Supply Chain Risk Management: A Delicate Balancing Act

White Paper

A multi-faceted view on managing risk
in a globally integrated enterprise

Risk management practices, techniques and tools have been used extensively in the financial community for years.

Risks with respect to a company’s supply chain have begun to receive attention only more recently, as the push to increase supply chain efficiencies has illuminated the delicate balance between financial
considerations and those of the customer.

During the last twenty-odd years, supply chain management practices have
evolved toward more lean process approaches in order to reduce waste within the overall chain. Concepts such as just-in- time, virtual inventory, supplier rationalization, and reductions in the number of distribution facilities have reduced total supply chain costs, but the result has been increased risk.

Trade-offs between achieving optimal supply chain efficiencies and management of supply chain risk have created a conundrum of sorts. Businesses have witnessed mansupply chain malfunctions (with substantial consequences) due to supply and demand disruptions: the affected companies reported, on average, 14% increase in inventories11% increase in cost, and 7% decrease in sales in the year following the disruption.

Today’s industrial supply chains face risks from many factors, including:
. Increased globalization through outsourcing, which elongates end-to-end
supply chains;
. Additional regulatory compliance imposed by government entities, further
complicating international trade;
. Increased levels of economic uncertainty, which create additional variability in demand and supply and make it more difficult to accomplish demand-supply balancing;
. Shorter product lifecycles and rapid rates of technology change, which
increase inventory obsolescence;
. Demanding customers who have created additional time-to-market
pressures by requiring better on-time delivery, order fill rates and overall
service level efficiencies;
. Supply side capacity constraints, making it more difficult to meet demand
requirements, and
. Natural disasters and external environmental events, which can wreak
havoc on global supply chains.

The above list includes operational and catastrophic risks because they are both important for firms to consider.

From an operational perspective, complex networks of suppliers, customers and third party service providers as well as large interdependencies among multiple firms exist, making inter-organizational coordination of risks a critical requirement. In addition, the leaner and more integrated supply chains become, the more likely it is that uncertainties, dynamics and accidents in one link will affect other links in the chain.

[Read entire white paper clicking here...]