Risks involved in supply chain management
AMR’s supply risk management guru Mark Hillman said, “The greatest risks are the day to day operational risks that can detract from shareholder value and performance. You need to focus on high probability risks that you can control, such as supplier failure or market risks, and take steps to mitigate these.”
All leaders in the field on supply chain management have stressed on the fact the supply chain is a risky affair and there is a great need on focusing on the supply chain risk management. Yet it comes to sourcing cheaper and thereby getting a perceived savings in cost, we turn a blind eye to such risks.
The factors which emphasize the need for focusing on supply chain risk management are:
Political Risks : There is an increasing pressure on Government of different countries to put trade barriers and impose safeguard duties on imports to protect domestic industries against global competition.
Outsourcing to low cost countries: Due to challenges of lean economic conditions, lack of visibility & communication problems, the risks of supply failure, quality & environment related issues, lot of sourcing has shifted to low cost producing countries.
Demand fluctuation: With current economic low, there is always a risk of producing excess stocks that may have to be either discounted or written-off. On the other hand there is a potential of losing sales to competition if a pessimistic view of demand is taken.
Currency Risk : Indian rupee has depreciated by 25% in last one year and this is hampering the balance of trade.
Cash Flow: There is almost always a credit crunch and lack of liquidity despite all governments announcing revival packages & pumping liquidity in the market. To achieve sales targets, some companies may extend credit to their customers which impacts cash flow and business sustainability in turn.
Supplier Sustainability: The entire supply chain is dependent not on a single supplier but on a hierarchy of suppliers. So, even if one of these suppliers follows illegal practices, it poses a big risk not only due to disruption of supplies but also the dent in the reputation of the companies associated with such suppliers.
Well, there are other risks as well e.g. unrest, terrorism and natural disasters, which is beyond anyone’s control.
To conclude, every Supply Chain Manager should start analyzing and prioritizing risks to their business, and make plans to minimize and mitigate risk. The risk management involves three key steps viz, assessment, analysis and proper planning.
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