9.2 Risk Management o Outsourcing and offshoring imply that the supply chain is geographically more diverse and hence more exposed to various risks o Recent trends toward cost reduction, lean manufacturing and just-in-time imply that in a progressive supply chain, low inventory levels are maintained In the event of an unforeseen disaster adherence to this type of strategy could result in a shutdown of production lines because of lack of raw material or parts inventory 9-11
9-11 9.2 Risk Management ⚫ Outsourcing and offshoring imply that the supply chain is geographically more diverse and hence more exposed to various risks. ⚫ Recent trends toward cost reduction, lean manufacturing and just-in-time imply that in a progressive supply chain, low inventory levels are maintained. ⚫ In the event of an unforeseen disaster, adherence to this type of strategy could result in a shutdown of production lines because of lack of raw material or parts inventory
Sources of risks Unknown-Unknown Uncontrollable Natural disasters Geopolitical risks E epideMics Terrorist attacks Volatile fuel price Currency fluctuations Port delays Market changes upplier s performance Forecasting accuracy · Execution problems Known-Unknown Controllable FIGURE 10-1: Risk sources and their characteristics 9-12
9-12 Sources of Risks FIGURE 10-1: Risk sources and their characteristics
Factors Impacting EXposure to Risks o Customer reactions e Competitor reactions ● Supplier reactions o Government reactions 9-13
9-13 Factors Impacting Exposure to Risks ⚫ Customer reactions ⚫ Competitor reactions ⚫ Supplier reactions ⚫ Government reactions
Managing the Unknown Unknown Invest in redundancy Increase velocity in sensing and responding Create an adaptive supply chain community 9-14
9-14 Managing the UnknownUnknown ⚫ Invest in redundancy ⚫ Increase velocity in sensing and responding ⚫ Create an adaptive supply chain community
Redundancy Respond to unforeseen events o Careful analysis of supply chain trade-offs ● EXample o CPG company with 40 facilities over the world o Initial analysis for reduction of cost by $40M a year o shut down 17 of its existing manufacturing facilities o leave 23 plants operating o satisfy market demand all over the world 9-15
9-15 Redundancy ⚫ Respond to unforeseen events ⚫ Careful analysis of supply chain trade-offs ⚫ Example: ⚫ CPG company with 40 facilities over the world ⚫ Initial analysis for reduction of cost by $40M a year ⚫ shut down 17 of its existing manufacturing facilities ⚫ leave 23 plants operating ⚫ satisfy market demand all over the world