Case-studies for course Introduction to Supply Chain Resilience

Prof. Dr. Dmitry Ivanov

Case-study “Supply chain risks in automotive industry”

In January 2021, many automotive companies worldwide had to stop production at their
assembly plants caused by missing supply of semiconductors. The first reason for these
shortages was an unexpected increase in demand at automotive firms that recovered after the
pandemic shock in 2020 during which they have reduced orders for semiconductors following
the decreasing demand for cars. However, due to insufficient coordination and a lack of
demand transparency, the suppliers have not expected a fast recovery of the automotive
industry, and re-allocated their capacities to other SCs with silicon demands. In particular,
manufacturers in the semiconductor industry in China intertwined with electronics industry and
healthcare SCs to benefit from their increasing demand for semiconductors and substitute the
missing demand from the automotive industry. The second reason for shortages is the
production of the raw material – silicon – required in semiconductor industry. Silicon as a raw
material is associated with high sourcing risks. Silicon production has been reduced in China
in 2020 due to the shortages of electricity generated by hydropower stations which in turn,
were caused by long periods of drought. This example illustrates interconnections between
different SC risks (e.g., natural resource shortage risks, demand risks, process risks, and
supply risks) along with the ripple effect (i.e., propagation of a local disruption through a global
network), bullwhip effect (i.e., amplification of variations in production and ordering quantities
across the SC induced by insufficient demand transparency), and intertwining of supply
networks.

Example “Resilient and efficient supply chain”

In practice, firms should target an integrated system that combines elements of efficiency,
resilience, and responsiveness. For example, PepsiCo has developed a global supply chain
for beverages using coconut water. To utilize the advantages of efficiency, PepsiCo has
selected primary suppliers and manufacturers in Southeast Asia. To increase resilience in light
of frequent natural disasters in this geographical region, PepsiCo established back-up
manufacturing capacities in other regions. Moreover, they utilized operations management
models to use inventory for protection against disruptions in an efficient way. In terms of
responsiveness, PepsiCo has located several packaging plants close to the markets to reduce
the lead-time. This agility capability can also be considered for resilience since the regional
packaging plants can be used in case of a disruption at a central packaging plant.
Case-study Ford: Repurposing the supply chain in a week - From car manufacturing to
saving lives during the COVID-19 pandemic
One practical example that illustrates the concepts of supply chain resilience and viability is
the repurposing of production systems and supply networks at Ford during the outbreak of the
COVID-19 virus in the USA. On March 19, 2020, Ford learned from the Mayo Clinic that there
was a shortage of PPE (personal protection equipment) and that help was needed to protect
first responders. A protective equipment task force was soon created. On the morning of March
20, designers and prototypers in Ford’s Detroit and Palo Alto labs began to review and refine
face shield concepts. Key PPE equipment and relevant suppliers were identified and
contacted. By mid-day, engineering and program managers were engaged. Representatives
from Detroit hospitals were also identified and consulted on their shield needs. At 4:30 pm, the
first meeting to discuss the face shield production request took place. On March 21, the open-
source UW/Delve design was identified as the “go” candidate. The original design team was
contacted, and refinements to the design were developed with input from hospital
representatives.
On the morning of March 22, material planning and logistics were engaged to plan inbound
and outbound deliveries for the newly established product. Suppliers began
shipping/overnighting materials to production locations. Troy Design and Manufacturing (TDM)
company was identified for a high volume production location. That same day, the first
prototype was completed, and RCO Engineering was engaged to do an initial prototype
production run. In the afternoon, prototype material from Creative Foam was picked up in
Brighton (halfway from the plant in Fenton) to be reviewed with representatives from DMC
(Detroit Medical Center) and HFHS (Henry Ford Health System). At 3:45 pm, D-Ford
employees Will Brick and Jeff Sturges and launch manager Howard Lew met in Eastern Market
with DMC representative Erin Brennan and HFHS representative Brianna Riley to receive the
“OK to use”. The prototype batch was complete and tested and approved by hospital
representatives. The elapsed time from the initial request was 72 hours. At 7:45 pm the night,
suppliers were identified (Creative Foam, YKK, Hope Global).
On March 23, the mylar shield component supply constraint was addressed when an open-
source design originator (Lennon Rodgers) identified suppliers in Wisconsin capable of
producing 30,000 units per hour if needed. On the morning of the 24th, Creative Foam
fabricated high-speed cutting tools for foam and mylar parts, with production beginning at 8
am. The basic production line was set up at RCO, and the first 1,000 face shields were
produced by close of business that day. The first 5,000 (1,000 RCO and 4,000 TDM) face
shield deliveries arrived at Metro Detroit hospitals. Production kickoff began in TDM. The
supply of elastic bands was identified as not sufficient for full speed production, so an alternate
design was engaged, and additional sources of elastic were pursued. In the late evening, FDA
and Ford signed a legal approval of production shields. Contingency planning began, and
alternate designs were validated in case of material shortages.
On March 25, production continued. However, an alternate head strap design was required,
with engineering managers identifying Cooper Standard as a possible supplier. On March 26,
Cooper Standard was integrated into the repurposed supply chain. New rubber components
were incorporated into the new assembly process, and prototype parts were delivered to DMC
and approved. This allowed the production of 12,000 shields per day. On March 27, the supply
of rubber parts was exhausted, and two new contingency designs were engaged. Alternate
supplies of non-latex rubber strips from Alliance Rubber helped keep production running to
produce 32,000 units per day.
On March 28, a secondary design using Rubber EPDM tubes and push pins was approved,
which removed the need for staples (as three electric staples had been burned out from rate
of use). TDM arranged freight pickup in Arkansas for 6 pm to pick up the Alliance parts built
that day to support the next day’s production. The parts from Alliance arrived at 9:00 am on
March 29, making it possible to produce 41,000 shields per day. Thus, in one week, Ford was
able to go from idea to mass production. Production was ramped-up continuously afterward,
reaching a daily rate of 225,000 shields and the overall delivery of over 1 million units by April
5.
Source:
https://www.at.ford.com/content/dam/atford/fna/images/articles/2020/04/face_shields/Face_S
hield_Timeline.pdf
Discussion:
1) What are the major decisions involved with supply chain OM when launching a new
product? Which decisions have been done at Ford?
2) What are the differences between developing a new product in a supply chain and re-
purposing the existing one?
3) What is the role of time-criticality in the case of Ford?
4) Which major bottle-necks can you identify which hindered to ramp-up the new supply
chain for face shields? How they have been resolved at Ford?
5) Discuss on the importance of collaboration between commercial supply chains,
healthcare supply chains, and governments.
6) What steps could be taken in future to quickly re-purpose the supply chain? Do you
think that some preparedness measures (in terms of production planning, supplier
management, visibility and digital technology) could help to react more effective and
efficient?

Case-study “Resilience as a Key Component of Supply Chain Management”

Nissan Motor Co Ltd was established in the 1930s in Japan and is dedicated to automotive
business. The natural disasters in Japan in March 2011 badly hit Nissan’s supply chain. The
Iwaki and Tochigi plants were almost ruined. Almost all production operations were stopped
for many days. The Yokohama plant was able to recover its operation on 17 March, while Iwaki
and Tochigi plants were unable to relaunch production until 18 April.
However, despite the damage, even in 2011 Nissan was able to achieve positive results in
terms of company growth and revenue. Global sales rose by 17.1%. Nissan had developed an
extensive risk management programme prior to March 2011. A possible earthquake in Japan
was timely forecasted as early as 2010 and the response team had been built in advance. The
team’s responsibility was to gather information on the damage and take appropriate action to
stabilize the situation and recover quickly. If necessary, a global and regional disaster
headquarters could be set up to gather information about the facilities’ conditions and business
continuity. The business continuity plan has been carried out along with suppliers by assessing
the situation and prioritizing the actions to be taken (Schmidt and Simchi-Levi 2013).
The first priority was given to employee safety. Second, the task was to prevent any further
disasters, such as fire or stock damage. Third, the focus was directed to speed up the recovery
and develop the business continuity plan. Finally, last but not least, the task was to contribute
to society with cooperation and aid. Global and regional headquarters had been practicing
simulation training to prepare in advance for an assumed large-scale earthquake. Nissan had
carried out its disaster preparation and safety measures exercise just three weeks before the
disaster, and this played a vital role in their speedy recovery.
Right after disaster struck, Nissan called for an immediate global disaster control meeting in
15 minutes in its Yokohama head office. The disaster committee members were already well
aware of the severity of the disaster, as the shocks could be felt 100 miles away from the
epicenter. The disaster committee started work on the recovery operations in each business
location, subject to the safety and status of the employees, vendors and suppliers. Hundreds
of employees from other facilities were dispatched to help restore damaged facilities. The
global disaster control chief supervised all the operations and was closely monitoring recovery
efforts in Japan while continuing operations abroad.
The recovery of Nissan’s supply chain was faster than in other Japanese companies as Nissan
was not part of the Keiretsu group and had diversified supplier sources as well as established
a global procurement system. Nissan was free to choose parts suppliers whenever it need to.
Nissan changed parts procurement and maintained production assembly outside of Japan and
worked to overcome the impact of the disaster. The other reason for quick recovery was that
Nissan was holding higher inventory levels to boost sales at the time when disaster struck.
Three very essential actions determined the effectiveness of such disaster mitigation and
recovery:
 being fully prepared for disaster
 carrying out drills
 going into action as quickly as possible after disaster struck.
Immediately after the disaster, Nissan called together factory managers from around the
world to Japan in order to elaborate on the shortage of parts and logistics to avoid a collapse
of global production. Nissan postponed all new development works, cutting down on
overtime for three months as well as cutting down on almost all expenditure.
The following stages were included in Nissan’s disaster management strategy:
 preparedness and assessment
 setting priorities
 empowering people
 taking leadership.
First, Nissan created a contingency plan and assessed the damage to the operations. Second,
the priorities were set. The first priority was the safety of the employees; the second was
turning normal pull production to push production to make sure that the products would be
available on demand for customers so that users would keep buying. Regarding
communication and following recovery, each individual had to be aware of customer demand
in the short run as well as in the long run. The plan should be sufficiently visible to see the
post-crisis picture so communication had to be clear and simple. Third, Nissan gave power to
the employees working on the front line. Nissan enabled teams to make fast decisions to
handle the situation, which ultimately helped towards a faster recovery. Fourth, leaders had to
engage and commit. The leaders are morale boosters for staff and work as role models.
Leaders needed to be authentically engaged and committed to the plan, since employees
would help to create and achieve the plan if leaders are with them in its implementation.
The results of the company’s risk assessment, preparedness, actions and further business
continuity were very impressive. The global disaster headquarters, Nissan technical centre and
Nissan advance technology centres were built to withstand disaster so that these facilities were
among those buildings not impacted and could work on contingency plans.
Nissan has been developing future strategies related to natural disasters. In March 2012,
simulation training was held based on a new scenario incorporating findings and new
measures. Future strategy regarding supply chain resilience is to localize production of
vehicles in the markets. For example, Nissan has forecasted to procure 85% of local production
of fully built units by the end of 2015 in the US. It reflects the company’s other strategy, to
decentralize its production from Japan, as lessons learned from the disaster were very clear –
if another such disaster occurs, production in global facilities should not halt/be hampered. The
decentralization strategy will work on both sides, as the strengthening of the Japanese Yen
has been lowering the company’s profitability. Nissan’s disaster risk management strategy can
be seen in the annual reports. It confirms that Nissan has been working on proactive disaster
risk management strategies and is ready to handle any case that might arise.
Nissan had global as well as regional disaster headquarters, clearly indicating the work and
responsibilities among different departments to handle the disaster in an efficient way. For
example, the chief of the global disaster team will have from the first response teams current
information about the situation of human resources, control centre, purchasing, and
maintenance and service, while deputy chiefs of supportive and recovery actions will also
convey a report about the situation. Deputy chiefs will be in charge of regional disaster chiefs
and will exchange reports and instructions. Each division has been given the authoritative
power to take preventative measures to minimize the impacts of disaster.
Source: Schmidt, W. and Simchi-Levi, D. 2013. Nissan Motor Company Ltd: Building Operational
Resiliency. Cambridge, MA: MIT Sloan Management, pp. 1–12.

Case Study “Resilient Sourcing Strategy Adoption at AGCO Corporation: Reacting to

COVID-19 Virus Outbreak by Using Adaptation Capabilities”
AGCO Corporation is an agricultural equipment manufacturer. The company utilizes multiple
sourcing strategy combining local/domestic sources and international suppliers. The volume
of local sourcing depends on the costs some other factors that change dynamically. In case of
market-specific equipment, local sources are mostly used to increase responsiveness at the
times of disruptions. AGGO select suppliers with consideration of both economic (costs) and
risk criteria. In addition, the company operates a digital sourcing platform to ensure an end-to-
end communication with suppliers to identify disruptions in a timely manner. Risk management
activities supported by the digital platform include prediction of future scenarios and providing
PPE (personal protection equipment) to suppliers to maintain manufacturing continuity.
Such a preparedness and utilization of resilience practices at the “normal” times have allowed
AGGO to survive through the COVID-19 pandemic. In the wake of the pandemic, various
elements of resilience strategy to tackle supply chain disruptions by adopting multiple sourcing
and supplier diversification strategies have been mobilized. Additional flexibility and
adaptability was added by assemble-to-order and postponement production strategies
entailing faster and customized deliveries to customers.
The COVID-19 action plan adopted by AGCO has been as follows. The supply side of AGCO
had regular communication with Chinese suppliers which allowed to respond quickly to the
upcoming pandemic by searching for and utilizing of alternative sourcing channels. A task force
was created comprised of plant managers, materials and logistics managers, purchasing,
supplier quality, and finance managers. AGCO sourced/produced as many critical parts as
possible in anticipation of the shutdowns of Chinese factories, and all the finished goods
inventory was moved to European markets which have not been concerned with a pandemic
yet. Even unconventional modes of transportation, e.g., railway shipment across Russia rather
than using conventional, cheap sea-shipping have been activated. Even if this emergency
transportation routes were 85% more expensive as sea freight, this recovery action allowed to
avoid material shortages at European factories and so reducing the ripple effect.
In addition, shipment allocations have been centralized in decision-making processes to avoid
disputes between different plants in the network regarding supply prioritization. Especially,
factories producing equipment with higher gross margins and higher demand were prioritizes
for emergency supply allocations. AGCO also developed a special lockdown forecasting
method, and so predicted the South Korean’s shutdown before it occurred. This helped to
accelerate the impacted suppliers’ shipments prior to the plant closures. Learning from this
experience, they further improved the lockdown forecasting method and applied it to Europe,
especially in Italy, where they predicted the closures seven days prior to the official measures.
AGCO used these seven days of lead time to scale up deliveries from 240 suppliers prior to
the lockdown announcement. Same policies have been adopted later in Brazil and North
America.
We can see that both preparedness and reactive capabilities helped AGGO to achieve high
resilience. They created flexible and adaptable supply chain network management at “normal”
times and so were able to adapt efficiently and effectively in the wake of the COVID-19
pandemic that devastated supply chains of many other companies.
Discussion
• What are the main resilience capabilities you can identify in this case-study?
• What proactive and reactive measures can you see at AGGO?
• How can we prepare a supply chain for maintaining business continuity in a case of super-
disruptions such as a global pandemic?
• Why is it important for resilience to design and manage SCs as flexible and adaptable
systems at “normal” times?
Source: Banker, S. (2020) "A Very Agile Supply Chain: The Inside Story of AGCO’s Response to
COVID-19," https://www.forbes.com/sites/stevebanker/2020/04/15/a-very-agile-supply-chain-the-
inside-story-of-agcos-response-to-covid-19/ (accessed on January 2, 2021)

Case study: Scalability in delivery capacity: Amazon

Amazon’s SC network has been rated as one of the best in the world by Gartner (Gartner
2020). Even though Amazon was strongly challenged by demand surges and simultaneous
lockdown and quarantine measures in the wake of the COVID-19 pandemic across the globe,
they adapted in a timely manner (EDGE 2020). In anticipation of possible SC disruptions,
Amazon placed last-minute orders with several suppliers that were still able to deliver. The
company provided suppliers with five extra days to send inventory to the warehouses and
waived late delivery fees (Kulikowska 2020). In a public letter to the Amazon employees, CEO
Bezos confirmed that adaptations in logistics, SC, purchasing, and third-party seller processes
had been made to prioritise the stocking and delivery of essential items like health, medical
and household supplies as well as groceries (Bezos 2020). These adaptation measures thus
enabled a rapid order distribution (Wehner 2020).
Scaling up the capacity, Amazon announced the opening of 100,000 new positions (with
another 75,000 a month later), raised wages, and paid sick leaves for employees that tested
positive for COVID-19 to cope with the increased customer demand and support existing
employees (Amazon 2020a; Amazon 2020b). From March through September 2020, Amazon
increased the capacity of its grocery delivery service by 160% and tripled the number of Whole
Foods Market pickup locations to meet the rising demand (MarketUS 2020). Certain Amazon
Fresh stores were temporarily made online-only stores that focused on the fulfilment of online
orders exclusively. Doing this has allowed Amazon to further scale the delivery capacity.
Furthermore, COVID-19 health and safety measures have been implemented in their physical
stores to protect employees and customers. These stores also offer dedicated shopping hours
for the elderly, disabled, or people that are part of the high-risk group (Amazon 2020c).
Amazon’s efforts to adapt have thus created a significant impact. Fig. 1 illustrates Amazon’s
growth in sales and profit amid the COVID-19 pandemic in Q1-Q3 2020.

Amazon's financial performance in 2020

120

100

80
billion $

60

40

20

0
Net Income Net Sales
Growth in sales and profit in 2020

Q1 2020 Q2 2020 Q3 2020

Fig. 1. Amazon’s financial performance in Q1-Q3 2020 (based on

DigitalCommerce360.com/article/amazon-sales and
https://www.statista.com/statistics/999686/amazons-net-revenue-by-product-group-quarter/)
It can be observed in Fig. 1 that both global net sales and income have been growing for the
first three quarters of the COVID-19 pandemic in 2020 (to the date of writing this paper the
performance of the fourth quarter has not been announced yet). This confirms the positive
performance impact of the Amazon’s scalability efforts, and in general, an association of the
adaptation measures and performance impact in the presence of a pandemic.
Source: Ivanov (2021). Supply Chain Viability and the COVID-19 Pandemic: A Conceptual
and Formal Generalisation of Four Major Adaptation Strategies. Int J Prod Res,
10.1080/00207543.2021.1890852

Case-Study: Scalability in supply capacity: Johnson & Johnson

Johnson & Johnson is one of the world’s leading healthcare companies (Galea-Pace 2020).
Owing in part to its response to the COVID-19 pandemic, Johnson & Johnson earned their
highest ever-ranking on the Gartner Top 25 Supply Chain list, with a third-place designation
(Gartner 2020; Johnson and Johnson 2020b). In the wake of the pandemic, Johnson &
Johnson activated their global SC network business continuity plans to ensure the availability
of key inventory at major distribution facilities (Johnson and Johnson 2020a). Historically,
Johnson & Johnson has been exposed to events requiring a quick response from its SC. For
example, after a hurricane wreaked havoc on Puerto Rico in 2017, the full operation of local
SC facilities was restored rapidly. To help meet the demand, Johnson & Johnson activated
backup facilities and supply channels. Even though the COVID-19 setting was different, the
company was able to incorporate past experiences in pandemic adaptation strategies
(Johnson and Johnson 2020a). This is in line with the recent findings of Chen et al. (2020),
which uncovered the role of learning in managing SC disruptions.
Towards the beginning of the pandemic crisis, the company faced a 100% increase in demand
for their pain treatment drug Tylenol with an active ingredient Paracetamol (Johnson and
Johnson 2020b; Johnson and Johnson 2020c). Although a scarcity was temporarily reported
(Blankenship 2020), the SC reacted quickly to maximise the product availability, letting plants
and logistics expand their capacities (Johnson and Johnson 2020b). After the outbreak of the
pandemic in Italy, SC managers learnt what they would have to cope with in the near future
due to government regulations and the exposure of the people to the virus. To hedge against
the production downtime due to staffing issues, Johnson & Johnson simulated possible
scenarios based on real-life data about staffing levels and regular production rates. Based on
the results of these mathematical models, executives were able to understand what level of
disruptions they could withstand and where actions were necessary. Risk simulation
technology further enabled the company to find an adequate order quantity for raw materials
and prevent it from the monetary consequences of ordering too less or too much (Johnson and
Johnson 2020c).
For a provider of essential medication, the visibility of stock in transit is essential, especially
during a pandemic. Johnson & Johnson utilised digital technology and complex algorithms to
monitor usual order patterns and spot major deviations, which would then issue an alert for
further investigation (Johnson and Johnson 2020b; Johnson and Johnson 2020c). They
attached track-and-trace sensors to the shipments that could also measure temperatures or
shock-like events for quality purposes of critical products. This continuous insight into where
the shipment resides also helps the company coordinate the logistics of shipments (Johnson
and Johnson 2020c), particularly as travel restrictions and contagion concerns limit the critical
in-person inspections of manufacturing equipment. Leveraging smart glass technology thus
allows experts to remotely see and access information through another person’s glasses on-
site and even to pull data and change settings. As such, this technology enables the company
to continue production without disruption. It does not only help keep production for devices and
consumer products running, but it also establishes new research and development facilities to
advance important projects in record time (Johnson and Johnson 2020c). The company also
repurposed some of its production lines at various production sites around the globe to produce
hand sanitiser for its own employees in all different departments and to be donated to health
and community service workers (Johnson and Johnson 2020b).
Source: Ivanov (2021). Supply Chain Viability and the COVID-19 Pandemic: A Conceptual
and Formal Generalisation of Four Major Adaptation Strategies. Int J Prod Res,
10.1080/00207543.2021.1890852