Supply Chain Risk Management in Procurement and Logistics

Topics: Risk management, Supply chain management, Inventory Pages: 11 (2964 words) Published: June 20, 2015


Supply Chain Risk Management in Procurement and Logistics

Report by iMBA 2015 students:

Content
1.Introduction and Summary………………………………………………………………….. 3 2. Types of the risks ………………………………………………………………….…………… 3 2.1 Delay of delivery ……………………………………………………………………. 3 2.2 Force Majeure ……………………………………………………………………….. 4 2.3 Procurement risk ……………………………………………………………………. 5 2.4 Receivables risk ……………………………………………………………………... 5 2.5 Inventory risk …………………………………………………………………………. 6 2.6 Capacity risk ……………………………………………………………………………. 6 2.7 System risk………………………………………………………………………………. 7 2.8 Forecast risk ……………………………………………………………………………. 7 2.9 Intellectual property risk ………………………………………………..………. 8 3. Solution …………………………………………………………………………………….………… 8 3.1 Setting up scenarios ……………………………………………………………….. 8 3.2 Hedging risks by storing up back-up inventories ……………………. 9 Conclusion ……………………………………………………………………………………………….. 10 Bibliography ……………………………………………………………………………………………….. 10

1. Introduction and Summary
The following Report presents a comprehensive practice-oriented framework of risk management in supply chain. As a starting point of our analysis we took an article titled “Avoiding supply chain breakdown” by Sunil Chopra and ManMohan S. Sodhi published in the MIT Sloan Management Review in 2004. The framework covers everything from risk analysis to the selection of the risk mitigation strategy. The importance of the risk management of supply chain can be explained by one example: one man cannot be alive if there is no blood flowing through his vessels, even though he may have all the organs. Supply chain is like the blood flow of the body of business activities, once it shuts down, the good from the suppliers won’t be delivered to the customers in a timely fashion or it will take much more time to arrive. The type of risks which may cause the breakdown of supply chain could differ from case to case, but it still can be concluded as we have already done in the next few paragraphs. A regional way, union’s strike, bad weather, violation of intellectual property and suppliers price hikes, all of the named reasons could cause a breakdown of supply chain. In the following paragraphs, we will explain all of them one by one and give related solutions to each one. 2. Types of the risks

2.1 Delay of delivery
This risk may happen when the supplier is undergoing inflexibility or has an overloaded utilization. In reality it may reflect like the delay of the delivery of certain goods or the bad-quality of the goods due to the rush production of the supplier. Normally company will hold some back-up storage in order to deliver the demanded goods even though they have problem in production and other activities, but this strategy is not the only solution and sometimes it is not applicable. For example, some of the perishable goods are expensive to be held in warehousing and the rest of them even cannot be stored. Maintaining flexible capacity is considered as a good solution, company can team up an extra group by choosing those workers who can work in multiple positions and when some link of the chain is broken, the team can be built up rapidly to make sure that there is no reduction of capacity. Good companies may consider about this at the first hand, they may contract lots of workers which have multiple needed skills. Using different strategy of inventory and that of capacity is also a good way to overcome delay. Company is recommended to hold their capacity of the production of those high-valued units in where is closer to the customers, meanwhile, that of low-valued components can be done in some areas or countries where has the lowest the cost of labor. Nevertheless, companies have to face the risk of investing in some countries whose legal system and protection of intellectual properties are not good, it is better to find a local partner or an original equipment manufacturer to do the work.(e.g....

Bibliography: Chopra S., ManMohan S.S. (2004): Avoiding supply chain breakdown. In: The MIT Sloan Management Review, p. 52-62
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