Understanding Supply Chain Risk Management: Concepts, Consequences, And Trends

Concept of Supply Chain Risk Management

The report helps in understanding the proper meaning of the supply chain risk and the proper analysis of the different kinds of supply chain risk has to be done as well. The report will help in analysis of the different techniques to manage the supply chain risks trends as well as consequences as well. The objectives of the supply chain risk have to be properly identified as this will help in understanding the compliance as well as requirements.

The main aim of the report helps in understanding the rooting of the supply chain management in different companies and the different consequences of the disruptions of the suppliers as well. The risk has to be measured properly in a proactive manner as this will help in with the help of the contingency options. The main purpose of the report is to properly understand the different areas of the supply chain risk management in different organizations.

The structure of the report includes different trends and consequences of the supply chain risk management. The proper importance of the supply chain management has to be analyzed properly and this will help in analysis of the risk that is involved in the supply chain risk management. The sources of the supply chain risk have to be properly analyzed as well as this will help in understanding the different strategies for managing such risks in the supply chain management.

The supply chain risk management is the synchronized efforts of the different organizations as this will help in identifying, monitoring, detecting as well as mitigating the different threats to the continuity of the supply chain as well as the profitability of the supply chain risk management. It is based on the assessment of the risk that is continuous in nature with proper objective of reducing the vulnerability as well ensuring proper continuity. Supply chain risk management helps in reducing the vulnerability of the supply chain with the help of the coordinated holistic approach that involves different stakeholders and this will help in identification of the supply chain exposures. There are different risk factors in the supply chain risk management that has to be properly identified and this will help in understanding the different requirements for reducing such risk as well.

• Trend towards the lean and just in time practices wherein efficiency is essential than the effectiveness
• Trend towards the cost reduction (almost at any kind of costs) wherein globalization of the supply chain are more vulnerable as well as complex
• Trend towards the proper economies of the scale that is related to the centralized manufacturing and distribution and the cost is lower in nature and less flexible as well.
• Trend towards the proper consolidation of different suppliers wherein there is increased  potential for the failure of the supply

The supply chain risk management helps in reducing the vulnerability with the proper help of coordinated approach that is holistic in nature and this involves supply chain stakeholders. This helps in analyzing the risks of the different failure points within the proper supply chain. The different risks that range from the unpredictable threats those are natural in nature to counterfeit the different products and properly reach the security as well as quality to analyze the integrity of the product. It is possible in nature that the logistics techniques of the supply chain management will help in reducing the level of the risk for the particular supply chain as well.

It is becoming quite popular in the business especially wherein the manufacturers are properly employed and proper management software is employed for the checking of the supply and this will help in integrating the different phases of the supply chain cycle as well. This approach is applied in order to increase the transparency, reducing the cost of the overheads as well as improving the operational efficiency.

Consequences and Trends of the Supply Chain Risk

Figure 1: Supply Chain Risk Management

(Source: Created by author)

There are four processes of the supply chain risk management that involves:

• Identification of the risk is essential in nature as this will help in identification of the loopholes and this will help in understanding the complexity of the supply chain risk management as well.
• Assessment is essential in the supply chain risk management as the different processes may not be sufficient in nature for ensuring the eventualities that are properly prepared.
• Controlling of the supply chain risk management is essential as this will aim in ensuring that the supply chain can bounce back from different risks that are irrespective of the cause.
• Monitoring is essential in the supply chain risk management as this will help in distinguishing between the reactive as well as proactive elements of the resilience of the supply chain management.

• Even the relatively petite disruption in the supply chain management that is caused by the event that is localized in nature can have different consequences all over the global economic scheme. There is no control over the different causes of the events in the entire supply chain
• The off shoring, globalization as well as outsourcing leads to wherein there is no control over the causes that includes the different events in the supply chain or wherein there is only control over the different consequences of the different events  in the supply chain risk management
• There is only control on the different consequences of the events in the entire supply chain

The risk is defined as the exposure to the different chances of loss or injury. The risk deals with the hazardous substance or the dangerous chances of loss in the entire industry. The risk is ambiguous concept and it helps in denoting the probability of the different as well as specific eventualities. It is seen that risk is a concept that has no value and these kinds of eventualities can be both adverse and beneficial in nature.

From the above formula, it can be analyzed that risk can be calculated with the help of understanding the different consequences that will be multiplied with the probability of the occurrence of the risk in the different sectors. This will help in analyzing the different procedures for mitigating the risk as well. The factors has to be properly considered as this will help in making as well as generating proper steps in reducing such risks.

a) Country of origin is one of the factors of the supply chain risk management as it is important to have proper knowledge of the location of the facilities of production of the suppliers as this is helpful in recognizing the different threats and their susceptibility. There are different countries that are vulnerable in nature to the different threats as this can have huge effect on the security of the plants of the different suppliers. This can even cause delays in the supply chain or there can be compromise in the different products and services.

b) Delivery and shipment accuracy is the other factor in the supply chain risk management wherein it helps in ensuring that the supplier can properly deliver the different supplies in a consistent manner as well as on time and this is the key element in assessing risk that is posed in the supply chain risk management chain. It is essential to understand the shipment details along with the transportation mode and the different procedures of rerouting will help in understanding the disruptions caused by the natural disasters to the lanes of the trade.

c) Physical Security is the third factor of the supply chain risk management wherein proper assessment of the physical security is essential in nature and this is essential for those countries where there is high rise of terrorism. Proper inquiry is essential and necessary in nature to understand the different materials that are used for constructing the building, proper existence of the gate guard, cargo storage procedures as well as fencing of the perimeter will help in assessing the ability of the different suppliers to keep the locations secure that will be regardless of the institutional and natural threats.

d) Internal processes helps in soliciting the different information that will be about the internal processes of the suppliers and this will help in providing visibility in the security as well as controls put  in the place during the process of proper manufacturing. The suppliers need to explain the different processes that are properly dealing with proper understanding of the restricted usage of cargo, proper control on the electronic data as well as computer.

Processes of Supply Chain Risk Management

e) Environmental and social responsibilities help in requesting different kind of information for removal of the chemicals that are properly used in the process of manufacturing. It is instructive in nature that the proper inquiry is essential for the understandability of the different internal policies in the company that includes quality of the air and the work environment as well.

Figure 2: Five factors of Supply Chain Risk

(Source: Created by author)

• When there is faster growth and innovation in the supply chain
• There is stronger competition in the entire market
• When the economies of scale is cheaper as well as efficient in nature
• There is wider globalization
• Heavier workloads and requirements
• There is change in the advancement of the technologies and changes in the demand
• There is lesser inventory

The supply risk management is generally dependent on the key suppliers wherein the management and quality issues arise from the outsourcing and there is huge variability in the lead times as well. The other supply risk includes poor quality of the RM that is supplied and there is delay in the transportation as well. On the other hand, the process risk includes the variability in the yield of manufacturing, inflexible process as well as less reliability in the equipments as well. There can be different issues in the information technology system as well along with problems in the warehouse.

Environmental Risk

Figure 3: Identification of location in supply chain

(Source: Created by author)

Furthermore, there are demand risks that include demand volatility and loss of the customers who were the major customers previously and the life cycles are short in nature. There can be inaccurate forecasts. Similarly, there are control or network risks that include ineffective communication as well as poor visibility in the pipeline and the rules that are inappropriate in nature in the supply chain risk management. There can be lack of planning that is collaborative in nature and this can help in forecasting but there are bullwhip effects that can occur due to multiple reasons. There are different risks of security that includes loss of data, theft as well as piracy and terrorism. Lastly, the environmental risks include different risks that are as follows:

• Policy Risk that includes sanctions as well as actions of the government and there is shift in the legislation as well.
• Competition risk includes there is uncertainty in the actions as well as moves of the competitors as this will help in analyzing the different issues that are faced by the respective company
• Resource risk includes there is lack of capital, technology as well as human resource management
• Macro risk includes there is economic shifts, fall or hike in the exchange rates or there is unrest of the labor as well.

• Proper mapping of the supply chain as this will help in providing proper assumptions of the managing such risk with proper implementation of the strategies
• Secondly, proper identification of the critical path is essential and necessary as well as this will help in understanding the different requirements that will help in managing the risk in the supply chain management. The critical path is properly identified with the different long lead times as well as high levels of the risk that is identifiable in nature.
• Proper utilization of the cause and effect analysis will help in managing the different issues in the supply chain management and mitigate the risks properly as well with the help of the fishbone charts as well as effects and failure mode analysis
• Proper implementation of the supply chain risk management by adopting different agile practices as this will help in making the supply chain management simpler and easier in nature
• Proper formalization of the supply chain risk management helps in minimizing the risk with the proper usage of the global sourcing

Description of risk	Type of risk	External/Internal	Impact and category of risk	Likelihood	Description of existing control
Failure of product	Operational	Internal	Critical	Less than 10% (not likely in nature)	Proper control of the quality as well as
Risk of breakdown of plant as well as machinery	Operational	Internal	Critical	Less than 10% (not likely in nature)	Preventive measure of maintenance
Inadequate future creation of capacity	Strategic	Internal	High	Less than 10% (not likely in nature)	Appropriate forecast and planning

S=Severity	1. There will be no direct impact on the level of operating service 2. There will be minor deterioration in the level of operating service 3. There will be reduction in the level of operating service 4. Wherein the level of service approaches to zero
O=Likelihood of the occurrences	1. There will be probability of once in many years 2. Probability of occurring daily 3. Probability of occurring weekly 4. Probability of occurring in some operating weeks as well as months
D=Likelihood of detection	1. Wherein the detect ability is high in nature 2. Wherein the detect ability is zero and is effective in nature 3. There will be warning of the failure before proper consideration

This is essential in nature to understand the different kinds of risk that is involved in the business as this will help in understanding the supply chain risk entirely such as:

• Decision Driven or the risk related to information helps in understanding that erroneous decision support  
• Internally Driven or the risk related to process that helps in understanding the operations as well as processing
• Externally Driven or the risk related to environment wherein the external factor, customers as well as regulations are to be considered properly

The supply chain risk can be helpful in viewing as the 4 fold construct that includes different sources such as:

• Consequences of the different sources of the risk that is involved in the business
• Strategies of the different risks that help in addressing the risks
• Risk drivers that helps in turning the different kinds of risks into the different consequences

Figure 4: Sources of Supply Chain Risk Management

(Source: Created by author)

Figure 5: Levels of supply chain risk management

(Source: Created by author)

  The supply chain risks includes disruption of inventory, supply along with schedules in managing the entire project. This can include internal delays as well. On the other hand, the operational risks include failure of operations breakdown as well as changes in the technological advancement. Furthermore, there can be demand risk as well wherein there can be different variations in the demand and the risk related to the security includes terrorism, breakdown of infrastructure r piracy as well. Furthermore, there can be micro risks that includes cost of labor, change in the exchange rates as well as there can be risks related to human resource management as well.

• Avoidance wherein there can be exiting of a market or there can be delay in entering the market
• Postponement wherein there can be delay in the commitment of different resources in order to maintain proper flexibility
• Speculation wherein assuming different kinds of risk that will help in gaining proper competitive advantage
• Hedging wherein it includes global dispersing of the portfolio of different suppliers, facilities as well as customers
• Control that includes lateral as well as vertical integration of business partners as well as suppliers
• Sharing/transferring risk that includes contracting, offshoring as well outsourcing
• Security that includes protecting as well as identifying against the penetration that is unwanted in nature

Figure 6: Disruptions in Supply Chain

Importance of Supply Chain Risk Management

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From the above diagram, it is easy to understand that:

• Which of the parts of the supply chain management that are important in nature
• What can be done if something happens
• If there is no such preparation that is the biggest risk

Category	Drivers
Procurement	Risk of exchange rate  Short term versus long term contracts
Intellectual property	Markets as well as global outsourcing  Integration of supply chain
Inventory	Value of product  Supply and demand uncertainty  Holding cost of inventory
Capacity	Flexibility of capacity  Capacity cost
Disruptions	Natural disasters  Dispute among laborers  Bankruptcy  Terrorism

Conclusion 

Therefore, it can be inferred that supply chains are generally exposed to different variety of risks that are different to each and every supply chain. These are the different kind of risks that are related to actions as well as events that are outside as well as inside the supply chain as well. Supply Chain Risk Analysis helps in identifying the different risks, their drivers as well as and the total impact on the supply chain as well. The supply chain risk management helps in seeking proper establishment of the contingent as well as mitigation strategies in order to understand the techniques to deal with the risks that are identified in nature and it will help in understanding the impact on supply chain as well.

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