Understanding the Detrimental Impacts of Risks on Interconnected Supply Chains

Topics: Management, Risk management, Supply chain Pages: 10 (3285 words) Published: March 7, 2013
Understanding the detrimental impacts of risks on interconnected supply chains Shubham Bansal (154) Vinod Sarma T (190) Vishnu Sudhakaran (191) Saurav Kumar (212) NITIE IM-19 Section - C Group 4

Contents
Introduction ............................................................................................................................................ 3 Global Supply Chain Risks ....................................................................................................................... 3 Risks in Global Sourcing .......................................................................................................................... 4 Risk Mitigation ........................................................................................................................................ 5 Critical Success Factors ........................................................................................................................... 7 Conclusion ............................................................................................................................................... 8

Introduction
Recently, supply chain management theory and practices are receiving a great deal of attention as effective tools for dealing with challenges that are generated by competitive and dynamic markets. Current business trends such as the increased use of outsourcing, the globalization of supply chains and the reduction in the supply base lead to greater exposure to risks. Other potential risks include a more integrated process among supply chain members, a reduction in buffer inventories, an increasing demand for on-time delivery within more limited time frames, shorter product life cycles and time-to-market, as well as capacity limitation and relatively high demand in the early stages of the product life cycle (Norrman and Jansson 2004). In recent years, the structure of supply chains has become more complex due to the growing levels of risk and uncertainty in the market as well as within the supply chain itself. Managers are not able to control all aspects of the supply chain, which requires them to take selective actions in dealing with the risk (Luhmann 1995). According to AMR research, 60% of organizations in the US do not have effective supply chain risk management policies (Hillman, 2007). High risk generates inefficiency in the supply chain (Christopher and Lee 2004). More importantly, tangible risks in the supply chain have been confirmed to be one of the causes for poor performance (Wilding 1998). Therefore, mitigating risk in the supply chain has emerged as a significant issue in academia as well as in the business world because of the unknown impact of risk on the supply chain. The risks in the supply chain come from various sources which can be characterized in three ways: 1) internal to the firm, such as process and control; 2) external to the firm but internal to the supply chain network such as demand and supply; and, 3) external to the network, such as environmental risks. These risks, which are interconnected, have been categorized into several other categories, including supply chain disruption, delay, forecast, procurement, risk, capacity and inventory risks.

Global Supply Chain Risks
Maersk Logistics indicates that the global supply chain transaction time content contributes in the range 30-50% of the total time in the chain, but adds just 2-5% to the transactional cost of the article. Indicatively, the gross margin gain is not less than 20% and is often much more. Global supply chains are a source of competitive advantage. Global configurations of firms provide access to cheap labour and raw materials, better financing opportunities, larger product markets, arbitrage opportunities, and additional inducements offered by host governments to attract foreign capital. However, coupled with these benefits that entice firms to go global are the uncertainties and consequent risks that...

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