How can international supply chains be resilient to handle Force Majeures: Explorative findings from multi-national case studies

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How can international supply chains be resilient to handle

Force Majeures:

Explorative findings from multi-national case studies

Master’s Thesis

MSc. International Business & Management Faculty of Economics and Business

June 15, 2020

Boris Fenneman – S3831752 b.fenneman@student.rug.nl

Thesis Supervisor : Dr. R.W. de Vries Word count: 13.763

Acknowledgments:

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Abstract

Purpose: This study explores how international supply chains can become resilient for force

majeures and how the negative impact of these force majeures can be limited.

Method/Design: A secondary data analysis was complemented by in-depth case studies and on supply chain performance within five globally dispersed companies within the chemical industry.

Findings: We found valuable and new details in relation to creating supply chain resilience to deal with force majeures in international supply chains and which capabilities and practices contribute in building resilience during the distinctive stages of force majeures. Different tactics how to deal with force majeures originate from cultural and country differences.

Originality/value: This is one of the first studies on creating resilience to deal with force majeures and certainly by conducting empirical research and the combination of data from participants from the United States, Asia and Europe.

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When a stone is thrown into a pond, we are inclined to focus on the splash and ignore the wrinkles in the water, although the second effect lasts much longer. A similar phenomenon occurs when a supply chain is hit by a disruption, causing long lasting effects on the stability of the supply chain. Supply chains are logistic networks connecting value adding partners producing, transporting and delivering information, goods and services. This ranges from the original raw materials manufacturer until the delivery to the final destination. Where each ‘chain’ can be considered as a one-to-one connection between manufacturer and customer, the total supply chain is a complex network structure, see Appendix A (Christopher, 2005). The globalization of supply chains creates strong interdependency, establishing extensive collaboration and integration between partners and calls for excellent information exchange to overcome the challenges within international supply chains. The complexity and interconnectedness of these global supply chains can be introduced by the following examples: i. The globalization of manufacturing and trade is very well illustrated by Pietra Rivoli (2014) in his work “The Travels of a T-Shirt in the Global Economy”, where he describes the road travelled for a plain five U.S. Dollar T-shirt. Starting with harvesting of the cotton in Texas (USA), inland transport to the port, and followed by shipment to Shanghai, China. The whole production process continues in China (or is in some cases partly outsourced to Bangladesh), after which the final product is shipped back to the United States of America for sales. Whereupon, it pops up at a second-hand clothing market in Africa.

ii. The global supply chains for mobile phone makers include over 300 (sub)suppliers in dozens of countries over five continents, see Appendix B for an illustrative overview.

iii. Toyota, as the world’s largest car maker, directs a supply chain of over 2,200 suppliers (Tier-1, Tier-2, Tier-3) of which 70% is domestic and the other 30% is globally dispersed (Kito et al., 2014), whereas the Volkswagen Group (world’s second largest car maker) runs a global network of 40,000 suppliers (source: Volkswagen Group).

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interrelationships, as in example iii., can be explained by Toyota halting their production after the 2007 and 2011 earthquakes hit some of their suppliers (Kito et al., 2014) who are not only supplying the Toyota factories in Japan but also overseas subsidiaries (Tamasy & Taylor, 2008), as well as Volkswagen (Germany) loosing over € 100 million due to delivery problems from and dependency on one of their parts manufacturers (Iwersen et al., 2018). It is recognized that all major supply chains have a strong international and global character (Zachariadis, 2019), with the exception of supply chains which deliberately focus on ‘local for local’ as is practice in some food supply chains which promote freshness of food and sustainability of their products. Although, these supply chains are limited in size, volume and power (Waltz, 2010)

In this study we are trying to understand how disruptions evolve throughout a supply chain and how the negative impact of these disruptions, and more specific force majeures, can be limited. Building supply chain resilience is considered to be a core part of one’s supply chain strategy and key contributor to sustainable operations (Ponomarov and Holcomb, 2009) as it enables organizations to deal with supply chain disruptions. Within a supply chain context, resilience can be defined as “the ability of a system to return to its original state or move to a new, more desirable state after being disturbed” (Christopher and Peck, 2004, p. 4). This includes resilience drivers which prepare a supply chain for events, enable the capacity to efficiently and effectively respond to disruptions and the ability to return to the former or improved state adapted to changed circumstances (Ponomarov and Holcomb, 2009). Research on supply chain resilience capabilities has been limited up to now and is mainly conceptual (Blackhurst et al., 2011). In this study we follow the conceptualization of resilience capabilities by Jüttner and Maklan (2011) and focus on the supply chain resilience capabilities: i) collaboration, ii) velocity, iii) visibility, and iv) flexibility. Although there is a strong focus on the concept of supply chain resilience in recent literature (see e.g. Brandon-Jones et al., 2014), empirical research on the topic is still limited and often focused on a single company which makes comparative analysis covering multiple firms and countries relevant (Karjalainen & Salmi, 2013). Although we recognize and value the contribution of the work of other scholars on supply chain resilience and capabilities we follow Blackhurst et al. (2011) on their suggested end-to-end supply chain approach. In all studies a clear distinction about supply and demand sided resilience is absent. Furthermore, there is little guidance how practitioners should build resilience.

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integrated and lean there is limited knowledge of resilience as a capability of the entire supply chain (Christopher & Lee, 2004). So far, the majority of the research has been focused on the single organizational level while it is suggested to use an end-to-end supply chain approach (Blackhurst et al., 2011; Christopher & Lee, 2004; Shankar, 2004).

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2. THEORETICAL BACKGROUND 2.1. Supply Chain Disruptions

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capabilities are well-known reducers of supply chain vulnerability and enhance supply chain performance

Figure 1 - The Disruption Profile (Sheffi & Rice, 2005)

2.2. Force Majeures

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blockages or natural disaster events such as earthquakes, volcanic eruption or extreme weather, i.e. storm, flooding, snow or cyclone. To illustrate the complexity to qualify for force majeure : regular heat waves are no legal excuse for non-compliance to performance as these are no exceptional events and could have been foreseen. Whereas the condition of force majeure is regularly misused as an argument to cover up for nonfulfillment, the legal status is created through and protected by the previously mentioned criteria.

The vulnerability of global trade and the increased frequency of international supply chain disruptions is directly reflected in the increased number of Force Majeures (ICIS, 2020), see Figure 2, being a direct threat to companies’ and supply chain performance by higher costs and reduced revenues and profits. Where the monthly average amounted around 20 to 40 force majeures in 2008-2014, there has been a significant increase with a doubling of the force majeure frequency in 2015-2017, and reaching alarming levels during 2018-2019.

Figure 2 - Force Majeures Reports 2008-2020 (Hodges, 2020)

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Subsequent to the previous, as force majeures relief parties from their legal obligation to perform they will have to look for alternatives to ensure continuity where they need other types of capabilities to achieve this solution.

2.3. Supply chain resilience (SCR)

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Resources and capabilities are the firm’s (in)tangible assets available to serve its customers (Barney, 1995). Moreover, these resilience capabilities are seen as a generator of competitive advantage under normal operating conditions (Brandon-Jones et al., 2014; Rajesh & Ravi, 2015). To develop a better understanding of these four capabilities we discuss each of them further.

2.3.1. Flexibility

Flexibility, one of the main capabilities in supply chain literature, enables firms to quickly adapt their processes or structure to realize their objectives (Hohenstein et al., 2015; Pereira et al., 2014; ; Rudrajeet et al., 2014). Flexibility is the capability to successfully adapt to continuous changing circumstances and is a fundamental and structural part of supply chain resilience (Jüttner and Maklan, 2011) and at the same time a performance objective which can be measured from both an internal as well as an external perspective (Slack et al., 2013). Internal flexibility strengthens external flexibility supporting the development of supply chain resilience. According to Ponomarov and Holcomb (2009), flexibility empowers supply chains to respond rapidly and efficiently to supply chain disruptions, this implies that flexibility both requires and creates velocity to respond to unexpected events and to return to a stable situation. It has been recognized that flexibility should be a part of the supply chain design and decision making process building structural flexibility into the SC (Christopher and Holweg, 2011; Tang and Tomlin, 2008). Increased but certainly structural flexibility supports organizations to remain competitive. Supply chain practices such as outsourcing, information sharing, security compliance, extent of postponement, extent of collaboration, and contingency planning enhance flexibility within the supply chain (Christopher and Holweg, 2011; Christopher & Lee, 2004; Kovács and Tatham, 2009).

2.3.2. Velocity

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nodes and the location and capacity of these facilities define the minimum response time to a disruption (Kovács and Tatham, 2009; Pereira et al., 2014). Another factor which impacts this response time is the presence of skills to quickly redesign the current supply chain network as is common in humanitarian organizations or the military (Boin et al., 2010). Additional to the physical locations the velocity is co-determined by the structure and quality of the supply chain information network. Wieland and Wallenburg (2013) argue that both visibility and speed are supply chain resilience enhancers which can be positively affected through improved supply chain relationships. Although information about (future) supply chain disruptions might be easily and quickly accessible to be shared among supply chain members, it is quite common that the actual communication is postponed. Thereby reducing the speed of communication and decreasing SCR. This can be prevented or overcome by well-trained and experienced staff who are capable to make quick decisions based on knowledge and experience (Blackhurst et. al, 2011).

2.3.3. Supply Chain Visibility (SCV)

Supply chain visibility creates transparency within the chain through an effective information exchange on up- and downstream inventory, production, and supply and demand levels (Rajesh and Ravi, 2015). The increasing complexity of global supply chains reduces the visibility within the supply chain (Tang and Tomlin, 2008) while supply chain risk is reduced by “end-to-end” supply chain visibility and thereby enhancing supply chain resilience (Christopher & Lee, 2004; Pettit et al., 2013). SCV enables firms to identify changes within the supply chain and to respond with accurate speed to these changes (Wieland and Wallenburg, 2013) reducing the negative consequences of supply chain disruptions (Brandon-Jones et al., 2014).

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competitive advantage created. However, there is little empirical data supporting the relationship between SCV and SCR. Christopher & Lee (2004) emphasize that the dominant factor to build supply chain resilience is “end-to-end” supply chain visibility through supply chain confidence from good quality information sharing.

2.3.4. Collaboration

Finally, we explore the contribution of collaboration to SCR. Collaboration arises from the desire to work together with other organizations and share risk, information and knowledge for mutual benefits while remaining accountable for your own results (Jüttner and Maklan, 2011; Pettit et al., 2013).

Successful collaboration is founded on mutual trust and information and risk sharing, awarding all partners with the benefits of this joint action (Combs & Ketchen, 1999). Capabilities describe the power or ability to do something and are themselves based on the integration and coordination of resources (Ponomarov and Holcomb, 2009). The supply chain capabilities: flexibility velocity, visibility, and collaboration (Jüttner and Maklan (2011) are built on the various supply chain characteristics as described before and can be grouped together as physical capital, human capital and organizational resources as is illustrated in Figure 3. The supply chain capabilities are created from the combination of the supply chain practices, however they strengthen each other at the same time.

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Figure 3 - Supply Chain Resilience Capabilities and Resources (Adapted from Sirmon et al., 2007)

2.4. Conceptual model

From these four supply chain resilience capabilities by Jüttner and Maklan (2011): collaboration, velocity, visibility and flexibility, we are trying to increase our understanding of supply chain resilience. We undertook a multiple case study to explore the relationships between the theoretical frameworks of supply chain resilience and supply chain disruptions and to understand how disruptions (i.e. force majeures) and resilience affect international supply chain performance. Based on the conceptual model – as shown in Figure 4 – we will derive propositions from the research question which was already announced in the introduction.

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3. METHODOLOGY 3.1. Research design

In this study we are studying multiple events (here force majeures) in depth within the supply chain context. Given the complexities of supply chain relationships and the aim of our study, we opted for a multiple case study approach (Voss et al., 2002). According to (Yin, 2012) case studies are the most appropriate approach to answer “how questions”. Where the relevance for supply chain case studies for fact finding and theory building was acknowledged by Mathieu and Pal (2011). The number of cases in a case study is usually small, with a suggested minimum of four cases (Eisenhardt, 1989) up to a dozen in more extended studies (Mills et al., 2010) restrained by time and cost conditions. Though, it is not the number of cases that prevails but the process of continuous collecting and analysing data to reach saturation of information (Flick, 2002).

3.2. Research context

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3.3. Case selection

For this case study we selected five globally dispersed companies within or related to the chemical process industry. The selection and comparison of five large supply chain representatives should enable us to identify how a force majeure effects the supply chain and its members and how drivers and inhibitors influence resilience along the chain. This makes it a suitable setting for investigating - the effects of - disruptions and the drivers and inhibitors of supply chain resilience in a chain. The unit of analysis within this research is the force majeure. To identify meaningful and relevant cases– between 4 and 6, as four is the suggested minimum based on Eisenhardt (1989) - we will analyse the incident reports for the years 2015-2018 of selected companies on - small and large - disruptions as well as actions taken at the organizational and chain level. Criteria for the selection of cases are: size of the disruption (small versus large), result of the intervention (successful versus unsuccessfully managed), time duration of the disruption (short versus long) and origin (internal or external). The selected cases will be analysed on cross-case patterns.

3.4. Data collection

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Figure 5 - Force Majeures (EU) (source: author)

The results of the qualitative data will be presented, further explored and discussed through the use of a interviews with experienced participants representing individual companies and cases. These interviews are used as an interactive way to collect data and generate insights (Flick, 2002). Within the interviews we will base ourselves on the critical incident technique of Flanagan (1954) which will be used as a qualitative research method to explore and investigate how disruptions evolve throughout the supply chain and what are the reducers and enhancers of supply chain resilience. These supply chain disruptions (i) can be classified as being handled successfully or (ii) as an event which was managed unsuccessfully. An overview of the interviews and participants can be found in Table 1.

Case Country Industry Purchase category Time (mm:ss)

A JPN Chemical Industry Strategic Procurement 56:56

B JPN Chemical Industry Raw Materials 41:58

C USA¹ Chemical Industry Machinery 42:10

D NL Engineering Co. Equipment 35:56

E NL Engineering Co. Equipment 30:45

F NL Chemical Industry Raw Materials 47:57

0 50 100 150 200 250 2015 2016 2017 2018 2019 N u m b e r o f e ve n ts

ICIS Disruptions 2015-2019

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While inviting the candidates to participate in the research we already explained them about the research topic, securing that they had relevant and broad experience with force majeures whereby they were encouraged to share backgrounds, experiences and lessons learned on suitable events during the interviews. The interview protocol is based on literature (Pettit et al., 2013) and can be found in Appendix D. All interviews were held between April and May 2020 and were recorded and transcribed. To ensure reliability and validity of our research we employ multiple measures such as multiple data sources combined with three research methods techniques for triangulation, a case study protocol and data base, Atlas.ti for data analysis and an interview protocol based on literature. The main data sources for this case study are summarized in Table 2.

Source Number Data

Database on Force Majeures & Disruptions 1219 www.icis.com (2015-2019)

Interviews 6 Follow up on meaningful and relevant cases

Table 2 - Case study data sources (source: author)

3.4.1. Incident reports data collection

We opted for a further analysis based on the type of product representing the highest frequency of force majeures (2015-2019), being Raw Material II (Appendix C), to reduce complexity, increase focus and create visibility and clarity within our research. In all cases, the unit of analysis within this research is the Force Majeure. We analysed 133 incident reports for Raw Material II - from the ICIS commodity database (source: www.icis.com) - on the cause of force majeures within the chemical supply chains, while classifying those force majeures by the codes jeopardizing the firm’s performance: i. impact of the force majeure and ii. duration of the force majeure (Sheffi and Rice, 2005) as well as manufacturer (n=20), country of origin (n=20), category of the event (n=11) and the supply chain capabilities (n=4) from Jüttner and Maklan (2011). The main findings of the incident report analysis will be presented in the next section.

3.4.2.

Interviews data collection

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Huberman (1994) a three-step analytical process will be applied to the data. In the first step the data will be reduced through the selection, focusing and modelling of the described data. Step two consists of organizing and compressing the data by a thematic analysis to search for patterns within our qualitative data set. The coding criteria for step two are: (i) the supply chain resilience capabilities as described by Jüttner and Maklan (2011) and (ii) the supply chain disruptions phases from (Sheffi and Rice, 2005), combined with (iii) the supply chain practices, these criteria are listed in Appendix E. We have made a selection of the suitable participant interview codes related to force majeures (first order codes) which were listed and each one was connected to the applicable supply chain resilience capabilities, the force majeure disruption phases and the supply chain practices, see Table 3 for an excerpt of the coding tree.

Quote (first order)

Supply Chain Resilience Capabilities (second order) Supply Chain disruption phases (second order) Supply Chain Practices (third order)

"...we have a risk procedure. We have now agreed that if an issue occurs - and this can be a force majeure, for example - we will have a fixed protocol, a fixed step-by-step plan" (C1)

Collaboration 1. Preparation Risk sharing

"No, after all: we don't really have procedures" (C2)

Collaboration 1. Preparation Risk sharing Collaboration 1. Preparation Information sharing "we ask them to report at least on a

monthly basis on the progress of production" (C2)

Collaboration 1. Preparation Information sharing "Yes, there is a Force Majeure

registration list in which all procurement managers must state whether they have encountered force majeure, with whom, what the impact is, …… certainly in

combination with the Corona crisis." (C2)

Visibility 1. Preparation Information sharing

"Actually, we don't have a fixed Force Majeure protocol. If you look back at the past 11-12 years, I can count it on one hand, the amount of Force Majeure clauses or

announcements that we have

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now with the COVID-19 situation that amount has quadrupled, maybe even more." (C3)

"There are also vendors who have sent an open letter without an actual Force Majeure with us. So mainly in the beginning it was Italy, northern Italy. And then immediately, I have said: Pay attention on the impact of COVID-19, before you issue the Purchase Order." (C3)

Visibility 1. Preparation Information sharing

Table 3 - Coding tree (excerpt from the section of 'preparation’ and 'visibility' or 'collaboration'), (source: author)

Additional analyses will be carried out between the different cases to find cross-case patterns (Eisenhardt, 1989). We can look further into the data by distinguishing material flow versus information flow (Brandon-Jones et al., 2014; Peck, 2006). Besides several data sources (data triangulation), we assured methodological triangulation to validate our results and increase credibility (Flick, 2002).

In the third and final step conclusions will be prepared and verified to convert our findings into empirical generalizability. The methodological process, summarized in Figure 6 is an non-linear iterative process which includes feedback loops and repetitive steps analysing and interpreting the data where even new theoretical insights might arise from this process (Bansal and Corley, 2012).

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4. FINDINGS

Data collection and analysis show valuable insights and new details in relation to supply chain resilience enhancers. From the case study research we can conclude that the supply chain capabilities: collaboration, velocity, visibility and flexibility, contribute to build supply chain resilience and how supply chains and its members should deal with force majeures. New insights are found on country differences in the operationalization of the diverse capabilities and the country specific opinions on the use of the declaration of force majeure.

4.1. Force Majeures reports findings

The annual number of disruptive events showed a significant increase (see Figure 5, p.19) - from 35 events in 2015 to 212 occurrences in 2019 - while force majeures were growing from 119 to 179 events per year in the same period of time. Taking a more specific look at the numbers of the case study companies (see Appendix C) we see a similar trend, these numbers are in line with those depicted in Figure 2 (page 11). The high frequency and repetitive character of force majeures hinders companies to fully recover from the drop in supply chain performance before the next force majeure arises.

The collected data consisted of 133 force majeure incident reports on raw material II and was analysed through the use of qualitative data analysis software, i.e. Atlas ti. The analysis enclosed an extensive number of force majeures during a considerable period of time (2015-2019) but the majority of the force majeures and their related causes can be traced back to only two manufacturers, i.e. BP Antwerp (Belgium) and PKN Orlen (Poland), see Appendix F. The origin of the events can be very broad, both man-made events as well as natural disaster events, ranging from geopolitical instability to volcanic eruptions. The data shows a limited number of type of events, i.e. environmental issues, extreme weather or factory fire/explosion. The majority of the events - 80% for impact and 75% for duration - can be characterized as ‘factory shutdown’. There is a clear interrelationship between the duration of the impact and the final impact on firm performance, the longer the duration the higher the impact of the force majeure, see Table 4.

Duration

Impact

Nothing Small Medium High Full

1 day 0 0 0 0 1

1 week 0 2 3 2 0

2 weeks 0 2 7 1 1

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Summarizing, the force majeures collected and analysed can be identified as dominantly man-made incidents, such as factory shutdowns, originated from a very limited number of suppliers lasting for a medium to long period of time with a high impact. We conclude that despite the clarity of and limitation in the number of suppliers and causes, the demonstrated interrelationship between the duration and impact of these force majeure incidents forces us to come up with additional measures to define our way of action how to deal with force majeures. Additionally, if we compress the data from Appendix G (see p. 52), and look into the frequency of the actions per force majeure phase (see Figure 7), it is staggering to conclude that only 24.5 % of the firms’ efforts are related to preparation activities prior to a force majeure (phase 1), while 20.6% of the activities is absorbed by ‘recovery’ and post-disruption activeness also consumes 20.6%. We must conclude that three quarters of the efforts are related to

‘fire-fighting’ the force majeures instead of being well prepared.

Figure 7- Frequency of activities per disruption phase (source: author)

This was enriched by the confirmation of all but one interviewees that they did not use a formal force majeure protocol or training program within their organization and none of the participants had a similar protocol with their suppliers. There is an unmistakable need to be better prepared to deal with future force majeure incidents.

24,5% 11,6% 7,1% 2,6% 3,9% 9,0% 20,6% 20,6% 0 5 10 15 20 25 30 35 40 1 2 3 4 5 6 7 8 Preparation Force Majeure First Response Initial Impact

Full Impact Recovery Preparation

Recovery Long term Impact Frequency of activities per disruption phase

50,2%

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4.2. Force Majeures interviews findings

Different supply chain capabilities function as major contributors - to become resilient in force majeure situations – for each distinct supply chain disruption phase. Where collaboration is dominant in the preparation phase and in the long term impact, companies should focus on velocity during the first response and recovery phase. While visibility is crucial prior to and at the beginning of a force major related disruption, we can conclude that flexibility is key at the phases six and seven: namely recovery. Mutual trust and information sharing is key for successful collaboration and enhances supply chain relationship through benefit sharing (Combs & Ketchen, 1999).

By examining three separate sets of criteria (see Appendix E) for each case in relation to our data we will be able to analyse patterns between force majeure resilience capabilities and force majeure disruption phases resulting in a capability frequency table (see Table 5).

Table 5 - Capability frequency (source: author)

While through the combination of supply chain practices and supply chain disruption phases, we created a practices frequency table (see Appendix G). In the remaining part of this chapter, we will elaborate further on the highest ranking supply chain practices as set out in Appendix G), where we used a threshold of 6%.

4.2.1. Information sharing (phase 1,2,3,4,5,6,7,8)

Information sharing is the second most dominant supply chain practice to build supply chain resiliency to handle force majeures. It is present during all disruption phases (Sheffi & Rice, 2005), but is most abundantly present in the preparation phase, during the disruptive event and on the longer term, while scoring the second highest overall frequency (F=28) of all SC practices. In specific cases (C1, C2) the lack of information sharing was evidently and ground

Phase 1 2 3 4 5 6 7 8 capability Preparation Force Majeure First Response Initial

Impact Full Impact

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majeure or a major calamity" (C1), and “No, after all: we don't really have procedures" (C2). In contrast, certain preventive measures showed to contribute largely: "we ask them to report at least on a monthly basis on the progress of production" (C2) and "There were vendors who have sent an open letter without an actual Force Majeure to signal the potential impact of COVID-19” (C3). By sharing information prior to an actual disruptive event we build supply chain confidence based on mutual trust (frequency = 4 in preparation phase) to enlarge visibility within the supply chain (Christopher & Lee, 2004).

The inception of a force majeure related disruptive event is the most turbulent and most stressful moment for both buyer and supplier. Force majeures will only be declared if absolutely necessary and they have a large and often long lasting impact on the both contractual parties. Setting up corrective actions to be able to move on to the next phase (3) of first response requires timely and correct information. Also here, the absence of information is evident: "I didn't really have any signals that it was going to go wrong." (C1) and "our manager is firmly convinced that, despite the fact that the delay is not yet claimed, that it will come." (C2) whereas appropriate information sharing was clearly demonstrated in: "We were properly informed by the account manager….”(C1), "What works best? Ask, go and see what the real problem is,... but stay in conversation." (C2) and "And now with the COVID-19 situation, we have had reports from the suppliers in northern Italy that all their production was stopped and that therefore factories could not produce.” (C3). During the beginning of a disruptive event, only information sharing is considered as a clear and import contributor to build resilience to overcome force majeure situations.

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Finally, we conclude that throughout all eight supply chain disruptions phases, information sharing was highly frequent present (F=26) in cases 1-3 (European based case studies) whereas cases 4-6 (Asian participants) show a contrary low frequency (F=2) and concentrate on the evaluation phase.

4.2.2. Back-up suppliers (Phase 1,6,7,8)

Although the supply chain practice ‘back-up suppliers’, can be found in four distinctive phases of the disruption profile (F=21), it is clearly represented during the preparation for recovery, phase six (F=6) and at the time of the recovery (phase seven) with a frequency of seven. Buyer require alternative options (here suppliers) to coop with disruptive events (here force majeures). Albeit their limited appearance (F=3) while preparing for force majeures some relevant experiences were found: "1. The stock of course, the easiest (counter) measure I can take, 2nd: the supplier.” (C1). Whereas in the preparation for recovery (phase six), participants experienced both negative realities: "Next step is to firstly contact with the other wiring service supplier, and they also said they had to give up." (C5) as well as positive outcomes: "And then we moved to Asia pretty quickly. We were able to arrange some materials in Turkey, so we could get that there pretty quickly, and the other materials had to be put on the boat from China to the Netherlands." (C1) and "then you just see that suddenly another supplier comes forward who wants to think about solutions." (C3). Especially in the recovery phase, back-up suppliers are the main solution (F=7) to battle force majeures and the lessons learned from these alternatives can be a good opportunity to build future resilience within the supply chain. Where some of the case studies were not successful: "We tried to purchase from another Supplier. So one supplier is in China. But unfortunately, currently they stopped their operation due to some advice by local government, this is also an environmental issue.” (C4) and "So that usually we didn't access to the cable manufacturer. We depended on the service provider or construction service provider only." (C5). Where other actions proved to be more successful: "And also we could find the second supplier directly by our efforts" (C5) and "Second action, we have alternative sources: one is in Japan the X-company because he's our other supplier" (C4).It is noteworthy that ‘back-up suppliers’ were a far more present solution for recovery in the Asian cases (85%) compared to the European cases (15%).

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4.2.3. Flexible production systems (phase 2,6,7)

Flexibility, and more precise the practice of flexible production systems, is only found in the disruptive event (phase two, F=3), initial impact (F=1), and during recovery (phases six and seven, combined F=7). Where at the origination of the event, inadequate solutions “all that together caused them to use the stock they had built up very quickly, and that they indeed had to declare Force Majeure". (C1) are opposed by more rewarding cases, such as: "Usually at that time, European and US company declare a Force Majeure. However, SA, oh, no, he did not declare the Force Majeure." (C4). Prior and during recovery operations, we found confirmation for this additional flexibility through: "The Chinese companies just go, instead of sending a lot of letters, they just make sure the work gets done. This is because they have quite a lot of people available to help out." (C3) and "If you look at the delays that have been claimed, these all have been between three and six weeks, …….. and in the end you can compensate through extra shifts." (C3). Remarkably, flexible production systems are mainly mentioned by the European participants (64%) in comparison to their Asian peers (36%).

Concluding, flexible production systems – which are firmly connected to ‘strong supply networks’ - are a major contributor to boost ‘flexibility’ in force majeure situations and hereby enhancing supply chain resilience.

4.2.4. Trained & experienced staff (phase 1,7)

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before sending them back to their own companies. This is recognized as a strong example of bundling resources and extensive collaboration.

Given the high frequency, long duration and large impact of force majeures (Yang and Xu, 2015) it is a surprising outcome that little attention is paid to enhance knowledge by the education of staff at both supplier and buyer as well as the use of simulation software to practice potential scenarios. This could be a strong enhancement of the supply chain’s resilience and is heavily recommended, especially if this is executed as a structural approach as a joint effort of both parties (Slack et al., 2013) and will enlarge visibility through improved communication (Harrison et al., 2014). This importance of skilled resources is emphasized by case study number five: “We cannot prepare a perfectly expected situation to happen. If so, we must prepare for the unprepared situation. That is the wise lesson through two major earthquakes." (C5).

4.2.5. Mutual trust (phase 1,3,5,6,8)

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4.2.6. Supply chain relationships (phase 1,2,3,5,6,7,8)

Supply chain relationships are represented within each and every supply chain. However, to make them a valuable instrument to create supply chain resilience to deal with force majeures, these linkages need to advance from transactional to relational and subsequently from a cooperative to a collaborative level. Remarkably, the sum of frequencies (F=32) for relationships is the highest within our research, however only in four occurrences (=12.5%) this was mentioned by a European participant while this capability is by far the most favourable one for Japan. The case studies showed comparable positive results where only one outcome seemed negative: "People are sometimes adamant and time is just not for sale." (C2) and all other cases were assessed as contributors in dealing with force majeures: "You always have to keep looking at future business and the relationship." (C2), "We need a closer relationship with them and closer communication is needed." (C4) and "…for their valued customers, they would like to keep up the volume. I think this is a common and popular case in Asia, especially for Japanese and Chinese companies." (C4). Most of the solutions how to tackle force majeures from supply chain relationships, focused on close communication, extensive information sharing, top management involvement and a long term vision and strategy.

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5. DISCUSSION

The findings of this study advise which supply chain capabilities and practices are major contributors to deal with force majeures. We selected the force majeure as the unit of analysis of our research as a well-defined sub-group, with a legal context, of supply chain disruptions in general. This made it easier and clearer to collect and analyse our data and discuss further with those who are experienced experts in this field. The vast amount of available data based on the legal status of ‘force majeures’ combined with the lack of previous research was a valuable starting point for this research. We tried to develop our answer to the research question through the application and use of existing theory on supply chain capabilities (Jüttner and Maklan, 2011) and supply chain disruption phases (Sheffi & Rice, 2005) on the unexplored field of force majeures. Summarizing the relationship between supply chain capabilities during different phases of the force majeure and differentiating between the preferences between different countries, we combine them into a force majeure practices matrix, see Table 6. For further details on the force majeures capabilities throughout the different stages of a force majeure, please refer to Appendix H.

Table 6 - Force majeure practices matrix (source: author)

With reference to the firms’ performance, we can conclude that the high frequency and repetitive character of force majeures hinders companies to fully recover from the drop in supply chain performance before the next force majeure arises. The repetition of this phenomenon might be a factor creating continuously decreasing supply chain resilience levels, see Appendix I for a visual explanation. Combining the above arguments on supply chain disruptions we reach the following proposition:

Phase 1 2 3 4 5 6 7 8 practice Preparation Force Majeure First Response Initial

Impact Full Impact

Recovery Preparation Recovery Long term Impact Information sharing ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ Back-up suppliers ✔ ✔ ✔ ✔

Flexible production systems ✔ ✔ ✔

Trained & experienced staff ✔ ✔

Mutual trust ✔ ✔ ✔ ✔ ✔

Supply chain relationships ✔ ✔ ✔ ✔ ✔ ✔ ✔

✔

✔ dominant present Japan Netherlands

Dominant country

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In the following section, the main answers on the role of the supply chain capabilities and practices in enhancing supply chain resilience to deal with force majeures will be discussed.

5.1. The value of information sharing

Information sharing is the basic condition for knowledge sharing between supply chain participants. This supply chain practice is predominantly present within the European cases and contributes to all different disruption phases during and after a force majeure. It was found that - in some cases - there was little to no information sharing present which was, almost automatically, a source for failure. Information sharing is an important tool to prepare for, respond to and recover from force majeures. Understandably, a lot of information sharing is during the force majeure in phase two and throughout the evaluation process in phase eight. However, it is surprising that there is relatively fewer communication upfront of the force majeure (phase one) or during the recovery (phase six and seven). Especially the availability of time and the absence of commotion and excitement prior to the force majeure should be a stimulant for increased attention and efforts to set up proper communication channels and processes. We will return on the topic of the limited attention for preparedness in paragraph 5.11 (p.40), to elaborate further on this subject. Simultaneously, it is evident that sustained information exchange procedures will support the velocity and the degree of recovery. Most probably, the tumultuousness during phases two to seven reduces effectiveness of information sharing and communication strengthening the need for preparedness. The evaluations in phase 8 (long term impact) are used as learning material and influential input to enhance supply chain resilience to be prepared for and to deal with future force majeures. We suggest the coming proposition:

P2 Effective information sharing functions as a enhancer for supply chain resilience while simultaneously operating as a mitigation process and reducer of the duration and impact of force majeures

5.2. The value of back-up suppliers

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Japanese companies, which is closely connected to their cultural values of risk and uncertainty avoidance as discussed by Schwartz (1994, 2004) and Inglehart (1990, 1997) in their extensive works on cultural values and differences. Although one should have expected a more proactive approach in handling uncertainty prior to the force majeure instead of coping with the uncertainty in the recovery phases (Harrison et al., 2014). The choice for ‘back-up suppliers’ is a well-known mitigation strategy to reduce the impact of force majeures (Chakraborty et al., 2019) and should be integrated within one’s risk assessment procedure (Christopher & Peck, 2004; Scholten et al., 2014). Referring to the frequency and the duration of force majeures (see Figure 2, p.11; Figure 5, p.19; Appendix C, p.54) and the vulnerability of some suppliers (see paragraph 4.1, p. 23) this option could be a much stronger and more frequently used capability by the case study participants to deal with force majeures. Therefor we propose:

P3 The impact of force majeure events can significantly be reduced through the introduction of back-up suppliers as a mitigation process

5.3. The value of flexible production systems

Operational excellence is considered as a top priority to meet customers’ demand and supply them with what and when they want it at the best available quality level against competitive costs. The findings of our study are not fully aligned to the principles and practices as outlined above. First, we have found the use of ‘flexible production systems’ to be mainly applied as a response to handle force majeures in the recovery phases. Second, the European participants scored much higher on the application of this concept compared to their Japanese opposites. Overall, ‘flexible production systems’ are valued as meaningful contributors to get back to original planning or quality levels to recover from force majeures, especially because of their high flexibility based on quick response times (i.e. velocity) and the creation of flow in the manufacturing process. Flexible responses during force majeures as well as in standard operations strengthens supply chain resilience, improves firm performance and creates decisive competitive advantage (Nishiguchi & Beaudet, 1998).

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fixing the problems within the manufacturing process but to create a culture of getting the right quality the first time.

From here, the following is proposed:

P4 Flexible production systems which are firmly connected to ‘strong supply networks’ -are a major contributor to boost ‘flexibility’ in force majeure situations and hereby enhancing supply chain resilience.

5.4. The value of trained & experienced staff

In connection with the objectives and principles of the TPS, see paragraph 5.3, to avoid failures and building a world class working environment it is highly valuable to develop staff and management through training and education. Well skilled employees are better prepared to deal with force majeures and can grow into future experts and leaders within their discipline and field of knowledge to transfer their experience and knowledge to a future generation of employees, hence building supply chain resilience. With regard to preparations through skilled and experience staff to be prepared to deal with force majeures, although highly supported by literature there is an apparent absence of attention for training and education at the European parties based on the interviews from our case studies. Whilst in Japan, the importance of preparation through training was confirmed in all three case studies this was closely connected to a higher frequency of natural disaster events such as earth quakes and typhoons in South-East Asia. In addition, training and education by buyer and supplier through joint programs seemed much more common in Japan and is a perfect illustration of well embedded preparation how to deal collectively with force majeures. This enhances the opportunity and possibility of information sharing, resource bundling, building trust between supply chain partners forming strong supply chain relationships and creating velocity and supply chain collaboration. Therefore, the following is proposed:

P 5 Joint preparation for force majeures through well trained and experienced staff increases speed and establishes collaboration within the supply chain.

5.5. The value of mutual trust

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relationship into a more collaborative way of working mutual trust is required. We found that mutual trust was present in all cases although – contrary to literature - not throughout all phases of the force majeure. Based on well-established and deeply founded mutual trust it becomes clear from the case studies that supply chain partners depend heavily on each other to handle force majeures. The most in-depth form and expression of mutual trust was expressed in the Japanese case studies where a clear affirmation was found of the communality within Japanese firms to have business relationships without the need of a written contract. Trust is here the foundation for a healthy relationship which is supported in literature (e.g. Watanabe, 2015) explaining that disputes can better and easier be resolved through dialogue and mutual consensus. This deeply founded trust within the Japanese culture and business relationships is a sustained competitive advantage for their supply chains as a whole and a durable enabler for building supply chain resilience to deal with force majeures.

Mutual trust - which was represented nine times in the case studies - builds supply chain confidence, which combined with extensive information exchange (frequency of 29 in the case studies) forms supply chain visibility (Christopher & Lee, 2004). Simultaneously, a lack of trust will hamper or lower supply chain flexibility (Chan et al., 2009). Considering these insights the following is proposed:

P6a Strong – international – supply chain relationships based on mutual trust can serve as the better option to deal with force majeures, hence replacing contractual terms.

P6b Collaborative supply chain relationships can be a robust mitigation strategy to increase supply chain visibility and reduce the duration and impact of force majeures by improved response times.

5.6. The value of Supply chain relationships

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conditioned supply chain relationships. The extent of collaboration will drive the degree of flexibility. In line with Wieland and Wallenburg (2013) we can conclude that SC relationships are the foundation for supply chain collaboration whilst strengthening the supply chain capabilities visibility and velocity, consequently accomplishing supply chain resilience. Next, we propose:

P 6 Supply chain relationships are an effective tactic to prevent force majeure events and enhance supply chain resilience.

The most surprising founding from the cases studies is that the declaration of force majeures is very rare for Japanese businesses and will only been used as an exception. Despite their acknowledgement of the legal term and its possible validity and right to use it, they are hesitant to the highest degree to use this. This approach or strategy is completely contrary to the social market economy (Rhine model) as is common in continental Europe and the capitalist Anglo-Saxon economic model, as is practiced – among others - in the United States, Canada and the United Kingdom plus some of their -former - overseas territories, where the enforcement of contracts is much more typical and will prevail. The Japanese methodology strongly focuses on consolidated collaborative efforts to deal with the force majeure situation through human and supply chain relationships. The importance on an supply chain or even societal level prevails above the individual or organizational interests. This can be explained by the high level of collectivism in the Japanese society where the collective needs will predominate those of the individual. As mentioned in the interviews, that after one of the major earthquakes in Japan, priority was placed on recovery of the country’s infrastructure. No legal government order was declared, but all companies understood that they had to drop their demand for supply voluntarily as the national interest overruled all others. The urge to avoid the declaration of force majeure and focus on a collaborative solution reduces the stress caused by the potential legal effects and centralizes the collective interests to find a ‘hand in hand’ solution.

Based on the above we propose the following:

P 7 Force majeures should be handled depending on their geographical and cultural setting.

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velocity, visibility and flexibility (Jüttner and Maklan, 2011) within their corresponding phases of the force majeures.

5.7. Collaboration as a capability

Collaboration is the most used supply chain capability to deal with force majeures and is most frequently used as a mitigation strategy (Chen et al., 2013) during the first phase (preparation) and the final phases (recovery and long-term impact) of the force majeure. Collaboration prior, during and post force majeures is in general established through the supply chain practices of ‘information sharing’ which is mainly used by the Dutch interviewees, ‘mutual trust’ and ‘supply chain relationships’ which is by far the preferred option for the Japanese participants. Backed up by literature (Inglehart, 1990; 1997, Schwartz, 1994; 2004) the cases confirmed the importance of ‘collaboration’ for Japan as an important enabler to enhance supply chain resilience to deal with force majeures. The most impressive examples we learned from the cases studies included the support of suppliers after natural disaster events to rebuild production facilities, establishing communication channels between customer and central government by the supplier and collective buyer-supplier training programs, all without any written agreement to specify the contractual terms and conditions. These strong supply chain relationships culminate into enhanced supply chain resiliency. However, on a more detailed level we question why the European cases showed much less concern for collaboration within the supply chain. Where literature (Cranfield School of Management, 2003) promotes to work together with each other to be prepared to coop with new events (i.e. force majeures), we did not find confirmation for this in the case studies 1-3, and if present collaboration was directly connected to information sharing excluding most of the other tools.

Where it is recommended that supply chain members should work together (Richey, 2009,) to compete with other supply chains instead of trying to contend as individuals (Christopher, 2016), there is limited attention for the creation of joint procedures, processes or training programs to deal with force majeures. Although supply chain resilience is considered as a network theory (Scholten et al., 2014) , it is still largely approached on a single or one-on-one basis. Hence, the following is proposed:

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5.8. Velocity as a capability

Velocity is the less mentioned and used capability in all case studies (C1-C6) and used in twice as many occasions by the Europeans compared to the Japanese. While literature suggest to respond quickly to a force majeure to efficiently reduce the loss over time (Smith, 2004), we cannot directly relate this to our data and findings. Where preparedness and velocity of response and recovery are crucial within disaster management (Fereiduni & Shahanaghi, 2017) to provide help in emergency situations, we found contrary observations in our force majeure case studies. A possible explanation could direct in the direction of risk aversity of Japanese (Hofstede, 1980; 2001) but on the other hand, they are well experienced in disaster management due to the high frequency of (natural) disaster events such as the Fukushima nuclear disaster in 2011 caused by a gigantic tsunami and their long history with volcanic eruptions and earthquakes, such as the Tohoku earthquake in 1995 with a death toll of 15,881. It would be expected that firms have increased attention for velocity, to deal with force majeures, to reduce the duration and impact of force majeures (see Table 4, p. 23) and limit the effects on performance. Well trained and experienced staff is a prerequisite to increase velocity. Additional supporting conditions such as near locations and supply chain redesign were merely mentioned. Based on the high recognition for ‘supply chain relationships’ and its contribution to velocity, we would have expected more attention for velocity as a capability. From here, we propose the following:

P 9 Supply chain velocity obtained through well trained and experience staff enables firms to respond quickly to recover from force majeure events.

5.9. Visibility as a capability

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interview data confirmed one-to-one attempts from buyer and supplier to create visibility, this is in line with paragraph 5.7. Through this approach the readiness to handle force majeures is considerably reduced (Van der Vorst and Beulens, 2002) and it is recommended to address visibility based on a network coordination strategy.

Most of the ‘visibility’ in the case studies is created indirectly through the utilization of ‘collaboration’ (Wieland and Wallenburg, 2013), which was represented with a strong emphasis in all cases, or through information sharing and improved communication. Visibility should be a key capability for all supply chains and its members (Christopher & Lee, 2004) and deserves more attention and allocation of resources. Certainly when supply chains have a more complex structure, as is the case in international networks (Kersten et al., 2011). Without visibility on the entire supply chain it will be hard to create full supply chain resiliency and handling force majeures remains a matter of fire-fighting instead of preventing, mitigating and preparing. Now, we propose the following:

P 10 Supply chain visibility, through collaboration and information sharing, supports supply chains to become proactive as a whole and build resiliency in complex international networks to handle force majeures.

5.10. Flexibility as a capability

Flexibility in the supply chain offers companies the ability to respond to deviations or fluctuations in the supply chain’s environment, both during day-to-day business as well as during disruptive events, here force majeures. Force majeures are unexpected and unpredictable events, adding risks to the supply chain (Christopher & Lee, 2004) and require a high degree of flexibility to be dealt with.

As for flexibility, the findings in this study marked it as the second most important supply chain capability with similar importance for all case studies and equivalent interest in both the Netherlands and Japan while its use is concentrated at the recovery phases (six and seven). Likewise, here we find a more reactive attitude instead of an proactive style, as also mentioned earlier in paragraph 4.2.4 (p. 28).

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studies and almost no reference to others. Besides, the application of these limited variation of supply chain practices concentrates on the resource and plant level and more strategic or end-to-end supply chain flexibilities are overlooked. It can be questioned if all participants are equally aware of the potential of creating flexibility within the supply chain and the value of a diversified portfolio of corresponding supply chain practices to deal with force majeures. The application of ‘back-up suppliers’’ and ‘flexible production systems’ might seem limited in variance but they are definitely in line with literature (Barnes, 2008) and function as profound mitigation processes (Jing & Lijun, 2016) to deal with force majeures where all interviewees showed successful results by the use of these practices. Additionally, supply chain flexibility was further strengthened through increased levels of trust (Chan et al., 2009). The relationship between flexibility and velocity as suggested by Ponomarov and Holcomb (2009) was clearly demonstrated in the case studies as ‘back-up suppliers’’ and ‘flexible production systems’ improved speed of responsiveness to deal with force majeures. From this conclusion, we propose the following:

P 11 Flexibility is a core capability to enhance supply chain resilience to deal with force majeures.

5.11. How to act during Force Majeures phases.

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preparing for force majeures and step up from a reactive attitude and corresponding fire-fighting approach to a state of proactiveness with complementary behaviour. With reference to the long duration and substantial impact on the financial status and firm performance it is commended for – international - companies to devote much more time, money and resources in the mitigation and preparation phases to deal with force majeures in their respective global supply chains. Finally, we propose:

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6. CONCLUSION

This study contributed in the understanding on how to create supply chain resilience to deal with force majeures in international supply chains and hereby improving firms’ performance. As this is a novel research area we found valuable and new details on how to handle during the sequential phases of force majeures. Here, we combine the conceptual model (see, Figure 4, p. 16) with the resulting research propositions from this study (see Appendix J for an overview) to establish the relationships between supply chain resilience and force majeures. These relationships are summarized in Figure 8.

Figure 8 - Updated conceptual model (Note: P1-P3 = Propositions 1 to 13.)

Based on the updated conceptual model in Figure 8, we can conclude that there are four propositions (P2, P11, P12, P13), who generate a triple effect: i. as a reducer of the force majeure event, ii. as an enhancer of supply chain resilience and as a mitigation process. Although we did not research the strength or the relationship between the propositions, it seems legitimate to address those four propositions in the first instance or when firms are dealing with restricted resources.

The main capability for supply chains to become resilient to handle force majeures is supply chain ‘collaboration’ based on strong supply chain relationships, although this is most noticeable in the Japanese cases, predominantly in the preparation phase. Consecutively, it has been identified that ‘flexibility’ is the second most dominant capability in battling force majeures but has a very small foundation as it is only built on ‘back-up suppliers’ and ‘flexible production systems’. The presence of flexibility was found in all phases of the force majeures and without any country preference for this capability. Next, visibility was the following

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fully embraced and serves more as an underlying facilitator. Ultimately, velocity, from experienced staff and information sharing, was addressed as the least favourable supply chain capability and certainly not for the Japanese supply chains.

It became evident that despite the extensive portfolio available to deal with force majeures in supply chains, only a handful of solutions is actively used on a day-to-day basis, i.e. ‘info sharing’, back-up suppliers and supply chain relationships. Here, the country preference is extremely distinctive; where there is equal concern for ‘back-up suppliers’ whereas info sharing is the favorite practice to be used by the Dutch participants, their Japanese counterparts fully concentrated on ‘supply chain relationships’.

Although both countries showed similar profiles for their activities during the consecutive force majeures phases, it was noticed that Japan heavily stressed the importance of recovery. Furthermore, preparation and education are immensely underappreciated.

Before last, clear interrelationship was demonstrated between the duration of the force majeure and the final impact on firm performance along with the interrelationship between the capabilities flexibility and velocity. Besides, velocity contributes to improved flexibility Finally, the cultural differences and way of – doing – business between The Netherlands and Japan became most obvious in the waiver of the use of the force majeures in Japan as this was not in line with their cultural background and business style, profoundly exhibited in the awareness for and recognition of supply chain relationships and the limited importance for the confirmation of business agreements through written contracts.

6.1. Managerial implications

Supply chain professionals (here: buyer and supplier) who are experiencing the negative effects of force majeures in their international supply chains can benefit from this study. First, they may change from a reactive approach into a more proactive attitude to deal with force majeures threatening the outcomes of their efforts to create resilient supply chain performance. Moving up from fire-fighting, the exceptional and unforeseen disruptive events which develop into force majeures, into well prepared, close connected and fully trained supply chains.

How can international supply chains be resilient to handle Force Majeures: Explorative findings from multi-national case studies