CRITICAL REVIEW OF THE ARTICLE BY URCIUOLI

Introduction

Energy plays an important role in the production, manufacturing, and other allied industries, making its supply chain critical as well to society. Any disruptions that the sector may experience could, therefore, have major economic impacts on industry and commerce (Jüttner & Maklan, 2011), as energy is essential in almost all fields, from production and manufacturing to communication and networking. With this in mind, an effective and resilient supply chain strategy should be adopted. Resiliency, in this case, refers to the capability of corporations to anticipate, identify, react and learn from incidents. A resilient strategy should take into account the different ways of managing any disruptions to the supply chain to ensure business operations are unaffected (Waters, 2011). The resilience of the energy supply chain determines the costs of manufacturing and production in industry and should, therefore, be ensured to reduce cases of supplier failure and mitigate negative economic impacts.

Summary

The paper by Urciuoli, Mohanty, Hintsa and Boekesteijn on ‘The Resilience of Energy Supply Chains’ identifies energy as key factor in the production process and contends that energy demands govern how suited an organization is to its industry. Supply chains have become increasingly susceptible to a varied number of risks, necessitating the adoption of a suitable risk management strategy to ensure that the energy demands are met. Such a management strategy would involve the use of a systematic approach to finding and resolving varied risks to the supply chain. It is a well-regarded fact that, under some conditions interruptions to the supply chain cannot be avoided. Some examples would include such interruptions as those caused by natural disasters for example the 2010 volcano eruption in Iceland which resulted in a cloud of ash that prevented air transport in Europe, affecting supply lines. Therefore, a good supply management strategy should focus on the improving its resilience capabilities so as to withstand the said disruptions while trying to avoid them. As part of the evaluation process, we look at the main ideas that the authors advance in their paper on how to handle exogenous security threats to the supply chain. Their submission is that the management of exogenous threats warrants at least three considerations to mitigate against supply chain disruptions. Thereafter, the strategies that have been adopted by the EU in ensuring energy security will be studied.

Risk management strategies

 First, the adoption of a risk management strategy alleviates disruptions. The writers identify some strategies to handle any anticipated disruptions in the supply chain. The paper points to the fact that to ensure capability of supply chains to regain stability after a disruption, an organization could adopt a diversification of providers as a strategy to handle the said interruptions (Colicchia, Dallari & Melacini 2010). Moreover, the paper posits that identification and use of additional, alternative production lines will ensure it is possible to shift volumes and production quickly in case a disruption occurs. In case of interruptions, production simply shifts to an alternative line with minimal economic impact. Second, the paper pushes for a management strategy to identify and assuage the risk factors. The key to this management strategy, they observe, is the regulation of inventories that a corporation has to ensure the availability of the product and access to transport capacity. Redundant inventories, they say, build additional capacity in firms but imply costs as uselessness and inventory holdings. Multiple transportation modules, translating to multiple routes and distribution channels, can be applied to ensure a quick recovery in case of a disruption. In case of upsets in the supply chain, companies may dynamically change prices and offer special deals to customers.

Fig 1. Resilience Measures

Information sharing and role of EU in energy security

Third, the paper identifies information sharing and critical infrastructure protection which aims at enhancing security for the ship and port facility especially internationally. Timely sharing of information at downstream, upstream disruptions, they contend, has been found to act as a deterrence to the negative consequences of disruptions, and enables the initialization of corrective countermeasures immediately. The role of the European Union concerning legal and policy related issues in the management of supply chains has also been looked at in the paper. Following the Lisbon Treaty which enables EU to speak and act as one entity in international affairs, the EU has been able to act as a block in its dealings with energy suppliers. The result is European counties have been able to derive greater benefits from trade with Energy suppliers. The EU advocates that its members reduce their dependence on exact suppliers as this translates to a loss of power that proves less advantageous in making. The EU is also keen on opening communication with various countries so as to support the portfolio diversification of energy companies. Also, the identification of alternative sources of energy has been enacted. Member states have been obligated to maintain reserve stocks of petroleum products and crude oil, which they can use in case of disruptions (Kaveshnikov, 2010; Blum & Legey, 2012).

Figure 2. Energy in the EU by Main Origin. Depicts overdependence on Russia which EU is trying to correct.

Analysis

Measuring Resilience in the Supply Chain

While all the measures outlined help mitigate a large number of the risks posed to the supply chain, the authors identify “dealing with the uncertainty of low-probability high consequences risks or unforeseeable events” as a possible challenge to the implementation of these interventions. Evidently, the authors failed to take into account that they should measure resiliency as a way of eliminating much of the uncertainty from the equation. A framework could be defined to estimate how best to quantify a company or organization’s preparedness to any disruptions on the supply chain. Indeed, some frameworks that handle the same are already being adopted across the board to enable an accurate measure of an organization’s capabilities in handling the disruptions. One such is the Supply Chain Resilience Assessment and Management (SCRAM™) framework. SCRAM incorporates the complete spectrum of resilience factors refined into measurable attributes. Assessment scores are then used to provide leadership with recommendations for directing improvement (Petit, Fixel and Croxton, 2010). Through this, and similar frameworks, much of the guesswork in disruption preparedness is eliminated, and more targeted measures to address the same can be adopted (Petit, Fixel and Croxton, 2010). Consequently, an organizations will benefit from the knowledge of how well suited they are to handle specific disruptions to their supply chain.

Role of Information Technology & Costs of complexity

The use of information sharing has been demonstrated to have a resounding effect on the management of disruptions. However, the paper fails to account for the role of information technology and logistics in information sharing. Information technology can ease the sharing of information and enable the quick relaying of information in case disruptions are detected (Waters, 2011). The information system can be used to eliminate the effects of time and space, giving the ability to interface directly with the suppliers, a result of which is the ability of either party to know of disruptions to the supply chain, and react, sometimes in real time. Further, the authors fail to account for the influences Security of Gas Supply Regulation in 2010 which among other measures provides a framework for the identification of disruptions to the energy sector (Jansen & Seebregts, 2010), and cooperation between member countries in alleviating the effects (European Union, 2015). The regulation forms the basis of such measures as the diversification of producers and bars against overdependence on specific countries for energy. Another salient point that the paper fails to mention is the complexity, and as a general consequence, the cost implication of a resilience framework. By implementing a diversification of providers or building increased capacity, a supply chain incurs additional costs. Further, the paper also fails to account for the role of bringing together of different disciplines of international relations, energy policy and supply chain analysis in creation of an effective management strategy (Wieland & Wallenburg, 2013). A combination of these disciplines provides for a more comprehensive and effective supply chain management strategy.

Conclusion

To conclude, energy is essential to a large number of industries, and its economic implications are readily apparent. The mitigation of any such disruptions that would prove to interfere with the energy supply, therefore, presents an important consideration. Through management of the disruptive forces, establishing a legal and policy framework and the sharing of information, a comprehensive strategy that addresses these concerns can be adopted. Further, the introduction of a resilience measurement strategy will prove essential in the management of the supply chain, ensuring guaranteed energy supply and the mitigation of any such impacts the disruption in these supply lines might cause. The resilience of an organization’s supply chain is a determinant of how well suited the organization is to its purpose. Organizations with a resilient supply chain generally perform better that those without the same level of resilience. The more resilient an organization’s supply chain, the better suited it is to compete.

References

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