SUPPLY CHAIN RISK MANAGEMENT
Dung H. Nguyen
Faculty of International Economic Relations
University of Economics and Law
‹#› Het begint met een idee
CONTENTS
Introduction
Risk management
Supply chain risk mitigation framework
Managing global risks
2
Vrije Universiteit Amsterdam
INTRODUCTION – INTERNATIONAL SUPPLY CHAIN MANAGEMENT
Dispersed over a larger geographical area
Offers many more opportunities than just the domestic
supply chain
Risk factors are also present
3
Vrije Universiteit Amsterdam
INTRODUCTION – INTERNATIONAL SUPPLY CHAIN MANAGEMENT
International distribution systems
o Manufacturing occurs domestically, but distribution and marketing
take place overseas.
International suppliers
o Raw materials and components are furnished by foreign suppliers.
o Final assembly is performed domestically.
o In some cases, the final product is then shipped to foreign markets.
Offshore manufacturing
o Product is typically sourced and manufactured in a single foreign
location.
o Shipped back to domestic warehouses for sale and distribution.
Fully integrated global supply chain
o Products are supplied, manufactured, and distributed from various
facilities located throughout the world.
4
Vrije Universiteit Amsterdam
RISK MANAGEMENT
Risk management is the process for systematically identifying,
analyzing and responding to risks throughout an organization.
Supply chain risk management is the process of systematically
identifying, analyzing and dealing with risks to supply chains.
5
Vrije Universiteit Amsterdam
RISK MANAGEMENT – EXAMPLE
Source: McKinsey & Company (2020)
6
Vrije Universiteit Amsterdam
RISK MANAGEMENT
Outsourcing and offshoring supply chain is geographically
more diverse and hence more exposed to various risks.
Lean manufacturing and just-in-time a progressive supply
chain and low inventory levels
o This type of strategy could result in a shutdown of production
lines because of lack of raw material or parts inventory.
7
Vrije Universiteit Amsterdam
RISK MANAGEMENT – SOURCE OF RISK
Source: Simchi-Levi et al. (2009)
8
Vrije Universiteit Amsterdam
MANAGING THE UNKNOWN-UNKNOWN
Invest in redundancy
o Respond to unforeseen events
o Careful analysis of supply chain trade-offs
Increase velocity in sensing and responding
o Can help the firm overcome unexpected supply problems
o Failure to sense could lead to failure to respond to changes in
the supply chain and force a company to exit a specific market
9
Vrije Universiteit Amsterdam
MANAGING THE UNKNOWN-UNKNOWN
Different responses of Nokia and Ericsson on a fire at one of
the supplier’s facility
o Supplier was Philips Semiconductors in Albuquerque, NM
Nokia:
o Changed product design to source components from alternate
suppliers
o For parts that could not be sourced from elsewhere, worked
with Philips to source it from their plants in China and
Netherlands
o All done in about five days
10
Vrije Universiteit Amsterdam
MANAGING THE UNKNOWN-UNKNOWN
Ericsson’s experience was quite different
o Supplier was Philips Semiconductors in Albuquerque, NM
o Took 4 weeks for the news to reach upper management
o Realized five weeks after the fire regarding the severity of the
situation.
o By that time, the alternative supply of chips was already taken
by Nokia.
o Devastating impact on Ericsson: $400M in potential sales was
lost; $1.68B loss to Ericsson Cell Phone Division in 2000
forced the company to exit the cell phone market
11
Vrije Universiteit Amsterdam
MANAGING THE UNKNOWN-UNKNOWN
Create an adaptive supply chain community
o The most difficult risk management method to implement
effectively.
o Requires all supply chain elements to share the same culture,
work towards the same objectives and benefit from financial
gains.
o Need a community of supply chain partners that change and
reorganize to better react to sudden crisis.
12
Vrije Universiteit Amsterdam
RISK REDUCTION
Operational risks:
o Strategic alignment
o Upstream/downstream supply chain integration
o Visibility
o Flexibility and redundancy
o Short replenishment lead times
o Small order lot sizes
o Rationing short supplies
o Everyday low pricing
o Cooperation and trustworthiness
13
Vrije Universiteit Amsterdam
RISK REDUCTION
Security risks:
o Access control
o Physical security
o Shipping and receiving
o Transportation service provider
o ISO 28000
14
Vrije Universiteit Amsterdam
RISK MANAGEMENT PROCESS
1. Identify the sources of potential disruptions
2. Assess the potential impact of the risk
3. Develop plans to mitigate the risk
15
Vrije Universiteit Amsterdam
SUPPLY CHAIN RISK MITIGATION FRAMEWORK
Source: APICS (2016) 16
Vrije Universiteit Amsterdam
FRAMEWORK FOR BUILDING A RESILIENT SUPPLY CHAIN
17
Source: APICS (2016)
Vrije Universiteit Amsterdam
MANAGING GLOBAL RISKS
Speculative strategy
o A company bets on a single scenario: Spectacular results if the
scenario is realized; Dismal ones, otherwise.
Hedge strategy
Losses in part of the supply chain will be offset by gains in
o
another part
Flexible strategy
o Allows a company to take advantage of different scenarios
o Designed with multiple suppliers and excess manufacturing
capacity in different countries
o Factories designed to be flexible
18
Vrije Universiteit Amsterdam
SUPPLY CHAIN RISKS AMID THE CORONAVIRUS OUTBREAK
Lockdowns cause labor and supply shortages in factories
Regulatory uncertainty slows the restart of factory operations
Public health requirements impact industrial operations
Closed borders delay movement
Provincial border checks exacerbate trucking shortage
Labor shortage causes congestion at airports and seaports
Limited air and rail cargo capacity to increase prices
Ripple effects felt across supply chains overseas
19
Vrije Universiteit Amsterdam
SUPPLY CHAIN RISK MANAGEMENT
THANK YOU!
‹#› Het begint met een idee
