Supply Chain Management. A discussion about managing supply chain risks

Introduction:

In the past few years, we have witnessed several developments in each and every area of life. The development in the technology and introduction of new way outs have influenced all the areas of business and the supply chain of an organization as well. The markets are now not limited to the boundary of a single country but they are establishing themselves on a global level. Due to globalization, organizations have planned to redefine their supply chain management policies due to a huge incline in the demand and supply of products and services globally. Along with the profits to getting global, there are many risks faced by the supply chain of an organization. These risks can be man- made risks or natural calamities. Interruption in delivery of raw material, fluctuating prices in the market and rapid increase in the demand of the customer are also considered as supply chain risks. To operate the business effectively by delivering the product or service to the customers on right time and right place is the main goal of every business (Mentzer et al., 2001) To achieve this goal, a business should implement some strategies to manage the risk that are involved in the supply chain. There are many approaches suggested by the researches in order to manage and mitigate the supply chain risks. This paper is an attempt to gather knowledge about the approaches used in managing the supply chain risks. These approaches are discussed in this paper and a critical analysis of them is also conducted. In the end of this paper, some recommendations about the approaches is also given that may help in the future research of the risk management strategies.

Supply chain management:

The markets are going global, beyond the borders and they are re-defining the methods to manage the supply and demand of their products and services. Global companies are operating in the markets across continents. To keep the manufacturing cost low, these companies are looking forward to establish new production hubs where the raw material and labor are cheap.

Supply chain management (SCM) is to manage a network of interrelated businesses that are a part of providing products and services to the final consumers through a supply chain. The role of supply chain management in the company is to propose, plan, implement, govern, and monitor the activities relating to the supply chain activities. It involves all the activities in managing and storing the raw material, inventory used in the work in process, finished goods and delivery it to the end consumer (Mentzer et al., 2001)

Risk:

The element of risk is present in each business activity and operation. In 2005, Kleindorfer and Saad stated in their paper that uncertainty in the political condition, eventualities in operations, terrorism and natural calamities and all such incidents are considered as s risk.  Furthermore, all the natural and artificial catastrophes are the main causes of risk.

Risks in Supply Chain Management:

Like all other areas of business, supply chain of a company is also exposed to many risks. These risks can hinder the supply chain activities that results in a disruption in overall distribution network and the products and services are then unable to be delivered to the end consumer on right time and right place. The risks faced by the supply chains are of two types; external supply chain risks and internal supply chain risks. The external supply chain risk refers to the risks raised due to the up streaming or down streaming in a supply chain. The external supply chain risk includes demand risk; any unexpected demand from the consumers, supply risk; any disruption in the delivery of product or raw material through the distribution network, environmental risk; the risk that is beyond the supply chain that means any social, governmental policy or terrorism etc and business risk; instable financial condition of the supplier and risk of bankruptcy (Queensland government, 2013).

The internal supply chain risks are not considered as seriously as the external risks are considered. As the name shows that internal risks means the risks that are present in the internal operations of an organization so there are more chances to manage and lessen such risks as the management of the company has a control over them. The internal supply chain risks are risk in manufacturing of the product due to any interruption in the production process, inappropriate valuation and planning, managerial inefficiencies, cultural risks that means to delay the disclosure of any information that is not in the favor of the organization (Mand & Singh, 2013; Queensland government, 2013).

In his paper, Barry, J. (2004) proposed that risk in supply chain means the happening of such an incident that might slower down or break the flow of a supply chain. Furthermore, they stated that the supply risk is the possibility of occurrence of an event that is related to the failure of the incoming supply of the product by the supplier whether an individual or market and incapability of the buying company to meet the demands of the customers. According to them, the demand risk is the probability of a drastic change in the demand of the customer or demand fluctuations resulting in short product life cycle.

Supply Chain Risk Management:

Due to the unexpected trend in the demand and supply of the product, global outsourcing and limited product cycle, it is very challenging to manage the risks in such environmental situations (Abhijeet at al., 2012). At present, the business environment around the globe is effected by the inconsistency in the financial condition, in time contract out, mergers and acquisitions, new technological developments, e-business and less time span for a product to be in the market etc. as a result the companies are being induced to implement the new methods of conducting a business (Stefanovic et al, 2009).

On the other hand, the supply chain network of small and just-in-time globalized are considered to be facing greater risk than they were facing ever before because of internal and external interruptions. At present, Risk management is emerging as an essential measure of a holistic supply chain management design (Christopher and Lee, 2004; Bandaly et al,, 2013).

Supply chain risk management (SCRM) is the execution of certain policies in order to cope up with the routine risks and the unique risk in the supply chain by regular risk assessment with the main purpose to reduce the level of susceptibility and to ensure the stability of the supply chain ( Palit et al., 2007).

Approaches to Supply Chain Risk Management:

As mentioned above in the paper, the supply chain has many risk associated with its activities. Such risks can cause severe damage to the whole distribution network. These risks do not result in a loss of a single party but all the stakeholders including the manufacturers, suppliers, wholesalers, retailers and ultimately the end customers who suffers because of not getting the required product or service in the right time. It is significant to manage the risk before it goes out of control. The risk is identified and assessed by an effective execution of the supply chain risk management policies.

There are then a variety of approaches present to manage and lessen the supply chain risk. Many scholars and researchers have shown their interest in this area mainly due to the complications and increased risk because of global outsourcing. They have conducted several researches to clarify the appropriate approach for supply chain risk management. Some of the approaches to supply chain risk management are discussed in detail below.

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