9.2RiskManagementOutsourcing andoffshoring implythatthesupplychain isgeographically more diverse and hencemoreexposed to various risksRecenttrends toward cost reduction,leanmanufacturing and just-in-time imply that in aprogressive supply chain,low inventory levelsaremaintainedInthe event of an unforeseen disaster,adherence tothistype of strategy could result ina shutdown ofproduction lines because oflack of raw material orpartsinventory.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 RisksUnknown-UnknownUncontrollable.Natural disasters·Geopoliticalrisks·EpidemicsTerroristattacks.Volatile fuel priceCurrencyfluctuations.Port delaysMarket changes.Supplier'sperformance.Forecastingaccuracy·Execution problemsKnown-UnknownControllableFIGURE10-1:Risksources andtheir characteristics9-12
9-12 Sources of Risks FIGURE 10-1: Risk sources and their characteristics
Factors Impacting Exposure to RisksCustomerreactionsCompetitorreactionsSupplierreactionsGovernmentreactions9-13
9-13 Factors Impacting Exposure to Risks ⚫ Customer reactions ⚫ Competitor reactions ⚫ Supplier reactions ⚫ Government reactions
Managing the Unknown-UnknownInvestin redundancyIncreasevelocityinsensingandrespondingCreate an adaptivesupply chaincommunity9-14
9-14 Managing the UnknownUnknown ⚫ Invest in redundancy ⚫ Increase velocity in sensing and responding ⚫ Create an adaptive supply chain community
RedundancyRespondtounforeseeneventsCareful analysisof supplychaintrade-offsExample:CPGcompanywith40facilitiesovertheworldInitial analysis for reduction of cost by $4oM ayearshut down 17 of its existing manufacturingfacilitiesleave23plantsoperatingsatisfymarket demand all overtheworld9-15
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