Supply chain risk management

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Supply-chain risk management is aimed at managing risks in complex and dynamic supply and demand networks. (cf. Wieland/Wallenburg, 2011) Supply and demand network (en).svg
Supply-chain risk management is aimed at managing risks in complex and dynamic supply and demand networks. (cf. Wieland/Wallenburg, 2011)

Supply chain risk management (SCRM) is "the implementation of strategies to manage both everyday and exceptional risks along the supply chain based on continuous risk assessment with the objective of reducing vulnerability and ensuring continuity". [2]

Contents

SCRM applies risk management process tools after consultation with risk management services, either in collaboration with supply chain partners or independently, to deal with risks and uncertainties caused by, or affecting, logistics-related activities, product availability (goods and services) or resources in the supply chain. [3]

Supply chain exposures

SCRM attempts to reduce supply chain vulnerability via a coordinated, holistic approach ideally involving all supply chain stakeholders, collectively identifying, analysing and addressing potential failure points or modes within or affecting the supply chain. Risks to the supply chain range from unpredictable natural events (such as tsunamis and pandemics) to counterfeit products, and reach across quality, security, to resiliency and product integrity.

Mitigation of supply chain risks can involve logistics, cybersecurity, finance and risk management disciplines, the ultimate goal being to maintain supply chain continuity in the event of scenarios or incidents which otherwise would have interrupted normal business and hence profitability. The cost-effectiveness of resilience and other measures is an important factor since, as long as things are running smoothly, they add to the costs of production. To reduce interruptions to supply chain management in terms of logistic there are logistics risk management programs which includes Defensive Driver Trainings, Fleet Audits, Cargo Loss Minimization, Road Safety, Warehouse Safety etc. [4]

Some supply chain logistics techniques such as supply-chain optimization and lean manufacturing can prejudice continuity and resilience. It is also becoming more common among businesses especially manufacturers to extend supplier quality management practices throughout supply chains. This approach is shown to increase transparency, reduce overhead costs, and improve operational efficiency. [5]

Extent of supply chain disruption

A survey in 2011 conducted by the Business Continuity Institute (BCI) and Zurich, with responses from over 559 companies across 65 countries, found that over 85% of companies had suffered at least one supply chain disruption during the year. [6] Later BCI surveys have reported some reduction in this percentage (70% in 2016, down from 74% the previous year). [7]

The 2011 survey respondents also noted that 40% of the reported disruptions originated upstream with sub-contractors rather than prime contractors or first-tier suppliers. [6]

The 2016 survey also noted that one in three organizations had experienced cumulative losses of over €1 million per year because of supply chain disruptions, and 22% of businesses had experienced 11 or more disruptions. [7]

Resilience

Supply chain risk management typically involves four processes: identification, assessment, treatment, risk reporting and communication, and monitoring of supply chain risks. [8] However, due to the complexity of many supply chains, these processes might not be sufficient to ensure that all eventualities are prepared for. Therefore, the concept of supply chain risk management, which is cause-oriented, is often combined with the concept of supply chain resilience, which aims to ensure that the supply chain can cope with or bounce back from incidents irrespective of their cause or nature. Supply chain resilience is defined as "the capacity of a supply chain to persist, adapt, or transform in the face of change" [9] Some theorists believe that technological updating to modernize management methods -to include digitalization, artificial intelligence, big data and robotics- along the entire path of supply chains will considerably contribute to their sustainability and resilience. [10]

Time to recover

"Time to recover" (TTR) is a valuable metric measured in weeks, originally introduced by Cisco and adopted by the Supply Chain Risk Leadership Council. [11] TTR measures the time it takes a company to restore full operational output following a major supply chain disruption. The determination of TTR assumes that a facility is essentially unusable due to a major event, requiring extensive repairs and reconstruction, as well as re-sourcing and re-qualifying of key equipment used in manufacturing and other operations.

Measuring risk

Supply chain risk is a function of likelihood of an event's occurrence and its impact. Although this is the most popular methodology for quantifying risk, a drawback in the context of supply-chain risk is that it requires assessing likelihood or probability of many different event types across a number of supply-chain organisations and locations (potentially hundreds of thousands for, say, a major vehicle manufacturer). Thus, the range of possibilities is huge, frustrating and limiting the analysis possible in practice. The methodology may be appropriate for a smaller subset of locations and/or types or categories of risk.

Most companies rely on 'risk scores' of various types such as financial risk score, operational risk score, resiliency score (R Score). These are readily available, relatively simple to understand and analyze, and hence can be effective, at least for first-pass identification of risks worthy of further analysis. Standards and certified compliance (such as ISO 9001) are also effective ways to raise the baseline to a known level.

Supply chain resilience options

Some options to engineer an acceptable risk level in supply chains include:

See also

Related Research Articles

<span class="mw-page-title-main">Risk management</span> Identification, evaluation and control of risks

Risk management is the identification, evaluation, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events or to maximize the realization of opportunities.

<span class="mw-page-title-main">Supply chain management</span> Management of the flow of goods and services

In commerce, supply chain management (SCM) deals with a system of procurement, operations management, logistics and marketing channels, through which raw materials can be developed into finished products and delivered to their end customers. A more narrow definition of supply chain management is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally". This can include the movement and storage of raw materials, work-in-process inventory, finished goods, and end to end order fulfilment from the point of origin to the point of consumption. Interconnected, interrelated or interlinked networks, channels and node businesses combine in the provision of products and services required by end customers in a supply chain.

<span class="mw-page-title-main">Logistics</span> Management of the flow of resources

Logistics is the part of supply chain management that deals with the efficient forward and reverse flow of goods, services, and related information from the point of origin to the point of consumption according to the needs of customers. Logistics management is a component that holds the supply chain together. The resources managed in logistics may include tangible goods such as materials, equipment, and supplies, as well as food and other consumable items.

<span class="mw-page-title-main">Business continuity planning</span> Prevention and recovery from threats that might affect a company

Business continuity may be defined as "the capability of an organization to continue the delivery of products or services at pre-defined acceptable levels following a disruptive incident", and business continuity planning is the process of creating systems of prevention and recovery to deal with potential threats to a company. In addition to prevention, the goal is to enable ongoing operations before and during execution of disaster recovery. Business continuity is the intended outcome of proper execution of both business continuity planning and disaster recovery.

<span class="mw-page-title-main">Supply chain</span> System involved in supplying a product or service to a consumer

A supply chain, sometimes expressed as a "supply-chain", is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers. Meanwhile, supply chain management deals with the flow of goods within the supply chain in the most efficient manner.

Robustness is the property of being strong and healthy in constitution. When it is transposed into a system, it refers to the ability of tolerating perturbations that might affect the system's functional body. In the same line robustness can be defined as "the ability of a system to resist change without adapting its initial stable configuration". "Robustness in the small" refers to situations wherein perturbations are small in magnitude, which considers that the "small" magnitude hypothesis can be difficult to verify because "small" or "large" depends on the specific problem. Conversely, "Robustness in the large problem" refers to situations wherein no assumptions can be made about the magnitude of perturbations, which can either be small or large. It has been discussed that robustness has two dimensions: resistance and avoidance.

<span class="mw-page-title-main">Reverse logistics</span> All operations related to the reuse of products and materials

Reverse logistics encompasses all operations related to the upstream movement of products and materials. It is "the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics." Growing green concerns and advancement of green supply chain management concepts and practices make it all the more relevant. The number of publications on the topic of reverse logistics have increased significantly over the past two decades. The first use of the term "reverse logistics" in a publication was by James R. Stock in a White Paper titled "Reverse Logistics," published by the Council of Logistics Management in 1992. The concept was further refined in subsequent publications by Stock (1998) in another Council of Logistics Management book, titled Development and Implementation of Reverse Logistics Programs, and by Rogers and Tibben-Lembke (1999) in a book published by the Reverse Logistics Association titled Going Backwards: Reverse Logistics Trends and Practices. The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse logistics, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer.

A supply network is a pattern of temporal and spatial processes carried out at facility nodes and over distribution links, which adds value for customers through the manufacturing and delivery of products. It comprises the general state of business affairs in which all kinds of material are transformed and moved between various value-added points to maximize the value added for customers. In the semiconductor industry, for example, work-in-process moves from fabrication to assembly, and then to the test house. The term "supply network" refers to the high-tech phenomenon of contract manufacturing where the brand owner does not touch the product. Instead, she coordinates with contract manufacturers and component suppliers who ship components to the brand owner. This business practice requires the brand owner to stay in touch with multiple parties or "network" at once.

Supplier relationship management (SRM) is the systematic, enterprise-wide assessment of suppliers' strengths, performance and capabilities with respect to overall business strategy, determination of what activities to engage in with different suppliers, and planning and execution of all interactions with suppliers, in a coordinated fashion across the relationship life cycle, to maximize the value realized through those interactions. The focus of supplier relationship management is the development of two-way, mutually beneficial relationships with strategic supply partners to deliver greater levels of innovation and competitive advantage than could be achieved by operating independently or through a traditional, transactional purchasing arrangement. Underpinning disciplines which support effective SRM include supplier information management, compliance, risk management and performance management.

<span class="mw-page-title-main">Demand-chain management</span> Management of relationships between suppliers &customers to deliver best value to customer

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<span class="mw-page-title-main">NHS Supply Chain</span>

NHS Supply Chain supports the National Health Service (NHS) in England, and other healthcare organisations in England and Wales, by providing procurement and logistics services.

Supply-chain sustainability is the management of environmental, social and economic impacts and the encouragement of good governance practices, throughout the lifecycles of goods and services. There is a growing need for integrating sustainable choices into supply-chain management. An increasing concern for sustainability is transforming how companies approach business. Whether motivated by their customers, corporate values or business opportunity, traditional priorities such as quality, efficiency and cost regularly compete for attention with concerns such as working conditions and environmental impact. A sustainable supply chain seizes value chain opportunities and offers significant competitive advantages for early adopters and process innovators.

Supplier risk management (SRM) is an evolving discipline in operations management for manufacturers, retailers, financial services companies and government agencies where an organization is dependent on suppliers to achieve business objectives.

The Journal of Business Logistics is a peer-reviewed academic journal published by Wiley-Blackwell on behalf of the Council of Supply Chain Management Professionals (CSCMP), covering research and best practices in logistics and supply chain management. In October 2020, Robert 'Glenn' Richey, Jr. and Beth Davis-Sramek, both of Auburn University's Harbert College of Business, were appointed as the incoming editors-in-chief, taking over from Thomas J. Goldsby and Walter Zinn, of The University of Tennessee-Knoxville and The Ohio State University Fischer College of Business, respectively. Some notable writers include Dean Matthew Waller of the University of Arkansas Sam M. Walton College of Business, Stanley E. Fawcett, and John T. Mentzer. According to the Journal Citation Reports, its 2020 impact factor is 6.677 and its 5-year impact factor is 7.362, ranking it 48th out of 226 journals in the category "Management".

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Supply chain resilience is "the capacity of a supply chain to persist, adapt, or transform in the face of change".

<span class="mw-page-title-main">Nada Sanders</span> American university professor

Nada R. Sanders is an American university professor specializing in forecasting and supply-chain management. She is the Distinguished Professor of Supply Chain Management at the D’Amore-McKim School of Business at Northeastern University. She is also a research scholar, academic editor, reference book author, keynote speaker, business consultant, and corporate board member. Her forecasts describing the impact of the economic crisis on supply disruptions resulting from the COVID-19 pandemic received media coverage. Her latest book The Humachine, as well as her 2023 article published in HBR explore the influence of artificial intelligence over world business, culture and skills.

References

  1. ↑ cf. Andreas Wieland, Carl Marcus Wallenburg (2011): Supply-Chain-Management in stürmischen Zeiten. Berlin.
  2. ↑ Heckmann, Iris; Comes, Tina; Nickel, Stefan (2015). "A Critical Review on Supply Chain Risk – Definition, Measure and Modeling". Omega. 52 (April 2015): 119–132. doi:10.1108/09600031211281411. hdl: 10398/9016 .
  3. ↑ Brindley, Clare (2004). Supply Chain Risk. England: Ashgate Publishing Ltd. p. 80. ISBN   0754639029.
  4. ↑ "Logistics Safety | Risk management | Safety Management". Cholarisk. Retrieved 2021-02-11.
  5. ↑ "Managing the Supply Chain with Quality Management Software". Sparta Systems. 2015-03-11. Retrieved 27 July 2015.
  6. 1 2 "Majority of companies suffered supply-chain disruption in 2011: Survey - Business Insurance". Business Insurance. Retrieved 2017-04-26.
  7. 1 2 BCI, Counting the cost of supply chain disruption, published 8 November 2016, accessed 20 February 2021
  8. ↑ Wieland & Wallenburg (2012)
  9. ↑ Wieland, Andreas; Durach, Christian F. (2021). "Two perspectives on supply chain resilience". Journal of Business Logistics. 42 (_): _–_. doi: 10.1111/jbl.12271 . ISSN   0735-3766. S2CID   233812114.
  10. 1 2 Sanders, Nada R.; Boone, Tonya; Ganeshan, Ram; Wood, John D. (2019-09-01). "Sustainable Supply Chains in the Age of AI and Digitization: Research Challenges and Opportunities". Journal of Business Logistics. 40 (3): 229–240. doi:10.1111/jbl.12224. ISSN   0735-3766. S2CID   203336486.
  11. ↑ Supply Chain Risk Leadership Council. "How TTR drives SCRM". www.scrlc.com. Retrieved 2017-04-26.
  12. ↑ Tang, Christopher S. (2006). "Robust strategies for mitigating supply chain disruptions". International Journal of Logistics Research and Applications. 9 (1): 33–45. doi:10.1080/13675560500405584. S2CID   167713868.

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