Did you ever think about how a supply chain risk can be identified? What are the dimensions of these sources, and how can they be managed?
Before we look into 7 supply chain risk sources and their possible mitigating strategies, we need to briefly discuss 4 key issues around supply chain risk.
1) The Buyer-Supplier Power Battle
Power in a supply chain is one of the key elements that affect the balance in the buyer-supplier relationship; the balance of power can shift if parallel interaction issues or ethical issues, such as price fixing, are identified in the context of managing supply chain risk. Therefore, as a result of the approaches employed by the supply chain folks to change the balance of power to their advantage, power is of critical importance, especially when the existence of a business cartel is suspected (Like the one in Breaking Bad!!).
2) Proximity of Supply Chain Partners
Secondly, the proximity to supply chain partners should be considered when determining the most appropriate strategy for reducing or coping with risk. The location of suppliers or customers makes a difference in terms of how the organisations manage sources of supply chain risk by way of how they collaborate with one another. As the sourcing to Best Cost Countries has grown in last 3-4 decades to a long lead time geographical location, organizations have faced communication issues making collaboration difficult to implement among supply chain partners
3) Intricate and Dynamic Processes
Managing sources of supply chain risk is a dynamic and multi-dimensional process. Reducing a given source of risk in an organisation may only benefit a particular department or supply chain process while negatively affecting other processes or departments, and hence there is a tradeoff to manage. For example, when an organisation implements the JIT Purchasing approach such as small lot sizes, it helps to reduce chaos control/chaos risk but may negatively affect flexibility in terms of order volume. Moreover, reducing a given source of risk in an organisation may also initiate uncertainty in its suppliers or customers, thus having an undesirable impact on the overall supply chain performance.
4) It is riskier to risk nothing
The fourth key issue is the role of human behavior as an important source of risk that needs serious management intervention for it to be reduced. Issues include tensions between senior employees and junior employees (generation gap), and personal, non-job related, problems (such as cultural differences) which may go beyond the individual to one function disliking another function. It is observed that because of the diversity of races and religions, cultural issues between buyer and supplier could play a particularly important role in an organisation.
Ernest Agyemang Yeboah quote is quite fitting
“The uncertainties in life are so uncertain for us to determine the kind woe we shall be entangled in in the next future. When you stay dormant, your life is at risk; when you dare to take a step, you take a step to take a risk. We have a choice. Yes! a choice to choose to dare to get to our real reasons on earth or to choose to live in mediocrity and conformity, but, we ought to note that, it is riskier to risk nothing when the life we live is always at risk.”
7 Supply Chain Risk Villains & Management Strategies
The infographic below shows a summary of alignment links between 7 sources of supply chain risk* and its management strategies.
The supply chain risk mentioned in this blog is not the perceptive tool to ‘cure’ risk problems in supply chains but to raise awareness and bring to the forefront the idea on the concept of supply chain risk. However, detailed and comprehensive discussions regarding sources of risk require your own customed research for your respective supply chain.
If you have any questions about the Supply Chain risk or have any experience applying it in your life or business, leave your thoughts in a comment below—I would love to hear from you
*Reference: Simangunsong, E. S. 2010, Supply Chain Uncertainity: Linking Sources of Uncertainty and Management Practices, Ph.D. Thesis, Lancaster University.