Ripple Effect (RE)
Definition of ripple effect
Disruptions, in a supply chain (SC), are events whit high impact and low frequency that change the SC structure and significantly affect performance. The propagation of these problems through a SC and their impact is called ripple effect (RE), also known as “snowball effect” or “domino effect” (that is not be confused with the bullwhip effect).
The ripple effect manifests when the effect of a SC disruption cannot be located or restrained in one part of the SC. It create a downstream effect that result in a high impact on SC performance. These impacts can consist of delivery delays, loss of market share and reputation, lower revenues and stock return decreases. All of that put together could be devastating.
Causes of ripple effect
The increasing supply chain complexity and consequent pressure on efficiency and speed, furthermore, the dependency of globalized supply chain on availability of permanent transportation infrastructure create a system very vulnerable at disruption propagation in the SC.
Through numerous studies, have been defined reasons for the impact that disruption have on execution and performance of a SC. Disruption risks and their propagation in the SC are mainly caused by single sourcing, low risk mitigation inventory, overutilization of capacities, low-level safety technologies, batching and missing contingency plans.
The width of the ripple effect and how it impacts economic performance is reliant on redundancies such as inventory or capacity buffers, also called robustness reserves, and on the speed and extent of recovery measures.
Ripple effect control in the supply chain requires two main capacities: resistance and recovery.
For resistance, which is the SCs ability to protect against disruptions and reduce impact once the disruption occur, some redundancy such as risk mitigation inventory, backup sourcing or capacity flexibility must be built in at the proactive stage.
For recovery, this redundancy must be activated jointly with reactive contingency plans with regards to capacity flexibility, risk mitigation inventory and backup sources. Therefore, it is necessary that, in the proactive stage, risk and SC resilience are assessed and incorporated at the design and planning stages. In the reactive stage, operationalization of contingency plans, such alternative shipping routes or suppliers, must occur quickly in the control stage, to ensure quick stabilization and recovery, which is required to maintain supply continuity and prevent long term impact.
In order to assess the impact of the disruption on the SC, and both the costs and effects of material flow redirection, companies require a tool supported by collaboration and SC visibility solutions to implement these recovery policies.
Key Take Aways
• The ripple effect occurs due to a disruption and create a downstream effect that result in a high impact on SC performance;
• Supply chain complexity create a system very vulnerable at disruption propagation;
• Ripple effect control requires two main capacities: resistance and recovery.
Check your understanding
• What are the consequences of the ripple effect?
• What are the causes of disruption risk and their propagation in the SC?
• What is meant by resistance and recovery?
•Handbook of Ripple Effects in the Supply Chain – D. Ivanov, A. Dolgui, B. Sokolov