Supply Chain Disruption Management: Severe Events, Recovery, and Performance

• Author: John R. Macdonald,Thomas M. Corsi
• Published date: 01 December 2013
• Date: 01 December 2013
• DOI: http://doi.org/10.1111/jbl.12026

Supply Chain Disruption Management: Severe Events, Recovery,

and Performance

John R. Macdonald

1

and Thomas M. Corsi

2

1

Michigan State University

2

University of Maryland

Given their proclivity to occur despite managers’best efforts, disruptions often result in lost sales, lead to large financial losses, and have a

negative impact on shareholder wealth and operating performance. Less attention, however, has been paid to improving the process of

managing a disruption from its discovery through to complete recovery. This entire process is not, in fact, fully understood. Clearer insights are

needed surrounding the following issues: factors influencing the recovery process, how those factors interact to play a role in managerial deci-

sion making, and the company’s actual ability to recover. While it is possible to determine basic recovery process factors, a more complete pic-

ture of disruption management can be built from analysis of data collected through qualitative in-depth interviews. This research delivers

insights around the interactions and relationships among factors, providing the foundation for a set of propositions useful for further investiga-

tion in the following areas: discovery of the disruption event, causes of the event, and recovery performance. One finding indicates that while

internal disruptions are faster to recover from, they more likely lead to negative perceptions about the recovery performance outcome.

Keywords: disruption management; recovery; risk management; supply chain

INTRODUCTION

Supply chain disruptions have been defined as “unplanned and

unanticipated events that disrupt the normal flow of goods and

materials within a supply chain”(Craighead et al. 2007, 132).

Much research has focused on preventing disruptions before they

occur by minimizing the risk of their occurrence (see, e.g., Tom-

lin 2006; Ritchie and Brindley 2007; Zwikael and Sadeh 2007;

Manuj and Mentzer 2008a; Wagner and Bode 2008; Fragniére

et al. 2010; Wang et al. 2010; Yang and Yang 2010). However,

a series of recent disruptions caused by events such as Hurricane

Katrina (2005), the Eyjafjallaj€

okull volcano (2010), the Japanese

earthquake/tsunami (2011), and the Evonik chemical plant fire in

Germany (2012) provide unmistakable evidence that managers

do not have the ability to prevent all disruptions. Certain events

having a significant disruptive impact on supply chains will, in

fact, occur regardless of risk planning. As a result, managers will

continue to face the critical challenge of recovering from supply

chain disruptions and attempting to minimize their impact. Thus,

beyond understanding how managers might work to prevent dis-

ruptions through risk planning, it must be better understood how

managers respond to and recover from the supply chain disrup-

tions they experience.

Indeed, managers face disruptions to their supply chains

resulting from a variety of causes including: poor communication

between suppliers and manufacturers, opportunism by suppliers,

strikes by truck drivers or port workers, acts of terrorism, infor-

mation technology (IT) malfunctions, industrial accidents, quality

problems, operational problems, natural disasters, and govern-

ment regulations (Sheffi2001; Chapman et al. 2002; Cooke

2002; Machalaba and Kim 2002; Mitroff and Alpaslan 2003;

Blackhurst et al. 2005; McKinnon 2006). These disruptions often

lead to large financial losses, lost sales, and have a negative

impact on shareholder wealth and operating performance (Hen-

dricks and Singhal 2003, 2005).

After a disruptive event has impacted the supply chain, the

goal of the affected company is to recover from the event and

minimize its effects as quickly as possible. Clearly, the speed

and success with which an organization recovers from disrup-

tions depends in large part on the choices its supply chain man-

agers make. As an example, the well-known example of Nokia

and Ericsson (Sheffi2005) can be called to mind to understand

the difference managerial decisions can make on the recovery

process. Nokia took a series of immediate, proactive interven-

tions to recover from a supply chain disruption caused by a fire

in one of its core suppliers of a critical cell phone component.

As a result of these actions, Nokia arguably recovered more

quickly and effectively than did Ericsson, which initially adopted

a“wait and see”approach to handling the event.

For organizations to effectively respond and recover when dis-

ruptions occur, managers should be aware of the internal and

external factors that may affect the overall disruption manage-

ment process. To date, however, the literature has only begun to

define exactly what these specific factors are or how they are

linked together in an overall process. Frameworks to date have

focused primarily on steps to be taken (see, e.g., Helferich and

Cook 2002) in recovering from the disruption. There has been

far less attention, however, devoted to understanding the overall

disruption management process (Bode et al. 2011). Blackhurst

et al. (2005) describe three key process-level categories that are

part of the overall postevent disruption management process;

namely, discovery (of the disruption event), recovery (from the

event), and redesign (of the system after recovery).

Bode et al. (2011) began an exploration of factors by focusing

on the buffering or bridging decisions managers make based on

the disruption’s impact as well as the predisruption factors of

trust, dependence, prior experience, and supply chain disruption

orientation. A buffering decision will lead to reduction of a

Corresponding author:

John R. Macdonald, Department of Supply Chain Management,

Michigan State University, 632 Bogue St., Room N370, East Lan-

sing, MI 48824, USA; E-mail: johnmac@msu.edu

Journal of Business Logistics, 2013, 34(4): 270–288

© Council of Supply Chain Management Professionals

firm’s exposure to breakdowns in their partners’supply chains

through mechanisms such as added inventory. A bridging deci-

sion will lead to enhancing the relationship with supply chain

partners through mechanisms such as increased communication

and information exchange. Figure 1 puts these concepts in a

time-series profile.

Continuing in this line of research, the factors that influence,

and contribute to, the process of disruption management need to

be better understood. Insights into the manner in which the fac-

tors interact with one another and impact recovery performance

are important. Toward that end, this exploratory paper works to

build on previous research by: (1) identifying important factors

involved in the recovery process that can expand on previous

frameworks and (2) use experiences from decision makers who

handle disruptions for their companies to provide understanding

of how these factors tie together in a directional process, influ-

encing and relating both to one another and how they may pre-

liminarily affect ultimate recovery performance.

A review of disruption-related research allowed development

of an initial set of disruption factors relating to the categories of

the event, discovery, readiness, recovery, and performance. To

enhance these categories, and, borrowing heavily from a

grounded theory approach, qualitative data were collected

through interviews with high-level supply chain managers.

Analysis of the data allowed identification of new factors to be

incorporated into a more complete recovery framework of the

disruption management process as well as investigate the concept

of recovery performance, both of which are discussed in the

results section. This does not seem to appear in previous

research, especially given that less attention has been given to

this research stream (Bode et al. 2011). Finally, a series of prop-

ositions are developed which are testable with a representative

sample of supply chain managers in future research.

DISRUPTION MANAGEMENT

The disruption management process makes an important contri-

bution to a company’s overall resiliency (Bhamra et al. 2011).

Resilience has been articulated in Sheffi(2005) as a business

having the ability to recover quickly. Other definitions have

appeared in more recent supply chain literature; one useful exam-

ple is Fiksel’s (2006) definition: “the capacity for an enterprise

to survive, adapt, and grow in the face of turbulent change”

(p. 16). Using similar words with alternate definitional scopes,

Ponomarov and Holcomb (2009) include the terms of response

and recovery as the latter parts of supply chain resilience that

take place after the disruption has occurred. Turbulent change

can refer to a disruption event, and how well the company per-

forms in the recovery effort affects its ability to be resilient.

It is vital, then, to know how to manage, and recover from, a

disruption. Building on Figure 1, a set of previous research find-

ings is reviewed to present a set of steps and factors important

for understanding the overall disruption management process.

These steps will begin with the event description and discovery,

move through key aspects recovery process, and end with full

recovery and the performance assessment of the company during

the recovery effort.

Event attributes

Researchers have used a number of different attributes to define

and categorize disruptive supply chain events. One example attri-

bute is the impact (or severity) factor of the disruption, as evi-

denced in preevent likelihood versus impact matrices (Sheffi

2005). This matrix examines potential events that could affect a

company and assigns a probability of occurrence (from low to

high) and a consequence level (from light to severe) (Sheffi

2005, 32), mapping them altogether in a visual format to help

managers make decisions about which potential events to use

resources to mitigate against. Ogden et al. (2005) suggest using

low-, medium-, and high-impact ranges for supply chain disrup-

tions with no fixed cost points. “Impact”effectively serves as a

higher-order factor that is made up of other factors, including

event-specific and probable performance results.

The term “severity”is conceptually similar to “impact”and has

been either left out or proven difficult for researchers to define.

The frameworks and constructs that exist to date presume that the

disruption is serious and requires the steps or factors outlined by

that framework. Some researchers have focused on circumstances

that lead to severe disruptions, such as unreliable information

(Loch and Terwiesch 2005). Others appropriately define it as a

continuum, with severity denoted by the number of nodes within

a supply network “whose ability to ship and/or receive goods and

materials …has been hampered”by the disruption (Craighead

et al. 2007, 134). Helferich and Cook (2002) use a subjective

scale of minor (score of 1) to massive (score of 5) measured with

lives, injuries, and dollars in their handling of the term in a Fed-

eral Emergency Management Agency (FEMA) context. Boin

(2004) points out that the similar term “crisis”is subject to “the

perceptions of decision makers, rather than some set of predefined

conditions”(p. 171). Many studies that focused on other topics

mention “severe disruption”without defining it (e.g., Heese 2007;

Wagner and Bode 2008; Skipper and Hanna 2009).

There are similar examples of categorizing disruption events.

The cause of the disruption is an initial method, with Kleindorfer

and Van Wassenhove (2004) using the concepts of “purposeful”

and “accidental”disruptions. Similarly, “natural,”“intentional,”

and “accidental”are used by Helferich and Cook (2002) and Rit-

ter et al. (2007). Chopra and Sodhi (2004) use location as an

identifier instead, with their categories of “supplier,”“internal,”

and “customer”referring to the part of the supply chain that was

Figure 1: Time-series profile of concepts.

Sources: Adapted from Sheffi(2005) and Zobel et al. (2012).

Includes descriptions from Blackhurst et al. (2005)

Managing a Supply Chain Disruption 271