Ph.D., is Associate Professor of Finance in the University of Illinois. This paper was submitted in September, 1972. 1 Pure risks concern those events which usually involve only financial loss to a firm. These include destruction of property, theft, credit losses, death or disability of employees, legal liability, and failure of suppliers to perform. 2Pure risk costs include insurance premiums, administrative costs involving pure risks, costs involved in loss reduction or prevention, and the difference in the present values of the firm before and after a loss not compensated by insurance or other sources such as tort recoveries. sions can be reached by considering these factors separately rather than in combination. The traditional approach at best may result in nonoptimal business decisions and at worst may result in a complete disregard for the pure risk costs arising from such decisions. Such an unrealistic compartmentalization is especially inappropriate in light of modern financial theory which pictures the firm as a functioning totality. The modern executive has become a generalist. He no longer views his business problems through the narrow window of specialization, but instead applies quantitative and qualitative approaches to decision making which consider the accounting, marketing, production and financial aspects of a problem simultaneously. His responsibilities encompass the integrated operations of the firm rather than a narrow circle of subordinates. His information systems are designed to provide accurate and relevant data rapidly as an aid in solving multi-