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Supply Chain Risk Management [Name of the Writer] [Name of the Institution]

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Table of Contents

Introduction Literature Review Risks in Supply Chain External / Internal Risks Administrative inefficiency Operational Risks Approaches to manage risk in supply chain SCRM IDEFO functional model Assessment of Levers Summary and conclusion References

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Supply Chain Risk Management

Introduction Corporations in the 21st century are adjusting to the changes that occurred during the 1980s and 1990s. These changes have contributed to a highly competitive global economy. Those corporations that will survive in this globally competitive environment are those that continue to push the boundaries of improving performance. Identifying what is best in class or process best practices is an area of growing interest. Corporations and organizations are not only faced with challenges of correcting deficiencies and inefficiencies, competition is forcing firms to pursue improved practices or lose competitive position. The field of supply chain management is undergoing dramatic changes due to the advancement of technology, the proliferation of the Internet, and consumer behavior and preferences. In the digital age, supply chains are electronically interconnected and optimized, allowing for such efficiency and valueadded benefits as just-in-time inventory and mass customization (Khan & Burnes, 2007). Even though technology and the Internet are viewed as helpful tools in increasing the efficiency of the supply chain, there are still some major challenges in the optimal implementation of these tools. On the information side, the issues of forecasting demand remains of the highest priority because it is viewed as the beginning of the cycle. If forecasting is wrong, so are the remaining phases in the supply chain. Two additional challenges are systems and people. We are faced with a Babylon Tower of systems that makes collaboration very challenging. At the same time, human nature always favors familiarity, and it takes time and effort to create new comfort zones. This project will be liable in identifying various theories and models related to supply chain risk management, as how their approaches lead to a more sustainable supply chain for

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business environment. A review of literature is conducted which will guide through these theories proposed by various authors published in journals like International Journal of Logistics Management, and American Journal of Scientific Research.

Literature Review Risks in Supply Chain The most frequent form of mitigating demand uncertainty is to make extensive forecasts. However, these extrapolations are usually wrong, especially for long-term planning. Rather, a forecast of a collection of demands for a single product in a short time will be more accurate. The concept of risk pooling allows an organization to combine demands and variability for multiple locations and forecast the total demand, thus making it more accurate. Risk pooling across locations refers to the strategy that multiple locations hold their inventory at one central warehouse (Sinha et al, 2004). There are two important advantages of this risk mitigating strategy. In this context, the concept of accuracy denotes any unpredictable changes in demand seen by one location will counterbalance the lack of unpredictability in another location. Nevertheless, when inventory lies at one location for one retailer, it is necessary to hold safety stock to satisfy the variable shifts in demand. In contrast, risk pooling combines the safety stocks is a cost-based strategy; thus, less safety stock is necessary to support the swinging demand patterns for multiple locations, which in turn reducing total inventory costs.

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External / Internal Risks External risks are in no way controlled by the company. An excellent example of this kind of risk is the financial market. It can be harmful or beneficial to the company depending on the economic situation. Strategic risks relate to problems that arise in organizations associated with another company. They bring negative consequences to the speed at which occurs the supply chain of the parent (Khan & Burnes, 2007). There must be excellent communication between the two companies so that collaboration is proceeding as planned. Furthermore, there are various costs a retailer faces while ordering a goods from the supplier. First cost is about managing uncertainty. It is well known that nobody has a crystal ball to divine the future, but the way how to manage the variability of demand, changes in market conditions, are factors that the company can manage effectively. The second error is related to excess production. Many of these are caused by the sizes of the manufacturing batch (very small or very large), failures in the calculation of safety stock levels, waiting times between production runs too padded, failure to standardize processes, resulting imbalance in the production line or assembly.

Administrative inefficiency Administrative inefficiency is also very common, and is the third error in inventory management and supply chain management. The fourth error is the waiting time between processes, among other factors due to failures in production plans, faulty programming and quality failures or problems related to the processes that have to do with quality (Khan & Burnes, 2007).

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Operational Risks Risk in an organisation can be described as any exposure that creates a potential threat to the life of the business. These threats can be categorized into four main areas: financial, operational, compliance, and strategic. All of these risks are important for an organisation to assess and mitigate. Financial risk relates to how the organisation funds its operations, i.e. does the company have enough money to do what it needs and wants to do? This area also concerns any investments that the company makes and fluctuations in exchange rates. Compliance risk has to do with the ever-changing body of laws that govern businesses. Strategic risk covers a wide array of external events that threaten a company's ability to sustain operations (Sinha et al, 2004). It can be separated into seven key areas: industry, technology, brand, competitor, customer, project, and stagnation. In this phenomenon, external events may include interactions with nature, the community, government, and strategic partners. A company faces operational risk from external organisations in alignment. For example, when a purchaser depends on a supplier, the purchaser absorbs a certain amount of the supplier's risks. This is one reason that many organisations have chosen to develop strategic partnerships with these affiliates, as opposed to a deadpan buyersupplier relationship. A supplier can invest capital into reducing the suppliers risk and consequently its own. Supply chain risk focuses more on operational risks associated with external stakeholders - suppliers and buyers. It encompasses all functions of business related to supply and demand activities, internally and externally. When one follows a product's life cycle, supply chain risks incorporate all of the people, processes, systems and physical property involved from beginning to end. This includes but not limits to the following areas: product design, marketing, suppliers, distribution, and customers. Similar to operational risk, supply

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chain risk includes the risk absorbed from any outside company that executes along the length of the supply chain. Supply chain risk can also take other more unexpected forms (Christopher, 2004).

Approaches to manage risk in supply chain Traditionally, the main strategy to reduce risk was to be insured. However, insurance companies are changing their policies to be more restrictive. U.K insurers acknowledge that cannot sustain operations as previously composed. After a catastrophe, insurance companies must juggle requests for new policy coverage at the same time they are processing large claims and requests for payouts. Catastrophic events have an impact on both supply and demand for various industries. Organizations must now get creative in coming up with solutions that create their own protection and security, and try to disaster-proof their supply chains. Another strategy of managing supply chain risk is through the positioning of inventory. The idea is to carry fewer inventories and trim production utilizing just-in-time methods. Companies are seeking economies of scope and going global to procure a low cost per unit. Unfortunately, these cost reducing methods also produce increased risk. The supply chain can be improved by thinking strategically, broadening cooperation, considering tradeoffs, and acknowledging even unquantifiable risks. In addition, making the supply chain more flexible, and will decrease risk and may achieve cost benefits.

SCRM In the present-age highly competitive and challenging global environment, organizations need to put great emphasis upon achieving effective supply chain risk management. According to

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Martin Christopher and Helen Peck (2004), supply chain risk management is the best and most effective strategy for achieving responsiveness and efficiency in the global markets. Managing supply chains is a challenging task due to the internal and external factors affecting the organization. The assessment of internal and external factors of the organization sets the basis for understanding the supply chain and managing it effectively. Organizations in the dynamic cell phone industry have learned good lessons from the disruptions in their supply chains. At the very outset, it is important to understand the meaning of supply chain risk management. According to Mohammad Ali Vosooghi et al (2012), it is the effective management of supply chain tools and partners to deal with risks and uncertainties affecting the supply chain operations. The risk and uncertainties arising from within or outside the organization are the main challenges faced by the organization through effective supply chain risk management. Tomlin (2006) highlighted that supply chain risk management is the ability of the organization to identify and manage its economic, financial, social, information, and environmental risks in the supply chain. Craighead, Blackhurst, Rungtusanatham & Handfield (2007) highlighted that supply chain risks and disruptions can be minimized through contingency planning and flexible supply chains (Christopher and Peck, 2004). The current purchasing and supply chain practices in supply chain risk, management are diverse and need to be understood in a broader context. In the current global competitive environment, organizations need to develop sustainable global supply chains, and adopt business continuity management approach to achieve effectiveness in the long run.

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IDEFO functional model Sinha, Whitman and Malzahn (2004) reflecting on the aspect of risk within the supply chains noted that a risk classification should provide a point of reference for the study of risks and liability management. For these authors, the risks can be classified into internal and external. Internal risks are related to the activities of the organization itself and the failure of iteration and cooperation between different companies in the chain. Are generally under the control of the business itself and represent the risks generated as a result of business decisions in supply chains. Examples of these risks are: the available capacity, productivity, delays in information, internal organization, new product development and new market development. External risks are those on which the participating organizations in the supply chain have no control and represent the exposure to risks that companies cannot avoid, typically emanating from the external environment, regardless of the actions or strategies that she can come to deploy. These risks are faced by all companies as a characteristic of the environment in which they operate. In the literature on organizational environments, discussions usually focus on the choice between socalled objective and subjective measures or techniques (Khan; Burnes, 2007). The measure or objective technique generally refers to the tabulations of objects or events in an organizational setting and seeks to model the risk in order to quantify its effect. Conversely, the subjective measure is usually applied to any technique that attempts to somehow cover the participants' perception in relation to its organizational environment, ie, seeks to identify, describe, analyze and understand the risk.

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Assessment of Levers According to Voosoghi et al (2012), there are seven levers which, can either assist or slow down the organizations efforts in building a sustainable global chain. These are mainly internal and external levers which, are studied and analyzed in order to be highly vigilant and responsive in meeting these challenges. Internal levers are within the organization such as the vision and purpose of the organization which needs to be aligned with the organizational strategy. Plessis & Beaver (2008) also highlighted that the policies and human resource of the organization needs to be highly effective and efficient. The supply chain risk management becomes highly effective when the human resource is based on leadership, positive and learning organizational culture and performance oriented approach. Kumar (2009) indicated that the external levers are outside the organization which needs to be identified so that risks can be mitigated and minimized through effective organizational strategy and control methods. There are peers who are industry competitors, partners in the supply chain network, customers, public policies and regulations and bargaining power of supplier vs. bargaining power of the organization. These factors determine the sustainability of global supply chains which are highly efficient and responsive in meeting the demands of the global markets. To meet the changing trends of the global environment, these internal and external levers are assessed by the organizations on regular intervals.

Summary and conclusion According to the in-depth analysis of the data accumulated through different sources, it can be concluded that there are diverse facts that support the statement referred in the paper. Hence, it can be interpreted that effective supply chain management does not ensure that the

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firms are market winners. There are several disadvantages and risks associated with supply chain management. Nevertheless, the hazards and natural calamities can also hinder the flawless process of supply chain and logistics management. According to diverse sources, no matter how much the firm strives; there are certain things that are inevitable (Christopher and Peck, 2004). These factors significantly influence the process of supply chain management; hence, despite a flawless process planned by an organisation, market winning situation barely exists. Supply chain management usually faces catastrophes, whether they are manifested by man or nature. Nevertheless, taking these precautionary steps forces a company to become aware of the options and possible advantages of a solution. The strategies discussed previously show that risk management strategies can provide additional benefits.

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References

Vosooghi, M.A., Fazli, S., and Mavi, R.K. (2012). Crude Oil Supply Chain Risk Management with Fuzzy Analytic Hierarchy Process. American Journal of Scientific Research. Issue 46, 34-42. Sinha, P. R., Whitman, L. E., & Malzahn, D. (2004). Methodology to mitigate supplier risk in an aerospace supply chain. Supply Chain Management: An International Journal, 9(2), 154168. Christopher, M., & Peck, H. (2004). Building the resilient supply chain. International Journal of Logistics Management, The, 15(2), 1-14. Hult, G. T. M., Craighead, C. W., & Ketchen Jr, D. J. (2010). Risk uncertainty and supply chain decisions: a real options perspective. Decision Sciences, 41(3), 435-458. Khan, O., & Burnes, B. (2007). Risk and supply chain management: creating a research agenda. International Journal of Logistics Management, The, 18(2), 197-216.