Supply chain risk and challenges
Various supply chain risk management (SCRM) strategies examined in research literature with actual practices as supply chain vulnerability has become a fashionable area of management research. To provide critique on supply chain risk and challenges and to review of positioning of research together with literature drawn from several relevant and overlapping fields of research and practice. Thus, to foster understanding of supply chain risk and challenges, the relationship between supply chain vulnerability, risk and supply chain management and relevance to corporate governance, business management, security and planning. There argued that attitudes to risk and approaches to risk management vary within SCM and between related disciplines and although more work is needed within the SCM discipline, the issue of supply chain risk and vulnerability should not be addressed solely from functional SCM perspective. Research agenda should strive to inform and support the needs of all those with a legitimate interest in supply chain risk and vulnerability management.
The management of risk is core issue in the planning and management of any organisation. Bandyopadhyay et al. (1999) in review of the literature stated that four major components of risk management had been identified:
- Risk identification
- Risk analysis
- Risk reduction, transfer and acceptance
- Risk monitoring
Company manages risk in order to protect its assets and profits, and stay in business. However, no matter how well risk is managed it is necessary to prepare for negative events. It is important to understand the distinction between risk management and planning for continued operation once potential risk has occurred. The management of risks and business continuity planning were two high-level examples identified from the case studies where best practice was demonstrated and positive outcomes were achieved.
Being able to define and measure costs and other relevant data among the various channel members is the first step to analyzing the multienterprise channel for cost-saving opportunities. Current accounting systems focus on the individual firm and do little to incorporate data for other channel members. Ideally, an inter-organizational report can be developed that combines the information for channel members as a way to assume identification of productflow opportunities. Cost and other information are generally not shared among firms in the supply channel, probably for fear that competitors would use it to their advantage. The lack of information about the extent to which each member may benefit if there has been cooperation involved to achieve optimum can be a source of mistrust among channel members. Appropriate and reliable information about the extent to which each member benefits through channel cooperation is needed. Then, such information needs to be shared among the members. Methods for sharing of information are underdeveloped, although there are some examples where it occurs, such as retailer providing point sale data to suppliers that manage retailer's inventory or manufacturer gives its suppliers production requirements information to support just in time schedules.
Furthermore, exploring the opportunities that SCM provides is popular research area, elements of SCM are captured in trilogy of intrafunctional, interfunctional, and inter-organizational coordination. Much effort over the years has been directed toward managing the product-flow activities intrafunctionally, probably because they were under the immediate control of the product-flow manager and easiest to accomplish. Coordination beyond the immediate function is difficult but offers promise of yet underexplored opportunities. Success in managing new arena will be the next frontier for lowering costs and increasing service in the product-flow channel. Firms need to understand the value of prevention and not merely the reaction to security risks. It makes far more sense in terms of time, money, resources, and aggravation for firms to adapt their businesses in order to dedicate efforts to preventing problems from happening (Kendall, 2003). Other traditional risks that face firms include cost pressures that require firms to constantly balance cost reduction targets with their objectives. For example, sluggish economy has left firms such as automotive companies with excess inventory, have responded by offering consumers rebates and attractive financing rates, in some cases as low as zero percent.
Competition in most businesses is intense and has forced firms to accept low profit margins. Increased reliance on outsourcing creates a loss of control and a risk of losing proprietary information shared between parties. New approaches involve risk management, which is a formal process that involves identifying potential losses, understanding the likelihood of potential losses, and assigning significance to these losses. Supply chain management seeks to reduce these risks and enhance competitive performance by closely integrating internal functions within company and effectively linking them with the external operations of suppliers, channel members and final customers. Risk management becomes necessary as purchasers move to adopt more strategic supply management practices. The level of risk management depends on situational factors. This research posits four important ones based on previous research. Securing the upstream supply chain Increased distance adds uncertainty to supply continuity through longer lead times and potential transportation disruptions. Supplier capacity constraints result in the inability to supply the quantities demanded by purchasers (Lee et al., 1997).
Additionally, supply chain professionals are faced with business risks associated with the financial instability of a supplier. With the increased reliance on outsourcing financial stability of suppliers, who influence a major portion of firms' costs, becomes more critical (Larson and Kulchitsky, 1998). If suppliers are unprofitable, they become greater risk when there are no alternative sources and new sources must be found and developed. Finally, management tenures are shrinking with all the downsizing actions taken by corporations. In such an environment, there is a need to manage these uncertainties in the supply chain. Today, supply chains are perceived as a source of competitive advantage as the advantage cannot be attained through the inefficiencies associated with buffering strategies. The ongoing risk assessment involves gathering, communication, and evaluation of information that helps in developing appropriate risk management strategies (Zsidisin et al., 2000). It is important to realize that there are risks with these new supply chain strategies. For example, fewer suppliers and lower inventories mean that a problem at one supplier can be magnified throughout the supply chain. Quality related risks can cause significant detrimental effects on supply chain, with a cascading effect through the supply chain to final consumers. The organizations using net markets to purchase goods from distant sellers expose themselves to greater risk, as it is hard to assess quality levels and specification requirements before shipment (MacKinnon, 2002). Data quality problems such as wrong or out-of-date part numbers can mean the success or failure of supply chain. Quality failures can stem from failure of suppliers to maintain capital equipment, lack of supplier training in quality principles and techniques and damage that occurs in transition.
Therefore, it is up to the progressive supply managers to resist these attempts to grab for greater control and, instead, focus on managing risk. Failure to do so will result in a step back for these firms and the gap between best and worst performers will grow even larger. Risk management policies need a clear mandate from top management. Because risk management is time consuming supply professionals can spend a large portion of their time in planning and assessing supply risk, they need to rationalize the investment that they make in each buying situation by identifying its distinguishing characteristics. Supply professional should rely on early supplier involvement, share and assess supplier risk management plans, implement automatic integration with supplier operations, and increase and strengthen the flow of communication with the supplier. In this case the risk management investments can be easily justified. Supply professionals must have top management support (Zsidisin et al., 2000). Companies can rely on outsourcing and still avoid its associated risks when they develop quality certification programs and audit the suppliers to assure they meet required standards. These activities reduce the risks of poor judgments in supplier selection. Long-term alliances make organizations dependent on fewer suppliers and increase risks (Smeltzer and Siferd, 1998). It is evident that the incorporation of risk constructs and risk management responses into supply chain management is timely and reflects both theoretical imperatives and practitioner requirements.
References
Bandyopadhyay, K., Mykytyn, P., Mykytyn, K. (1999), "A framework for integrated risk management in information technology", Management Decision, Vol. 37 No.5, pp.437-44
Kendall, S. (2003), Talk Back: Can Too Much (Security) Knowledge Be a Dangerous Thing?, CIO.com, July 3
Larson, P. and Kulchitsky, J. (1998), "Single sourcing and supplier certification: performance and relationship implications", Industrial Marketing Management, Vol. 27 No. 1, pp. 73-81
Lee, H., Padmanabhan, V. and Wang, S. (1997), "Information distortion in a supply chain: the bullwhip effect", Management Science, Vol. 43 No. 4, pp. 546-58
MacKinnon, M. (2002), "The security team: these online services back up B2B security", Purchasing B2B
Zsidisin, G.A., Panelli, A. and Upton, R. (2000), "Purchasing organization involvement in risk assessments, contingency plans, and risk management: an exploratory study", Supply Chain Management, Vol. 5 No. 4, p. 187
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