The Types of Quality Risks in the Supply Chain of Etihad Airways - Literature review Example

Literature Review Introduction This review of literature looks at the risks that are inherent in the supply chains of organisations in general and airlines in particular, with a view to carrying out further research about the quality risks in the supply chain of Etihad Airways. The review is divided into two broad sections. The first section deals with background information that relates to supply chains and supply chain risks. The second part of the review looks at the types of supply chain risks. In the review, appropriate themes are identified based on the ideas presented by different authors. From the review, four broad themes about the types of quality risks in the supply chain are identified. The themes or risk types are acts that cannot be predicted and those that involve malicious intentions, material flow risks, financial flow risks, and information flow risks. Each of these risks is evaluated further based on the discussions presented by various authors in their analysis of matters to do with supply chain risks. Review of Relevant Sources Introduction to supply chain risks 1. Fernando, Saad, Haron and Zailani (2013) provide a review of the supply chain of airlines, with specific reference to Asian airlines. The authors argue that the airline industry is an industry that is characterised by very high competition and thus needs to create strategic competitive advantages via its supply chain. In other words, the authors imply that airlines like Etihad Airways need to create strategic competitive advantages that will enable them to have a competitive edge over their rivals. Fernando et al. (2013) note that some of the challenges that airlines face are related to capitalisation as well as outsourcing of some operations such as complex operations, personnel management, e-commerce and costs reduction measures. To succeed in these areas and beat the competition, it is noted that airlines have to establish long-term bonds with their suppliers. Fernando et al. (2013) also identify the various entities that are involved in the supply chain of an airline and which support airlines’ operations. These include aircraft manufacturing firms, airports, maintenance services, governments, catering services, IT providers, insurance companies, travel agencies and banks. Each of these suppliers has an effect on the supply chain of an airline. More importantly, an unsuccessful relationship with any of these suppliers can pose a quality risk to an airline’s supply chain (Fernando et al., 2013). This article is relevant because it gives an account of the players in an airline’s supply chain and their impact on the supply chain. 2. Tan, Tse and Chen (2015) discuss some of the quality risks that are inherent in global supply chain networks. This source is relevant for review since airline operations like those of Etihad Airlines involve global supply chain networks. Tan et al. (2015) review the meaning of “supply chain quality risk” (p. 52) and argue that quality risk is the extent to which there are discrete and well known incidents of defective services or products in a supply chain. It is also argued that “supply chain quality risk” is the inherent uncertainty regarding the quality of raw materials, production, ingredients, logistics any other area of operation of an organisation’s supply chain. Because one organisation (such as an airline) is served by many suppliers, some of whose services are interconnected, a quality uncertainty in one area may cause a cascading impact that spreads throughout the entire supply chain (Tan et al., 2015). Tan et al. (2015) also note that since different members of a supply chain are located in different places and have different views regarding quality risk, the quality risk in a supply chain may not be mitigated by one unified risk management approach given that the points of focus of risk management approaches can be very different from one entity to another. This article gives information about the multidimensional nature of the supply chain quality risk of organisations that operate globally such as airlines. Types of supply chain risks 3. Manuj and Mentzer (2008) look at the issues of global supply chain, the risks that are inherent the supply chains, and how to manage them. It is argued that because of the changing demands of customers as well as competitive pressures, firms are made to restructure their operations in order to capitalise on international products, capital markets and other factors of production. As firms restructure, they face risks relating to global operations. Such issues are connected to political, economic, competitive, logistical, infrastructural and cultural issues. Companies also have to contend with events that arise in different parts of the world and which have a significant impact on the supply chains at some point. These include issues such as terrorist attacks, hurricanes and other disasters, which may interrupt the operations of supply chain members located in different places. Since suppliers’ activities may be interconnected as noted by Tan et al. (2015), companies with global operations such as Etihad Airways have to look at the whole supply chain, and in all the countries that are affected, when coming up with and putting risk management strategies into action. The article by Manuj and Mentzer (2008) is important because it addresses various issues relating to risk, including different definitions of risk. 4. A paper by Tang and Musa (2011) titled “Identifying risk issues and research advancements in supply chain risk management” identifies three themes of quality risks in the supply chains of firms: material flow risk, financial flow risks and information flow risks. The article by Tang and Musa (2011) is important for review because it provides a broad overview of the major risk issues that firms in general face with respect to their supply chains. According to the two authors, material flow risks are associated with the physical movement of materials in as well as between different elements of the supply chain. Quality risks can be expected to occur at points of sourcing, making and delivering products or services. Such risks include the risks associated with sourcing from one supplier, inflexibilities in sourcing, as well as issues to do with poor selection of suppliers, monitoring of supply products, and the capacity of supply. Financial flow risk entails improper investments and the inability to make payments. Common risks in this regard include risks associated with the exchange rate, cost and price, financial practices, and the financial capacity of partners in the supply chain. Information flow risk is related to issues such as information inaccuracy, which may result from inaccuracy and inaccessibility of data. Additionally, information-related threats can result from ill-managed information systems, natural disasters or external interference by hackers (Tang & Musa, 2011). 5. Tang’s (2006) article explains how various disruptions in the business environment can affect the supply chain. This article is relevant because it discusses various quality risks in the supply chain under various themes that can be viewed in regard to material flow risks, financial flow risks and information flow risks. Tang (2006) argues that the world is ever more vulnerable and uncertain. The author goes a step further to list some of the issues that have disrupted supply chains over the years. These include unpredictable disasters such as wars, terrorist attacks, economic crises, earthquakes, computer virus attacks, diseases, tsunamis and many more. It is noted that when such disasters occur, they cause major business disruptions. This has an impact on various aspects of organisations’ supply chains. For instance, in recent times, airlines like Etihad Airlines had to deal with occurrences such as the outbreak of Ebola in West Africa, the conflict in Syria, and the Zika virus in Brazil. Tang (2006) also gives example of how some airlines such as KLM, Air France, Aeroméxico, Delta Air, Czech Airline, Korean Air and Continental Airlines had to adjust their supply chain operations after disruptions caused by different types of risks and uncertainties at various times. 6. Deloitte (2015) discusses risks that are specifically related to the aviation industry. This source is important because it brings in another theme of quality risks by introducing the dimension of “unpredictable and malicious acts” (p. 9). This view is different from the standpoint taken by Tang and Musa (2011), who discuss supply chain risks in terms of material flow risks, financial flow risks and information flow risks. The “unpredictable and malicious acts” as identified by Deloitte (2015) are categorised into cyber crimes and breaches related to data management, insider threats and risks from within an airline, and disruption of the supply chain due to third parties or threats associated with suppliers. Such threats are intertwined with an airline’s operations since the airline requires human and technical power in order to function appropriately, but at the same time, the human and technical aspects can be used intentionally or unintentionally to cause harm to the airline. Deloitte (2015) goes further to detail the specifics of each threat and its impact on the aviation industry. 7. The World Economic Forum’s (WEF, 2015) article discusses various quality risks in the supply chains of transports providers in general and airlines in particular. The article is relevant for review because it brings into perspective the different themes of quality risks in supply chains as identified by Tang and Musa (2011) and Tang (2006). In particular, according to the WEF (2015), unpredictable acts such as the September 11 terrorist attacks cause significant declines in the number of passengers using airlines. This has an effect on other aspects of airlines’ supply chains. As well, communication or information disruptions have a significant important on how airlines manage their information. It is also argued that some airlines choose to use a single supplier for their aircrafts, but this can be risky in case the aircraft manufacturer fails or delivers airplanes of low quality. For instance, Southwest Airlines was forced to ground its fleet of 79 aircrafts sourced from one manufacturer, causing massive flight cancellations and inconveniences to customers after discovering a problem in one of the aeroplanes (WEF, 2015). As well, WEF (2015) notes that aircrafts frequently have to contend with disruptions such as volcanic eruptions, which affect air traffic flow. Generally, disasters and other disruptions affect the financial flow of airlines’ supply chains. 8. Dafir and Gajjala (2016) also address the types of risks that airlines are exposed to. This article is relevant for review because it addresses the issue of financial low risks [also addressed by Tang (2006)] in detail. Specifically, Dafir and Gajjala (2016) point out that the airline industry is very volatile, witnessing challenges and risks across the spectrum. Such challenges and risks range from financial and operational risks to risks that are connected to changes in the economic and regulatory environment, as well as those that are related to terrorism, weather and natural catastrophes like volcanic eruptions. Dafir and Gajjala (2016) also argue that airlines also face risks that are related to the resources that they use, for instance fuel. Notably, some airlines have to engage in practices such as fuel hedging to deal with the effect of oil price fluctuation. Yet at the same time, fuel hedging can have a negative impact on an airline if the price of fuel goes down consistently since the airline will have paid a higher price in advance to acquire its fuel. Dafir and Gajjala (2016) break down financial risk into four categories: equity risk, debt risk, commodity risk and risk related to foreign exchange. 9. Bains et al.’s (2016) article is important because it looks at quality risks that are inherent in the supply chains of airlines by investigating the issue of aircraft suppliers. It is noted that the infiltration of the aircraft manufacturing industry by several component manufacturers poses a potentially catastrophic impact on flight safety. This is because in the supply chain of aircraft manufacturing, many suppliers feed different materials and components into only a few established aeroplane manufacturers. Therefore, one compromised component in the supply chain can damage most of the world airlines since most airlines buy their aircrafts from nearly the same aircrafts manufacturers. This point illustrates the significance of “unpredictable and malicious acts” as noted by Deloitte (2015). That is, an unpredictable event in aircraft manufacturing operations can bring down an entire airline that depends on one aircraft supplier or a single type of aircraft (Bains et al., 2016). Sabotage or malicious acts targeting any given airline during the aircraft’s manufacturing operation are also a major risk. The points from Bains et al. (2016) emphasise the issue of quality risks, which are associated with scenarios such as sourcing of equipment from one supplier (Tang & Musa, 2011) – in this case the large aircraft manufacturers such as Boeing and Airbus. 10. Treuner, Hübner, Baur and Wagner (2014) also discuss the issue of quality risks in the supply chains of airlines by looking at what can be termed as quality risks. This article is important because it also raises the issue of airlines depending on the few existing aircraft manufacturers for the supply of aeroplanes. In particular, Treuner et al. (2014) indicate that airlines always have to experience inconveniences when there are delays in delivery of new aircrafts or when quality issues are identified in the aircrafts in question. For instance, in 2006, Airbus experienced delays in the delivery of its A380 aeroplane model as the aircraft had issues to do with its harnesses. As well, Boeing was faced with the issue of non-conforming fasteners in its 787 aeroplane model. The result of such delays is that customers are made to wait for long for the expected aircraft to arrive. When there are such delays, airlines also have to bear with outdated fleets that result in unplanned maintenance costs and higher fuel consumption (Treuner et al., 2014). The article by Treuner et al. (2014) is also vital to this review because it touches on risks related to natural disasters, those emanating from financially distressed partners, and those related to issues such as resource limitations and socio-political events (for instance political unrest and strikes). Conclusion In conclusion, four key themes of quality risks in the supply chain of airlines have emerged from the review. These are unpredictable and malevolent acts, material flow risks, financial flow risks, and information flow risks. Unpredictable and malevolent acts can include a wide range of issues such as natural disasters, socio-political reasons, cyber crimes and related breaches, insider threats from within an airline, and third party influences. Material flow risks are connected to the physical movement of materials in and between different elements of the supply chain. Quality risks are likely to arise at various points including the sourcing, making and delivery of products or services. Quality risks can be linked to relying on one supplier, rigidities in sourcing, and issues to do with imprudent selection of suppliers, capacity of supply and the monitoring of supplies. Financial flow risks have to do with improper investments and the lack of capacity to make payments. Financial flow risks include equity risks, debt risks, commodity risks and foreign exchange related risks. The review findings provide an overview of the quality risks that are inherent in the supply chains of organisations in general and airlines in particular. The findings are important since they offer a basis for carrying out further research to find out the quality risks that are inherent in the supply chain of Etihad Airways. References Bains, P., Ferris, K., Gregoire, J., Kim, J., Kozloski, J., Lazenby, J., Ofiesh, D., Shank, E., Wu, K., Beling, P., Fleming, C. (2016). Risk analysis of globalized airline supply chains (Article published in Systems and Information Engineering Design Symposium (SIEDS), 2016 IEEE). Retrieved from http://ieeexplore.ieee.org/document/7489324/?part=1 Dafir, S. M., & Gajjala, V. N. (2016). Fuel risk and hedging management: Strategies for airlines, shippers, and other consumers. Chichester, West Sussex: John Wiley & Sons Ltd. Deloitte. (2015). Disruption: Managing strategic risk in aviation. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/tr/Documents/consumer-business/avitran-disrupt-aviation-pov.pdf Fernando, Y., Saad, N. M., Haron, M. S., Zailani, S. (2013). The development of synergy model on internal and external suppliers for Asian airlines. In Z. Luo (Ed), Technological solutions for modern logistics and supply chain management (pp. 110-128). Hershey, PA: Business Science Reference. Manuj, I., & Mentzer, J. T. (2008). Global supply chain risk management. Journal of Business Logistics, 29(1), 133-155. Tan, K. H, Tse, Y. K., & Chen, J. (2015). Quality risk in global supply networks. In B. B. Flynn & X. Zhao (Eds), Global supply chain quality management: Product recalls and their impact (pp. 47-64). Boca Raton, FL: Taylor & Francis Group. Tang, C. S. (2006). Robust strategies for mitigating supply chain disruptions. International Journal of Logistics: Research and Applications, 9(1), 33–45. Tang, O., & Musa, S. N. (2011). Identifying risk issues and research advancements in supply chain risk management. International Journal of Production Economics, 133, 25–34. Treuner, F., Hübner, D., Baur, S., & Wagner, S. M. (2014). A survey of disruptions in aviation and aerospace supply chains and recommendations for increasing resilience. Supply Chain Management, III, 7-12. World Economic Forum. (2012). New models for addressing supply chain and transport risk. Retrieved from http://www3.weforum.org/docs/WEF_SCT_RRN_NewModelsAddressingSupplyChainTransportRisk_IndustryAgenda_2012.pdf Read More