Supply Chain Risks Module 1 Supply Chain Management

Introduction

Perceptions of the risks that matter most for the ones managing global supply chain have shifted during the last 20 years. New concepts like outsourcing, just-in-time, virtual inventory, supplier rationalizations and reduction in number of distribution facilities have contributed toward reduction in overall cost of the supply chain but with the flip side of increased risk. Risk management process refers to the certain sequence of activities that a supply chain or a company could follow to reduce the supply chain risk. Identification of risk is the most important step toward effective management of risk and its mitigation. Risks can be identified both outside and inside the supply chain.

External Risks are driven by events either upstream or downstream in the supply chain and the corporation has little influence on such factors like:

• Demand risks which are basically due to unpredictable demand patterns of the end customers

• Supply risks which are related to unavailability of the product which can be due to many reasons like operational and technological issues, natural disasters, etc.

• Environmental risks which are generally associated with various shocks outside the supply chain.

Internal risks are driven by events which are internal to the company and can be controlled with proactive and appropriate measures.

• Risks caused by changes in business structures and processes

• Inadequate planning and ineffective management practices

• Risks generated by ignoring timely deployment of contingency measures

Some examples of the supply chain risk categories can be:

Operational / Technological -Forecast errors, Capacity constraints, Quality problems, machine failure.

Social- Labour shortages, strikes, accidents, fraud, sabotage

Natural Hazard - Fire, typhoon, earthquake, famine

Economy / Competition- Interest rate fluctuation,...