SUPPLY CHAIN RISK MANAGEMENT STRATEGIES

 

 

Recently, supply chain risk management has been an important issue for organizations, through the work on aspects of purchasing and risk stretches back to the 1960s. By the by, there seems, by all accounts, to be expansive understanding that the dangers and outcomes of production network interruption are developing, and can't be perceived and overseen exclusively at the level of the    singular client and provider

The supply chain is serious of activities in the organization's material moves from initial supplier to end-user.  The supply chain encompasses all activities associated with the flow and transformation of goods (product and services) from the initial design stage through the early raw materials stage, and on to the end-user.

Supply chain production network, natural substances are acquired and things are delivered at least one industrial facility, sent to stockrooms for moderate capacity, and afterward transported to retailers or clients. Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores. So that product is created and conveyed in the right amounts, to the right areas, and with perfect timing, to limit framework wide expenses while fulfilling administrations level prerequisites. Store network the board thinks about each office that affects cost and assumes a part in causing the item to adjust to client necessities. Inventory network the board thinks about each office that affects cost and assumes a part in causing the item to adjust to client prerequisites. It has more concern to be efficient and cost-effective across the entire system; total system-wide costs, from transportation and distribution inventories of raw materials, work in process, and finished goods, are to be minimized.

The production network dangers could be as deferrals of materials from providers, enormous estimate mistakes, framework breakdowns, limit issues, stock issues, and disturbances. Another classification is provided by, who categorized supply chain risks into operations and disruptions risks. The tasks chances are related with vulnerabilities inborn in a production network, which incorporate interest, supply, and cost vulnerabilities while interruption chances are those brought about by significant normal and man-made disasters such as floods, earthquakes, tsunamis, and major economic crises. The Supply chain process is required to manage the integration of activities through improved supply chain relationships, to achieve a competitive or cooperative advantage

At the strategic level, risk management only focuses on identifying and assessing the probabilities and consequences of risk. Hence, selecting appropriate risk strategies to reduce probabilities of or losses associated with adverse events. Risk mitigation can reduce the consequences if an adverse event is realized. Risk management strategies can provide traditional expertise and information. Other functions such as sales, marketing, transportation, and logistics bring additional expertise and information on supply chain changes. Effective risk strategies can reduce risk.

Risk management is a general management function that seeks to assess and address risks in the context of the overall objectives of the organization. It must be integrated into the organizational culture with an effective policy. It must translate the strategy into tactical and operational objectives, segregating responsibility throughout the organization with each manager and employee responsible for the management of risk as part of their job description. It supports accountability, performance measurement, and reward, thus promoting operational efficiency at all levels of organizational activities.

The supply chain may fail due to suppliers because of some factors such as breakdown of power plants, lack of coordination, natural disasters i.e. earthquakes or flooding and weather, labour strikes, wars, terrorism, and economic conditions of the country.

Failure to manage supply chain risk effectively can be increased financial costs highlights organizations may avoid adopting sufficient risk management mitigation strategies. In supply chain strategies that focus on cost reduction, organizations have ignored or played down the risks from supply chain disruptions.

A supply chain is a process that contains material, information, financial and knowledge flows. The main purpose is to satisfy final users through multiple or number of processes of a product, or service from different suppliers. Unfortunately, if the supply chain failure arises due to risks such as delay or disruption that directly effect on efficiency and reputation of the organization in the marketplace. Where competitors are waiting to get a chance into the market and replace their products and services, with the appropriate response to their customers. The risk could be identified and assessed to reduce the impact of delays and financial losses.

The financial risks can be huge. Stock expenses because of out of date quality, markdowns, and stock-outs can be critical. Mismanagement of the supply chain, leading to excessive or mismatched inventory, will thus be liable to huge financial risks. Most companies have a prime objective to maximize profits and can keep the more flexible process moving efficiently at lower cost and have good quality products or customers loyalty. Risk can arise from various sources and sometimes without warning. Risk management in the supply chain does not fully capable of disaster response completely. Therefore, Organization adopts effective risk management strategies to reduce financial losses.

The complexity and uncertainty within a supply chain can also increase the risks within the supply chain. These are effects from over-reactions, unnecessary interventions, second-guessing, mistrust, and distorted information throughout a supply chain.

Uncertainties are key drivers of risk but argue that managers can measure and change their exposure to risk through the development of prevention, mitigation, and recovery strategies. Whilst these do not eliminate uncertainties, they do enable managers to reduce the risks which might arise from uncertainties. The debate on risk and uncertainties are an important one, where different viewpoints exist; however, uncertainties may not be measurable but risks are both measurable and manageable.

Generally, it is conceivable that the types of risks, and then the appropriate mitigation actions, vary within supply chains/industry sectors. The possible research could be the design of a framework for collaborative risk management and various possible schemes for such risk management between organizations in a supply chain. Supply chain risk management attempts to compare strategies to manage risk or to create a robust supply chain across different sectors are still limited.

Supply chain risk management is a key component of organizational risk management, especially in the manufacturing industry.  Supply chain risk can be reduced through the improvement and efficiency of the supply chain process and Also, applying management strategies to take action against unforeseen events because risk management strategies cannot eliminate risk.

There is evidence that environmental risk, organizational risk, and network risk over the past decade appear to be increasing in supply chain disruptions. As supply chains are getting longer and more complex involving more partners due to the increased source. Also, the threat of terrorism, such as 9/11, military action, a war in Iraq, disease, such as the foot and mouth outbreak in the UK, and natural disasters, such as Hurricane Katrina which devastated New Orleans, all have the power to disrupt or cause uncertainty.

In addition, we are living in an era of rapid change in technologies and market products. Along with increasing customer expectations in terms of better products, lower prices, and quicker response times. Overall, it can be seen that the potential risks facing supply chains are growing significantly.

Supply chain risk management is an integrated management approach along the whole chain - intending to manage the exposure to serious business disruption, arising from risks within the supply chain as well as dangers outside to the store network. Associations oversee and moderate gamble against occasions that could influence the organization's picture in the view of partners

The main three key risk sources are environmental risks, organizational risks, and network risks. Besides, Environmental uncertainties are such as new legislation political, social, economic conditions, and competition in the market. Organizational risks are plant failure, labor strikes, and production uncertainties related to machine failure or Information technology systems. Network risks are such as variation in demand and supply schedule, security, the influence of technological change, and poor integration.

The model has also defined the supply chain risk model in three dimensions, firstly, its address to the unit of analysis logistic system from single activities to internally or externally as whole supply chain, secondly, types of risk that could be strategic uncertainties, operational catastrophes, and operational accidents. Finally, the third dimension is addressing to risk management process as identification of risk and assessment that could be risk-sharing, transferring, reducing, and avoiding.   

Risks in supply chain process, demand risk, operational risk, and external environmental global risk, whereas identification and assessment of risks could be found risk at some steps.  The five steps of global supply chain risk management follow in the footsteps of the classic circular risk analysis paradigm: Risk Identification, risk assessment, evaluation, selection, and implementation of risk management strategies and mitigation of supply chain risks. They also include other risks such as supply risk (disruption of supply, inventory, and scheduling), operational risk (breakdown of operations and changes in technology), demand risk, security risk (theft, sabotage, terrorism, counterfeiting, and infrastructure breakdown), environmental risk (Macro and Micro), resources risk (uncertainty about resources availability) and competitive risk (uncertainty about competitor's moves and actions)

The highlights key risk drivers, organization, environment, and networks. Whereas, the Environmental uncertainties such as political influence, new laws, unexpected incidents, worst weather or flooding, internal organizational infrastructure, lack of communication, coordination, sharing of information and new technologies, variation of demand and supply schedule, security threats, thefts, and poor integration of process through a network.

Moreover, defined three dimensions, unit of analysis logistic system, types of risk, and risk management process, specifically identifying supply chain process, demand, and supply, organizational and environmental.  They have highlighted it in the model of global supply chain risk management. It includes five key steps, risk Identification, risk assessment and evaluation, selection and implementation of risk management strategies, and mitigation of supply chain risks. They also specify the list of risks such as disruption of supply, breakdown of operations and changes in technology, security risk, environmental risk, resources risk, and competitive risk. This model covers the whole supply chain of the organization and is best for supply chain risk management because it defines every step from risk identification to monitoring and implementation of risk strategies.

Finally, manufacturing organizations have been given the importance to manage supply chain risk management strategies, which build blocks against potential negative effects. The management of supply creates problems from uncertainties, natural disasters, acts of war and terrorism attacks, labour strikes, machine failure, etc. causes disruption or delay in production, creates barriers in communication, these all affect the decrease in sales and increase costs. Therefore, Managing risk is not easy. Often it interconnects but mitigation strategies can reduce those risks. That's why Leading companies hold cash reserves to meet uncertainties that include excess inventories, capacity, and redundant suppliers. Many organizations adopted risk management strategies for their supply chain process. Firstly, they construct supply chain risk management strategies by understanding risk factors in the supply chain and afterward they apply general risk management strategies