Table of Content
Description of supply chain
Sources of risk
Strategies for risk minimization
The complex network of suppliers threatens the organization and is a challenge for the management. The unstable and insecure competitive business environment needs a better understanding of the sources of risk in the supply chain for making strategic operational plans and decisions. These risks are related to the uncertain demand of consumer; unsecured economic cycle, natural and human events. It is essential to implement the different strategies and methods for risk management in the supply chain. The assessment of risk in the supply chain reduces the vulnerability and promotes continuity in the organization. in this project, we talk about the supply chain, sources of risk in the supply chain and the strategies for minimizing the risk in an effective and efficient manner.
A supply chain is a form of the network between the organization and the suppliers for the production and distribution of a particular product to the buyer. It involves different people, entities, activities, resources and information. Various organizations form the supply chain for reducing the cost and remaining competitive in the business. There are various steps involved in the supply chain like the transformation of raw material into finished goods, transporting and then their distribution to the end-users (Brindley 2017).
The supply chain has the risk of natural disaster because there is a possibility that the supply chain can be disrupted by earthquake, hurricane or other natural calamities. The increasing climate change and globalization are increasing the risk. The natural disaster is an immense havoc for the global supply chain as it leads to shutting down of highways, closure of ports and cancellation of flights. The delivery of consumer goods, raw material and other thing got delayed which harm the business supply chain. For example- Toyota has close down the facilities on a temporary basis in the US and Japan due to the Tohoku earthquake because they were unable to export and import the required parts.
It involves the propensity for political upheaval, government change, uncertainty and instability in the policies of the government, human right law, regulatory, property and tax laws or violence in the society. These political shifts have the potential of creating concern at global as well as the local level of the supply chain. It leads to a delay in deliveries and rerouted resources. It demonstrates the bottom line threat to the supply chain. The companies who are operating in the countries with political instability are experiencing a negative impact on the business due to adverse decision making of government officials (Lvanovdolgui & Sokoloy 2019). For example- the organizations which have its suppliers in Ukraine, Crimea and are operating in those areas have revaluated the existing circumstances because of strong political instability. Nestle has alerted its three factories with 4500 employees in Ukraine.
Commercial or market risk
It includes the demand risk which involves the continuous fluctuations of the demand and supply in the supply chain. The rapid changes in the spending habits of the consumer lead to ineffective demand forecasting. The exposure of the business to the commodity input, more volatile and expensive raw material and increased prices are making radical changes in the model of procurement for merging the selling and buying system. The risk of increased price in the supply chain is thriving the manufacturers in this dynamic business environment (Fanstevenson 2018). For example, The candy division of a reputed manufacturer of consumer goods had faced demand risk as the popularity of the product is not sinking with its production.
It includes the risk events which are directly impacting the internal operations of the organization. The participants in the network of the supply chain should have the ability to evaluate the associated operational risk with the supplier base. It includes failure of equipment, labor strike, discontinuous supply and quality issues. The third-party and suppliers in the process of supply chain impact the organization. Strike of labor disrupts the production of goods or services which will abrupt the supply chain. for example- Toyota motors had to face disruption in the supply chain due to 36 days strike of workers which reduces the production by 40% and increased the delivery time of vehicles (Sreedevi & Saranga 2017).
Business continuity planning is important for mapping out the internal process and anticipating the consequences of disruption in the supply chain. Every organization should keep extra resources strategically so that if natural disaster threats the supply chain than it will help in staying operational for a long time and help in quick recovery. Various pharmaceutical companies use this approach as they keep extra resources strategically for effective supply chain planning during any natural disaster for mitigating the risk (Behzadi, et.al 2018).
Every organization should understand the political risk nature for reducing this risk. Conversation with influential NGO and local government leader could offer valuable insights. It is significant for separating rhetoric from real issues which are negatively impacting the supply chain. The conversation with locals will help the organization in determining a credible threat to the supply chain. The company should educate and train employees and enforce strong code ethics in the organization for preparing and reducing the impact of political instability. Companies operating in Ukraine and Crimea had started the initialization of emergency plans because of strong political instability.
Every organization should attempt to forecast accuracy and improving significantly for reducing the failure. The collaborative environment should be created in the supply chain for shaping the demand for reducing variability. The secure data storage solutions, confidentiality contracts and agreements and robust policies should be used for restricting the data access (Behzadi, et.al 2018). The scalable business information system should be used for coping with the variations in the demand.
The effective strategies for risk mitigation in the supply chain are necessary for achieving success in the business. The increasing globalization and dependency and complexities between logistic providers, suppliers and successful enterprise have increased its relevance in businesses. The breakdown at any point of the supply chain will lead to potential consequences so; the risk management program should be implemented in the supply chain.
Behzadi, G., O’sullivan, M.J., Olsen, T.L. and Zhang, A., 2018. Agribusiness Supply Chain Risk Management: A Review of Quantitative Decision Models. Omega, 79, pp.21-42.
Brindley, C. ed., 2017. Supply chain risk. Taylor & Francis.
Fan, Y. and Stevenson, M., 2018. A review of supply chain risk management: definition, theory, and research agenda. International Journal of Physical Distribution & Logistics Management.
Ivanov, D., Dolgui, A. and Sokolov, B., 2019. The impact of digital technology and Industry 4.0 on the ripple effect and supply chain risk analytics. International Journal of Production Research, 57(3), pp.829-846.
Sreedevi, R. and Saranga, H., 2017. Uncertainty and supply chain risk: The moderating role of supply chain flexibility in risk mitigation. International Journal of Production Economics, 193, pp.332-342.
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