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CIRP Annals - Manufacturing Technology 62 (2013) 479–482

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BOM based supply chain risk management

Shozo Takata (1)*, Masato Yamanaka

School of Creative Science and Engineering, Waseda University, Tokyo, Japan

1. Introduction

Recently, many manufacturing companies have introduced supply chain management (SCM) for optimizing their supply chain to reduce the time to market and total cost. However, such a lean and agile system means lesser margins in case of an emergency [1]. If hazardous events such as fires and earthquakes occur, their effects could propagate quickly through the supply chain because of low inventory and short lead time, and cause enormous losses. Furthermore, recent supply chains entail greater risks that have emerged as a result of advances in globalization. Moreover, the introduction of new technologies also results in new risks such as ICT risks.

To cope with such problems, manufacturing companies should consider supply chain risk management (SCRM), which evaluates the probabilities and magnitudes of losses caused by hazardous events and implements the necessary countermeasures.

The importance of SCRM gained recognition in the late 1990s owing to the occurrences of supply chain risk events. An example of such an event is the fire in Philips Semiconductors’ (now NXP Semiconductors) New Mexico plant in 2000. This accident had an enormous impact on Ericsson’s mobile phone business and triggered the development of their risk management method [2]. Ever since, the number of studies on SCRM has rapidly increased [3], although no studies have been conducted in the CIRP community except for one study regarding the reallocation of alternative suppliers in case of a disturbance [4]. The issue has been discussed from various perspectives such as risk identification and

the Great East Japan Earthquake showed that, except for tier suppliers, many companies were not well acquainted with t supplier network, because suppliers are not obligated to info customers of their own suppliers. This fact was confirmed in interviews conducted with some companies after the earthqu

Therefore, we have to reconsider the preconditions for study SCRM and seek a method for evaluating potential supply ch risks in the absence of identifiable supplier networks. In this pa we propose the bill of material (BOM) based supply chain management method as one such method. In our study of B based supply chain risk management (B-SCRM), we evaluate applicability and effectiveness of supply chain risk coun measures by focusing only on the characteristics of each par the product.

The remainder of this paper is organized as follows: Sectio explains the concept of B-SCRM. Section 3 details the procedur B-SCRM. Section 4 describes a case study, in which B-SCRM applied to the manufacture of hard disk drives (HDD) to verify effectiveness. Finally, Section 5 presents the conclusion.

2. Concept of BOM based supply chain risk management

As mentioned earlier, it is difficult for manufacturers to iden the complete supply chain structure, although they need to t measures against possible supply chain disruptions owing various risk events. Therefore, B-SCRM does not assume that supply chain structure has been identified. Instead, manufactu that adopt the method should have a complete BOM for t

A R T I C L E I N F O

Keywords:

Manufacturing network

Management

Supply chain risk

A B S T R A C T

Although the application of supply chain management to reduce various losses increases the efficienc

supply chains, it decreases their robustness. Nowadays, supply chains involve risks such as nat

disasters and system failures. Therefore, it is essential to both evaluate the risk and de

countermeasures as supply chain risk management (SCRM). However, manufacturers have diffic

identifying the complete supply chain structure, and this interferes with the implementation of SC

This paper proposes a method to evaluate the potential risks associated with the parts of products on

basis of the bill of material (BOM) without identifying suppliers. We applied this method to hard

drive manufacturing to determine its effectiveness.

� 2013 C

Contents lists available at SciVerse ScienceDirect

CIRP Annals - Manufacturing Technology

j o u r n a l h o m e p a g e : h t t p : / / e e s . e l s e v i e r . c o m / c i r p / d e f a u l t . a s p

rts. uce ular

of

modeling, impact assessments of various types of risks, evaluation of vulnerability of supply chain network, countermeasures to mitigate risks, and the simulation technologies for evaluation of supply chain risk [5–8]. These studies take it for granted that supply chain structures are known. However, the experiences of

the tion sily* Corresponding author.

0007-8506/$ – see front matter � 2013 CIRP. http://dx.doi.org/10.1016/j.cirp.2013.03.039

products and have sufficient knowledge for producing the pa This assumption could be applied to manufactures that prod integral type products such as automobiles, rather than mod type products such as personal computers.

In this method, we evaluate the cost and effectiveness countermeasures in mitigating the risk of shortage of parts on basis of difficulty involved in supplying each part. Our assump is that the part that is difficult to design or produce cannot be ea

prov occu typh beca simi

I as m

C m s C r r C p f C i

T facil prod prod com in th afte enab eme CM2 part

T mea nece facil mea and

I activ cost It w that diffi

W

S S c S m

T

3. B

3.1.

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Ei ¼

S. Takata, M. Yamanaka / CIRP Annals - Manufacturing Technology 62 (2013) 479–482480

ided by a substitute supplier. In this study, we do not evaluate rrence probabilities of risk events such as earthquakes, oons, and fires and the damage that such events induce, use their evaluation depends on supplier identification. For lar reasons, we do not deal with logistics risks. n B-SCRM, the following four countermeasures are considered eans to mitigate the risks of part shortages:

M1 – multiple sourcing: routinely receiving part supplies from ultiple production sites of either a single supplier or multiple

uppliers prior to the occurrence of risk event. M2 – use of replacement parts: preparing the use of eplacement parts in case of emergency by conducting eliability tests or other appropriate measures. M3 – redeployment of production sites: planning and reparing the redeployment of production facilities and work-

orce to other sites. M4 – building inventories: maintaining a particular level of

nventory in preparation for a contingency.

hese four countermeasures are categorized by production ity use and timing requirements. CM1 and CM2 use alternative uction facilities, whereas CM3 and CM4 use the original uction facility. On the other hand, in the case of CM1 and CM4, plementary production is executed on a routine basis, whereas e case of CM2 and CM3, alternative production is executed

r the occurrence of the risk event. Therefore, CM1 and CM4 le the manufacturer to secure the necessary parts even in an

rgency, although there are volume and time limits. In contrast, and CM3 hasten the resumption of part supply, although a

shortage cannot be avoided immediately after risk events. o evaluate the applicability and effects of these counter- sures to each part, we begin by listing the activities that are ssary for supplying parts, such as design, process planning, ity planning, and production. Subsequently, for each counter- sure, we identify the activities that are executed in advance those that are executed during an emergency.

t will be difficult to apply the countermeasures that require ities that need to be executed in advance, if these activities are

ly or encounter technological or production facility limitations. ill also be difficult to apply the countermeasures if the activities

have to be executed after the occurrence of risk events are cult or time consuming.

e propose the following three steps for conducting B-SCRM:

tep 1: evaluation of the effect of part shortage tep 2: identification of the activities required for applying the ountermeasures tep 3: evaluation of the cost and effectiveness of each counter- easure applied to each part

he details of each step are described in the following section.

-SCRM procedure

Evaluation of the effect of part shortage

n Step 1, the effect of any part shortage is evaluated for setting rities to the parts involved in a product’s BOM in applying termeasures. Since just one missing part can halt production,

where F is a set of the products that incorporate part i, pj is the sales price of product j, qj is the sales amount of product j per unit time, and aj is a coefficient of the importance of product j. The value of aj is determined by considering damages other than sales loss, such as adverse effects on corporate brand, decline in market share, and decreasing sales of accessories and expendable supplies of product j.

In developing countermeasures, Ej can be used to prioritize parts. It is also used to calculate the cost effectiveness of those countermeasures, which is explained in Section 3.3.

3.2. Identification of activities required for applying countermeasures

In Step 2, we list the activities that are generally required for supplying parts. Subsequently, we identify the activities that must be executed for applying countermeasures, as shown in Table 1. In this table, ‘‘B’’ indicates that the activity should be executed before a risk event occurs, whereas ‘‘A’’ indicates the activity that will be executed after the event occurs. The sign ‘‘–’’ indicates that the activity is unrelated to the particular countermeasure or was already executed in normal time.

Table 1 shows all the possible activities for each counter- measure. However, the execution of some activities is not necessary for particular parts. When replacement parts are used, for example, a reliability test has to be conducted in every case. However, if the part is a general-purpose part or a standardized part such as screws, then the execution of other activities is not necessary because they are widely available in the market.

Table 1 List of required activities.

Activity Activity

group

Activity Countermeasure

M u

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U se

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re p

la c e

m e

n t

p a

rt s

R e

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B u

il d

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e s

Manufacturing

preparation

Design Part design B B – –

Process

planning

B B – –

Production

facility

Facility

planning

B – – –

Procurement B – – –

Installation B – A –

Redeployment

planning

– – B –

Transportation – – A –

Warehouse Warehouse

preparation

B – – B

Human

resource

Personnel

acquisition

B A – –

Training B A – –

Personnel

relocation

planning

– – B –

Personnel

relocation

– – A –

Test Reliability

test

B B – –

Manufacturing

execution

Material

procurement

Raw

material

and

parts

procurement

B A A –

Production Parts

production

B A A –

Inventory Inventory

management

B A A B

Shipment Shipment B A A –

ffect of part shortage corresponds to the damage resulting from toppage of production of the products in which the missing part corporated. Thus, the effect of a shortage of part i per unit time, ch is denoted as Ei, is the sum of the effects of the production page of product j in which part i is incorporated. In this study, the t of production stoppage of product j, Sj, is evaluated by the unt of sales loss, as shown in the following equation:

X

j 2 F S j ¼

X

j 2 F a j p jq j (1)

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S. Takata, M. Yamanaka / CIRP Annals - Manufacturing Technology 62 (2013) 479–482 481

Moreover, the procurement of production facilities, even for special order parts, is not required if the part can be produced by machine tools usually equipped by suppliers. Therefore, Table 1 should be customized depending on whether the application of a countermeasure to each part requires each activity to be executed. If the activity can be executed by the usual suppliers, then we can exclude it from the list of necessary activities for a particular part. Whether the activity is special should be determined from multiple perspectives such as technology, human skill, production facility, and intellectual property.

In this way, we can generate a list of necessary activities for identifying which activity is required for applying the counter- measure to a particular part.

3.3. Evaluation of the cost and effectiveness of countermeasures

In Step 3, we evaluate the cost and effectiveness of the countermeasure applied to each part. The evaluation is conducted in terms of cost, reduction of recovery time, and constraints of technology, human skill, production facility, and intellectual property. For this purpose, activity parameters are defined for each activity, as indicated in Table 2. In case of the activities required for manufacturing readiness, preparation cost, cPi, and time, tPi, are assigned, whereas extra execution cost, cEi, and execution time, tEi, are assigned to the activities required for manufacturing execution. Constraints are assigned to both cases. If it is difficult to evaluate the parameters for a certain activity because a large number of factors need to be considered, then the activity should be decomposed into smaller activities. For example, parts production can be decomposed into several activities such as forming, machining, and surface treatment.

The cost for applying countermeasure k to part i, denoted as Ck i ,

is calculated as follows:

Cki ¼ X

m 2 VkiPB

cP im þ X

m 2 VkiEB

ðcEim � Q � NÞ þ 1

N ð X

m 2 VkiPA

cPim

þ X

m 2 VkiEA

ðcEim � Q � MÞÞ (2)

where Q, M, and N denote the production volume per day, duration of missing parts (days) upon the occurrence of the risk event, and mean time to the risk event (days), respectively. V

k iPB , V

k iEB, V

k iPA,

and V k iEA represent the sets of the activities included in the list of

necessary activities for applying countermeasure k to part i. The second suffix, P or E, indicates whether the activities belong to manufacturing preparation or execution, respectively, whereas the third suffix, B or A, indicates whether the activities are executed before or after the risk event occurs, respectively. The first term of Eq. (2) represents the cost of manufacturing preparation activities, which has to be paid prior to the occurrence of the risk event. The second term indicates the additional daily cost of manufacturing execution, which arises when countermeasures such as CM1 and CM4 are adopted. Such extra costs are caused by losing volume efficiency due to multiple sourcing or by the additional inventory. The third term indicates the manufacturing preparation cost and the additional execution cost, which arises after a risk event occurs. Since the risk event occurs incidentally, the term is multiplied by the risk event’s occurrence probability, 1/N.

With regard to the effects of applying the countermeasures, the

in Eq. (1). The reduced recovery time is the time difference resuming the part supply between the case where CM2 or CM applied and that where all activities are conducted after the event occurs. Recovery time, T k

i , when countermeasure k is app

to part i can be calculated by the following equation:

T ki ¼ maxn 2 a f X

m 2 VkiEAn

timg þ X

n 2 b

X

m 2 VkiðPA [ EAÞn

tim

where a and b are the sets of activity groups indicated in Tabl The activity group is defined as a set of activities required accomplish a certain objective. a is a set of activity groups, wh includes procurement activities related to the production faci human resources, and materials procurement, whereas b is a se other activity groups. The activity number and activity group represented by m and n, respectively. The first term of Eq. represents the maximum lead time among the group of activi that can be executed in parallel. The second term indicates the s of the lead times of other activities that have to be execu sequentially.

In the case of CM1, a part shortage might arise depending on proportion of the amount of supply from the supplier that is disrupted. In the case of CM4, part shortage depends on amount of inventory. Thus, the effect of countermeasures CM CM4 can be evaluated by the difference in part shortage betw the case where CM1 or CM4 is applied in advance and that wh all activities are conducted after a risk event occurs.

In assessing the applicability of countermeasures, we consider constraints other than cost and effectiveness. example, if a specific license is required to produce a part, difficult to adopt countermeasures requiring alternative suppli such as multiple sourcing (CM1) or using replacement parts (CM

4. Application example

B-SCRM is applied to HDD manufacturing. A part of the BOM shown in Fig. 1. We identified 56 parts. The activity parameters roughly estimated on the basis of interviews with a manufactu and published material. We conducted a simple evaluation which we used the limited number of activity parameters that likely to be significant for our results. We present the results of part evaluations applied to ‘‘nut’’ and ‘‘bearing’’ in Table 3. We u eight activity parameters as shown in the leftmost column of Ta 3. The values are indicated in terms of millions of yen. The tim the activity parameters is interpreted into the production generated during that period. The total cost of each coun measure is represented at the bottom of Table 3. Build inventories and using replacement parts result in the smal cost for nuts and bearings, respectively, as indicated by underlined figures in the table.

On the basis of the results of the HDD case study, we co marshal the relationships between the countermeasures activity parameters of each part, as shown in the right-most par Table 3. The parameter values are expressed in qualitative ter

effects of CM2 and CM3 are evaluated by multiplying the reduced recovery time by the amount of sales loss per unit time, Ei, defined

Table 2 Activity parameters.

Manufacturing preparation Manufacturing execution

Cost Preparation cost: cPi Extra execution cost: cEi Time Preparation time: tPi Execution time: tEi Constraint Technologies, human skills, production facilities and

intellectual properties Fig. 1. A part of the BOM of HDD.

The prom in bl exam men prom high as w adva coun

T para reas part fram

5. C

T supp com assu alth pape with base supp effec man

A actu assu first Ther prod beca pote mea rega

H with

Table Resu

S. Takata, M. Yamanaka / CIRP Annals - Manufacturing Technology 62 (2013) 479–482482

values indicated in the underlined red text represent otional factors of the countermeasure, whereas the values

ack are disincentive factors for the other countermeasures. For ple, in the redeployment of a production site, high procure-

t cost and short transportation time of production facilities ote the adoption of that countermeasure. On the other hand, a

reliability test cost hinders the adoption of multiple sourcing ell as the use of replacement parts, thereby suggesting the ntage of selecting redeployment as an appropriate alternative termeasure. he relationships between countermeasures and activity meters indicated on the right side of Table 3 provide a onable guideline for selecting countermeasures depending on characteristics. This demonstrates the effectiveness of the ework proposed in our B-SCRM method.

onclusion

o cope with increasing risks, which exist in globally extended ly chains, SCRM is an essential practice for manufacturing

panies. However, thus far, most studies on SCRM have med that the complete supply chain structure is identified, ough such situations hardly exist in reality. Therefore, this r proposed a method to evaluate the potential risks associated

parts procurement and the applicability of countermeasures d on the characteristics of the parts without identifying the liers. We termed this method B-SCRM (BOM based SCRM). The tiveness of the method was verified by applying it to HDD ufacturing. lthough it is necessary to identify the supplier at the stage of

production facilities such as the level of safeguards, corporate characteristics such as governance capacity, and regional char- acteristics such as natural disasters, infrastructure, and logistics networks. These factors should be considered after reducing the number of parts requiring countermeasures, using the proposed method.

It should also be noted that the range of the supply chain that can be covered by the B-SCRM method is limited to the extent of the product knowledge possessed by the manufacturer that adopts this method. In particular, with high-tech products, it is difficult for manufacturers to identify all the component parts and materials. Although this method has limitations, it can be used by manufacturers to prepare for a possible supply chain disruption.

Acknowledgments

This research has been conducted as a part of the Idea Factory project (theme 7) organized by the Manufacturing Science and Technology Center (MSTC), Japan. The authors would like to express their heartfelt gratitude to the members of the project for their valuable contributions and to MSTC for their financial support.

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