Supply Chain Risk and Vulnerability
The core of supply chain management is collaboration. To effectively plan and manage a product’s sourcing, procurement, conversion, and logistics, businesses must establish the proper relationships with the right companies. This will help you better move and store merchandise and materials while preparing for disruptions. As a result, finding the ideal balance is difficult. A supply chain’s susceptibility is impacted, and operations may be disrupted if overextended.
Globalisation and new market realities that allow just-in-time manufacturing, outsourcing, and lean manufacturing further complicate supply chains and their management. While it brings great opportunity to companies, it also brings considerable risk. If done correctly, a flexible and optimised supply chain can free up resources within the organisation, decrease the cost of goods and increase the number of markets that can be occupied. However, mismanaging the supply chain and disruption can decrease revenue and market share and increase costs considerably.
With this movement towards global sourcing, companies are now recognising the increased level of supply chain risk. While global sourcing offered a range of benefits related to lower prices and increased market access, together with a marked move towards customer service, there is. As a result, an increased potential for the disruption of product and information flow within supply chains. As a result, managers must control supply chain risks in the same vein as they manage other risks that impact business performance.
The challenge to managing supply chain risks is that supply chain disruptions can occur for various reasons, such as fires, delays in transportation, stoppages, or natural disasters.
Companies running lean operations no longer have inventory or excess capacity to compensate for production losses, so material flow problems rapidly increase to wide-scale network disruptions. From the customer’s point of view, the customer does not care which disruption occurred; they still expect the final product or service to be delivered at the right time and price.
Consequently, it falls on operations to handle these disruptions in real-time. Therefore, supply chains must be resilient.
The most critical elements affecting supply chain resilience are flexibility, agility, velocity, visibility and redundancy. Flexibility helps companies properly answer to volatile markets, and flexibility can be obtained simultaneously using factors such as parallel processes, final goods completion postponement inside the supply chain, and strategies sharing with suppliers. For example, Hewlett-Packard printers delay the completion of each printer (in terms of the power supply, the wall plug, and the language used in the instructions) until orders from different countries are received. This means each printer is designed to offer an ad-hoc option for postponing operations regarding the power supply, the wall plugs and the language used in the instructions.
Agility allows the company’s capabilities to respond to unforeseen and unpredictable demand and supply market changes. However, agility is contingent upon the agility exhibited by each node within the supply chain. The time needed to move items along the supply chain must be understood as the velocity. The velocity is usually measured in terms of lead times. The visibility is the capability of the company to see all the information regarding the flow of products, information and finances both downstream and upstream along the supply chain. Redundancy expands capacity and inventory in each supply chain node when facing supply chain disruption events.