Analysing Risks in the Supply Chain

Topics: Supply chain management, Supply chain, Management Pages: 12 (3576 words) Published: February 20, 2014

Table of Contents

1. Introduction

In a fast paced world a stringent Supply Chain Management (SCM) will always act as a competitive advantage and will be the key to what sets business apart in terms of financial performance. This is also further supported by Gunasekaran et al., (2004) that SCM has been increasingly a major component of competitive strategy to improve organizational productivity and profitability. Therefore in order to respond to constantly changing customer preferences, an efficient and effective supply chain is a paramount to fulfil real time requirements and improve the performance of the business. However one needs to consider that ever increasing costs, strive towards globalization and outsourcing have made the supply chain more vulnerable to disruptions. Murugesan et al. (2013) reports that this is due to shorter product life cycles, the dynamic environment and higher dependency on external vendors. Consequently this can create considerable financial difficulties resulting in a tarnished brand image, followed by loss in demand and potentially security issues Jüttner et al (2003) defines supply chain risk as ‘’any risk for the information, material and product flows from original supplier to the delivery of the final product for the end-user’’. In order to achieve enhanced performance, management should strive to reduce uncertainties in the supply chain network and aim to gain adaptability, alignment and agility, as main drivers to mitigate supply chain risks (Lee, 2004) This leads us to the conclusion that managing supply chain risk should be an important priority for all companies with global aspirations and desire to accomplish high sales, flexibility and quick response to meet changing customer needs. This is not an exception for the fashion industry as well. Many fashion retailers are outsourcing manufacturing and extending their global supply base due to rising labour costs in home countries that have been eroding profit margins (Khan, 2003) In the following sections of this report, I will analyse what are some of the most pressing issues in the supply chain and outline with examples from the fashion industry and other industries, how companies approach and tackle them in order to minimise risks, maximise performance and reach excellence.

2. Demand forecasting risk

Demand forecasting is an important part for creating a clear plan for the future. It is especially true of the fashion industry where we have different seasonal cycles, ever changing and unpredictable fashion trends, long lead times, and historical data which might not be useful to predict the future. Therefore forecasting errors are likely to occur as there might be a miscalculation between the projections of the companies and the actual demand. Simply speaking we need to get the right balance of products as high demand and not enough inventories in stock would not impress any customer, but too many products and low demand will inevitably result in markdowns and reduced revenues. An example of such inaccuracies can be Nokia, which during the 2003 product shortages in Western Europe produced inaccurate forecasts and ordered excessive amounts of stock to meet customer demand, that later turned out to be a lot lower than expected, resulting in a lot of unnecessary stock that later had to be marked down (Chopra and Sodhi, 2004)

Furthermore in some situations, customers’ desires are increasingly hard to monitor especially when we have high impulse purchasing. High volatility of people’s desires and perceptions are the reason for that, since shoppers are bombarded by different influences such as celebrities and pop stars wearing the latest fashion trends. Let’s take the time when the Duchess of Cambridge surprisingly and unexpectedly for everyone decided to wear an affordable polka dot dress from the high street retailer Topshop. As Lee (2012) reports, the dress was instantly sold out and because the...

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