Managing risk in the supply chain

Today s marketplace is characterised by turbulence and uncertainty. Market turbulence has tended to increase in recent years for a number of reasons. Demand in almost every industrial sector seems to be more volatile than was the case in the past. Product and technology life cycles have shortened significantly and competitive product introductions make life-cycle demand difficult to predict. Considerable chaos exists in our supply chains through the effects of such actions as sales promotions, quarterly sales incentives or decision rules such as reorder quantities. 

At the same time the vulnerability of supply chains to disturbance or disruption has increased. It is not only the effect of external events such as natural disasters, strikes or terrorist attacks but also the impact of changes in business strategy. Many companies have experienced a change in their supply chain risk profile as a result of changes in their business models. For example, the adoption of lean practices, the move to outsourcing and a general tendency to reduce the size of the supplier base potentially increase supply chain vulnerability. 

As a result of this heightened risk, organisations will need to develop appropriate programmes to mitigate and manage that risk. 

Source Singhal, V.R. and Hendricks, K., Supply Chain Management Review, January/Fenruary 2002 

A survey of over 3,000 senior executives undertaken by the consultancy company McKinsey in 2006 reported that they believed their companies faced growing risk to disruptions to their supply chains. However, the same survey found that in many cases companies had inadequate processes in place for the management and mitigation of that risk. Whilst most organisations recognise the need to regularly assess their risk profile, that assessment has tended to be focused on broader regulatory and financial risk issues rather than supply chain vulnerability. 

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We devote an entire chapter to managing risks in the supply chain, emphasizing risk quantification models and risk mitigation strategies, and presenting important problems that extend beyond the traditional treatment of supply chain management. 

Stephan J, Badr Y. (2007). A quantitative and qualitative approach to manage risks in the supply chain operations reference. 2nd International Conference on Digital Information Management 1 410-417. 

Gaudenzi, B. and Borghesi, A. (2006) Managing risks in the supply chain using the AHP method . The International Journal of Logistics Mcmagement,Vo. 17,No. l,pp. 114—136. 

Gaudenzi B, Borghesi A (2006) Managing Risks in the Supply Chain Using the AHP Method. International Journal of Logistics Management, 17 114-136. 

P. R. Kleindorfer and L. N. Van Wassenhove, 2004, Managing Risk in Global Supply Chains, In H. Gatigon and J. Kimberly (eds.). The Allianee on Globalization, Cambridge University Press, Chapter 12. 

Research in this area has primarily focussed on the supplier side. Spekman and Davis (2004) have suggested that interdependency carries risk in the supply chain, but these can be managed. Zsidisin et al. (2000) and Zsidisin (2003) present suggestions for minimising risk ... 

The supply chain risk profiles identified by the researchers have been validated in a workshop with the case company representatives. In addition, the requirements for the methodology have been derived. All four partners agree that any practical and useful approach to managing risks in their supply chains must be designed to meet their specific needs. These risk requirements can be classified into those related to the scope of the approach, its objectives and implementation. Table 13.2 summarises the complete list of requirements. 

All available and relevant information on substances on their own, in preparations and in articles should be collected to assist in identifying hazardous properties, and recommendations about risk management measures should systematically be conveyed through supply chains, as reasonably necessary, to prevent adverse effects on human health and the environment. In addition, communication of technical advice to support risk management should be encouraged in the supply chain, where appropriate."... 

This comprehensive approach allows for efficient integration between processes, different phases of product life cycle, and integration between different sites in the supply chain. This integration provides opportunity for efficiency in that process owners are integrated with each other s needs and expectations. Duplication of effort is avoided and efficiencies gained. Quality outputs from one process become reliable inputs into the next process. Management and leadership will have access and insight into compliance, infrastructure, and performance metrics of all processes on a comparable basis. This provides leadership the opportunity for risk-based resource allocation to appropriate areas of the enterprise. 

Furthermore, REACH includes new or increased demands on the bidirectional flow of data and information in the supply chain (Tide IV) and places demands on downstream users (Tide V). For instance, REACH includes provisions on safety data sheets for substances on the candidate list (Article 31 and Annex II) and forces suppliers of articles to actively provide information for the safe use of the articles (Article 33). In addition, REACH entities consumers to, without charge, request information within 45 days on the safe use of articles containing SVHCs in concentrations above 0.1 wt% (Article 33). It remains to be seen to what extent the increased flows of information will impact on the management of chemicals. However, companies that work with environmental management systems and companies located closer to consumers in commodity chains will probably seek more actively to decrease chemical-related risks. 

The various measures for product orientated risk management of chemicals early in the supply chain (Fig. 16.1) before or at the time chemicals are introduced on the market, referred to here as chemicals control, aim at improved control of the flow of chemicals to the market, including appropriate information to users on risks and... 

There are some key reasons for regulating the flow of chemicals to the market independently of other legislation. One reason is the need for preventive measures early in the supply chain, covering protection of the environment, workers, consumers and property. Preventive measures, such as risk and safety information (labelling and SDS), as well as bans and restrictions on trade with very hazardous chemicals support, simplify and make more cost-efficient risk management for exposure and emission control at later stages (transport, use, waste handling, etc.). 

KEY STAKEHOLDERS IN THE SUPPLY CHAIN AND RISK MANAGEMENT PROCESS... 

The chemical safety assessment has to consider the manufacture or preparation of the substance as well as all identified uses. An identified use is a use of a substance or preparation containing it that is intended by a person involved in the supply chain or that is made known to him in writing by an immediate downstream user. The assessment shall consider all stages of the life cycle of the substance resulting from its manufacture and identified uses. The assessment has to be based on a comparison of the potential adverse effects of the substance with the known or reasonably foreseeable exposure of man or the environment, taking into account implemented and recommended risk management measures and operational conditions. 

Downstream users as well as any others in the supply chain have the obligation to inform up the supply chain in cases of new information on hazardous properties, regardless of the uses concerned or any other information that might call into question the appropriateness of the risk management measures identified in the safety data sheet supplied to him, which shall be communicated only for identified uses. 

Cachon, G. (2004). The allocation of inventory risk in a supply chain Push, pull, and advance-purchase discount contracts. Management Science, 50, 222-238. 

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