Supply chain disruptions caused by natural catastrophes

Elin Alexandra Larsson & Max Josef Jäger

Student thesis: Master thesis

Abstract

As modern supply chains are becoming increasingly dispersed around the globe in lengthy network structured supply chains, they are also becoming increasingly designed and managed for costefficiency and leanness. The reason for this development can be traced back to the competitive edge and increase in financial performance that firms hope to achieve. This brings complexity, rigidness and a high vulnerability towards risk. One of these risks is that supply chains are becoming increasingly vulnerable towards natural catastrophes. The trend is that natural catastrophes are increasing in frequency and impact, especially in North America and Asia – where many echelons of modern supply chain networks are represented. Consequently, the exposure of modern supply chains towards natural catastrophes is increasing, which is amplified by their design and management. This brings about a supply chain natural catastrophe return risk paradox. Given the existence of this paradox, this research paper seeks to explore if companies will undergo transformations and alter their supply chain strategies to reduce the exposure and impact of natural catastrophes on their supply chains. Using an explorative research approach based on 75 questionnaires responses and 8 in-depth interviews with supply chain managers and corporate executives international organizations, this paper concludes that half of the companies have been impacted by a natural catastrophe in past ten years mostly outside their locus of control, and mostly with a less severe consequence for the organization than is described in the literature. Consequently, natural catastrophes may pose more of a mid-probability and mid-impact risk than has previously been assumed. Given this, more than half of the companies have undertaken changes in their supply chain strategies in the past, either as a reaction to a previous experience or an observation in the external environment. These have focused mostly on decreasing the risk through supply chain management or design rather than trying to reduce the overall exposure through shifting the supply chain location. Companies were mostly motivated internally through profit, sales, or reputation, whereby perception – or a change therein – did not play an important role. Furthermore, the research found that equally as many companies will continue to undertake supply chain changes in the future, of which most of them would carry out similar changes for similar reasons as in the past. This comes to show that these companies are undergoing continuous transformation in their supply chain strategies. Consequently, the increasing impact and frequency of natural catastrophes has caused international organizations to undergo transformation from one configuration to a new configuration and will continue to make them transform in the future.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2012
Number of pages316