Centre for Process Excellence and Innovation

Supply Chain Volatility

Volatility is the 'new normal' under which supply chain managers must operate. As a result, the 'conventional wisdom' of supply chain management (SCM) may need radical re-thinking in the light of major changes in the global business environment in recent years. Our current SCM models were all invented during a long period of relative stability, and as we argue, this assumption of stability no longer holds. We illustrate the nature of volatility in key business parameters that future supply chains will have to be able to adapt to - a setting we refer to as 'turbulence'. To ground the discussion in factual evidence, we measure the turbulence in supply chains and created a 'Supply Chain Volatility Index' that seeks to empirically quantify the degree of turbulence supply chains have been experiencing over time. The index was first published in 2011 (Christopher, M. and Holweg, M. (2011) "'Supply Chain 2.0': managing supply chains in the era of turbulence." International Journal of Physical Distribution and Logistics Management, 41(1): 63-82), and the updated results are shown below.

We use the coefficient of variation (CoV) as a normalised and scale-free measurement of volatility, which allows us to simultaneously compare seemingly incompatible business parameters. Specifically we consider the following indicators, as shown in the table below. Arguably this list is an arbitrary selection, and we do not claim it is the only possible set one could consider. However, we would argue that it is a good balance between simplicity and a comprehensive coverage of financial, stock market, material and transportation cost-related indicators.

Key business parameters considered in the Supply Chain Volatility Index

Type Parameter Source Availability of data
Financial EUR/GBP (WMR&DS) exchange rate Thomson Reuters Datastream Since 1970
Financial USD/GBP (WMR&DS) exchange rate Thomson Reuters Datastream Since 1970
Financial UK Clearing Banks Base Rate - middle rate Thomson Reuters Datastream Since 1970
Raw materials Crude Oil-Brent FOB U$/BBL EIA Since 1970
Raw materials Gold Bullion LBM U$/Troy Ounce Thomson Reuters Datastream Since 1970
Raw materials LME-Copper, Grade A 3 Month £/MT Thomson Reuters Datastream Since 1970
Stock market VIX - Chicago Board Options Exchange Market Volatility Index Chicago Board Options Exchange Since 1986
Shipping cost Baltic Dry Index Thomson Reuters Datastream Since 1985

For each of these, we show the band of annual volatility in their coefficient of variation. As we pointed out before, not all indices move at the same time. Many are correlated, but not all react to events or global shifts in the same way. So what we get is a 'band of volatility', the light area in the figure below. To illustrate how the overall business environment is shifting, we have added an aggregate or meta-index of variation to the chart (the red line). This is the mean CoV across all eight indices. Our argument here is that it does matter whether there is an increased level of volatility in the oil price, the exchange rate, or the LIBOR rate. What does matter is when several of these indicators move together, as this changes the general frame of reference.

Supply Chain Volatility Index *

graph showing the Supply Chain Volatility Index from 1970-2012

The same data, shown on a more detailed scale, including a five-year moving average looks like this:

graph showing a more detailed version of the Supply Chain Volatility Index from 1970-2012

The Supply Chain Volatility Index we present above is only one of many possible ways how to quantify the turbulence experienced in modern supply chains. We therefore provide the base data we have used for other scholars to critique and improve on our initial work.

This data is provided in the spirit of free scholarly exchange. It may be freely used. All we ask is to reference Christopher & Holweg (2011) as the source.

Download the data in Microsoft Excel format (xlsx, 308KB)

Christopher, M. and Holweg, M. (2011) "'Supply Chain 2.0': managing supply chains in the era of turbulence." International Journal of Physical Distribution and Logistics Management, 41(1): 63-82

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