Supply Chain Risk Management
Supply Chain Risk Management
Introduction
Supply Chain Risk Management is the concept of trying to foresee disruptions to timely supply of goods or services required by the organisation and creating systems to mitigate these at the lowest possible cost to the organisation and by so doing ensure that there will be continuity in the normal operations of the business. Supply chain risks have the potential to cripple a business’ operations and can have long and short term effects which may be difficult to recover from. A delay along a route is a short term problem whereas the presence of a monopoly supplier in the chain holding up stocks to force an increase in prices or shutting down for whatever reason is long term. Certain types of disruptions are both difficult to anticipate and rare, but very damaging when they occur; for example, natural disasters such as earthquakes are difficult to predict but have the potential to ruin entire factories and road networks wreaking havoc to the entire supply chain. Disruptions to supply can be anticipated and countered by building inventory or by having multiple redundant suppliers since it is highly unlikely to encounter a scenario where multiple suppliers are simultaneously disrupted. Both of these processes can be described as building supply chain reserves.
Concept of Risk
Risk can be perceived from various angles; one of its basic definitions being the probability of threat of quantifiable damage, injury, liability, loss or any other negative occurrence that is caused by external or internal vulnerabilities and that may be avoided through pre-emptive action.1 In developing an understanding of risk, it is necessary to incorporate its two fundamental facets; the first being the exposure to the uncertainty and the second being the actual outcomes upon occurrence of the event.2 Hence, risk can be expressed as the product of probability and consequences of an event. Along with this, one must also be able to know the
Introduction
Supply Chain Risk Management is the concept of trying to foresee disruptions to timely supply of goods or services required by the organisation and creating systems to mitigate these at the lowest possible cost to the organisation and by so doing ensure that there will be continuity in the normal operations of the business. Supply chain risks have the potential to cripple a business’ operations and can have long and short term effects which may be difficult to recover from. A delay along a route is a short term problem whereas the presence of a monopoly supplier in the chain holding up stocks to force an increase in prices or shutting down for whatever reason is long term. Certain types of disruptions are both difficult to anticipate and rare, but very damaging when they occur; for example, natural disasters such as earthquakes are difficult to predict but have the potential to ruin entire factories and road networks wreaking havoc to the entire supply chain. Disruptions to supply can be anticipated and countered by building inventory or by having multiple redundant suppliers since it is highly unlikely to encounter a scenario where multiple suppliers are simultaneously disrupted. Both of these processes can be described as building supply chain reserves.
Concept of Risk
Risk can be perceived from various angles; one of its basic definitions being the probability of threat of quantifiable damage, injury, liability, loss or any other negative occurrence that is caused by external or internal vulnerabilities and that may be avoided through pre-emptive action.1 In developing an understanding of risk, it is necessary to incorporate its two fundamental facets; the first being the exposure to the uncertainty and the second being the actual outcomes upon occurrence of the event.2 Hence, risk can be expressed as the product of probability and consequences of an event. Along with this, one must also be able to know the
References: 1. Risk, Wikipedia http://en.wikipedia.org/wiki/Risk accessed 02 Jan 2014 2. R Hanssen, Supply Chain Risk Management, Guest lecture Tilburg University, 31 March 2010, http://www.slideshare.net/janssengr/supply-chain-risk-management-guest-lecture-tilburg-university-march-2010 accessed 02 Jan 2014 3. J Husdal, Supply Chain Risk, Guest Lecture presentation LOG 711,12.11.2008 www.slideshare.net/husdal/Supply-Chain-Risk accessed 02 Jan 2014 4. S Chopra, M. S. Sodhi, Managing Risk to Avoid Supply-Chain Breakdown, MIT SLOAN Management Review Magazine, Fall 2004, sloanreveiw.mit.edu/article/managing-risk-to-avoid-supply-chain-breakdown/ accessed on 02 Jan 2014