Risk Analysis Tools and Techniques for Supply Chain Management

The provided content discusses the importance of supply chain risk management in organizations. The report highlights various risks faced by organizations such as supplier insolvency, natural disasters, and changes in government regulations. It emphasizes the need for organizations to adopt tools and techniques for analyzing and mitigating these risks. The report presents different methods for risk analysis, including qualitative, semi-quantitative, and quantitative approaches. It concludes that a comprehensive approach is necessary for effective supply chain risk management.

Contents
RQ1- Type of risks in Supply chain............................................................................................................2
RQ2- Impacts of supply chain risks on organization’s performance...........................................................5
RQ3- Tools and Techniques........................................................................................................................8
Methods and tools for risk identification.....................................................................................................9
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12
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RQ1- Type of risks in Supply chain
There are many risks that experienced in the supply chain. There are always some factors and
reason for any risk. It depends upon the type of supply, area of supply, demands, environment,
government, security policies. The three most occurred risks in the supply chain are
organizational, network and environment risks. The followings are some risks and their driving
factors are explained that affects the supply chain.
 Disruptions Risks: Disruption in the supply chain affects the organizational operation.
The disruptions are sometimes natural or environmental or sometimes any machinery
breakdown that cause risk. The driver of disruptions are natural disaster like flood, fire,
storms, heavy rainfall, machinery breakdown, labor strikes, bankruptcy, security reasons
like terrorism, operating errors, power cuts etc. To avoid or prevent these risks is not easy
tasks, but managers must have a risk mitigation plan for the Disruptions.
 Delay Risks: The production growth of an organization affects due to the delay in
material flows. These occur often and have many reasons for that. There are many drivers
for delays are border crossing and transport issues, inflexibility due to high utilization,
poor response to changes in demands, supply handling issues.The delay risks can be
overcome by increasing and balancing the filling capacity and inventories reservations.
 System Risks: In the era of information technology, every organization has the
information system that helps them to manage the work. But every system has their own
weakness that cause failures and risks in supply change (Cagliano, Marco, Grimaldi, &
Rafele, 2012). The drivers of system risks are network failure or breakdown, issues with
E-commerce, integration errors, database failure and IT infrastructure breakdown. A
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secure backup system that is well designed and communicated will help to overcome this
risk with data recovery option. If there is ever a condition of data loss that could retrieve
the whole data.
 Forecast Risks: The mismatch between the actual demand and company’s projection
causes the forecast risks. Forecast risks depended upon the demand and forecast. A low
forecast might decrease product production for sell and the high forecast increase the
production and increase the inventory and decrease product price mark. The forecast
errors occur from wrong predication of seasonal demands, high product variety, market
competitions and product market life cycle. Information distortion within the supply
chain is a result of the forecast inaccuracies. Promotions and incentive that leads to
buying and purchasing is another cause of information distortion.
 Intellectual property risks: An intellectual property of any organization is important for
their growth and for their reputations. A less integrated and more global supply chain
increases the intellectual property risks. And with this the manufactures used by
competitors are outsourced by the company. Intellectual property risks cause an effect on
company reputation and profits (McCormack, et al., 2008).
 Procurement risks: collecting resources for the work is known as procurement process.
The procurement risks can occur in the supply chain, when there is an unexpected
increase in the supply costs that results from the exchange rates or the supplier price hike.
Exchange rate risks are a result from the financial barriers, cost balancing and revenue
flows. Price hike risks might be coming from various reasons like signing contract for a
long period of time, having unnecessary suppliers, owning inventory, limited instances,
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etc. Long term procuring from same sources can cause profit damage if the price of
supplies falls.
 Receivables risks: These risks are related to the final product sales, that affects the
company growth and production. The drivers of receivables risks are customer’s strength
and financial conditions of the customers. Companies have to understand about the needs
and their credibility for the product. And these will reduce the receivable risks. There are
further more certain ways to reduce the receivable risks like to increase the number of
customers (Dittmann, 2014).
 Inventory risks: Holding excessive inventory becomes a cause of loss for the companies.
Inventory risks are derived from the product shorter life cycle cost of inventory holding,
product value and uncertainty in demand and supply. If the product life cycle is small
with high prices can lead to inventory risks that effect on the supply chain. Companies
can decrease the inventory risks with responsive suppliers of short life cycle products and
also the capacity increment can lower inventory risks.
 Capacity risks: the drivers of capacity risks are the cost of capacity and capacity
flexibility. The capacity can be decreased and increased with the time. The capacity must
be flexible to overcome the risks. The capacity of any company decides the supply of that
product and that also effects on the demand. It also depends upon the geographic location
to increase or decrease the capacity of any plant.
The above the risks are very rare for supply chain risks. These are external and internal risks.
External risks are that beyond the company controls like Disruptions risks and environmental
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risks, while the internal risks are in company’s control and cause by human or operating errors.
Every risk has their own effects on the supply chain. Those are explained in the next section.
RQ2- Impacts of supply chain risks on organization’s performance
Supply chain risks impact to the organization’s performance in some certain ways. The Supply
chain is associated with all activities of production, procurement, productions for their planning
and management. Accordingly an article that was published in 1999 by Sharma and Chrisman
supply chain risks have negative as well as positive impact to the organization (SCRLC, 2011).
Their approach was rooted in the Markowitz portfolio selection theory. And in another article
that was published in 2014 by Vikulov and Butrin classify the supply chain risks in business
process and their impacts on them. The followings are business process and impact of supply
chain risks to them.
 Suppliers:supply chain risks associated with the suppliers can direct impact on the
product production and product delivery process. Delivery schedules would be changed
due to the impact the product. It may also lead to short product deliveries and cancelled
orders. With this the product price might be fluctuate with this. These factors also impact
on poor quality of product.
 Transport: The supply chain risks on the transport service of the organizations can
damage of goods while transport and loss of goods. These risks occur in transport, if in
case if the goods carrier vehicles met with an accident. The goods can be lost or steal in
remote areas. These all are natural causes, but have impact on organizational
performance.
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 Warehouse: risk associate with the warehousing and their impact are during storage good
damage and changes in taxes and other costs of warehousing that are rented, security, etc.
The damage of goods in the warehouse could be occurred by some natural disasters like
fire, storm, floods, earthquake etc. the organization’s performance and budget can also
affects with government policies for the warehouses taxes and rents (Charles, Dennery,
Guttikonda, & O’Connor, 2015).
 Production: Supply chain risks have a great impact on organization’s production
performance in the form of quality issues, over productions, machinery failure and
procurement issues. These risks has an impact on the product production rate, either
increase the quality issues of product or decrease the production speed with some
reasons. The procurement issues may increase the supply cost or exchange costs. And
machinery failure that is a human error would waste production time and budget.
 Marketing: the risks of supply chain that cause wrong forecasts and take wrong
promotion strategy and the failures of networking sales. The market value of the
organization will decrease and organization will not able to stand in the market with their
competitors.This will impact the organization performance in the market (Bank, 2016).
The above some process of the organization that has the impacts of supply chain risks. These
processes are the core of any organization’s performance. With that there other some other
impacts to the organization performance. Those are:
 System failures: Nowadays every organization adopts information technology.
Organizations have the large system that helps them to, maintain every task. But
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sometimes it is tough to maintain those systems and protect them from the attacks. If the
organization’s system attacked or fail by chance that cause a huge performance barrier
for the organization. The important information may steal from the system and the virus,
worm, Trojan horse attacks might be injected into the system by the attackers.
 Legal barriers: Government rules and policies sometimes act as the supply chain risks.
For example, for the organization growth new setup must be required and need
administrator permission to install them, but due to some legislation administrator doesn’t
permit or increase the exercise duty or taxes, this will impact on company budget and
performance (PWC, 2014).
 Natural losses: the impact on the organization performance by the natural reasons. Those
are called as the external risks of supply chain. The organization could not avoid these
reasons or nor predict them. These are natural disasters, wars, diseases and terrorist
attacks. These all impact on the security, budget and performance of the company.
Natural disaster can damage the whole plant or affect the raw material supply for the
production. The wars and terrorist attacks decrease the security of an organization. And
the disease that could infect the workers and make them unhealthy and unfit for work.
These all risks impact in the organization performance, but in different ways. Organization’s
budget, inventory, suppliers, workers, system, security, market and warehouse all are the part
of the performance. If all the units of organization work properly and maintain the growth
and production level, then the organization will always rise. And this the performance factor
of the organization. Sometimes the risks impact a lot on the company performance that cost
company value. To overcome these impacts and risks some tools and techniques are available
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for risk analysis and mitigation. Organizations have to follow those tools (Ghadge & Dani,
2012).
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RQ3- Tools and Techniques
To manage the risk, risk management process work in two phases, that is risk analysis and risk
control. Risk analysis referred a process that deals with risk identification, risk estimation and
risk evaluation. While risk controls manage the mitigation and monitoring the risks.
Risk identification: before planning and developing any risk mitigation plan first of all risk
identification is important, risk identification process explains the each and every detail of risks
like source of risk, nature of risks, occurrence area, time period or expected outcomes. The
details of risks can be obtained from the conditions by using tools and methods. The followings
are the step to identify the risks.
 Arrange all the information from the assets of risks. The assets are people, skills,
experience, resources for risk management, organizational processes and procedures,
information systems and training programmers (Institute of Management
Accountants, 2007).
 Identify the threats and risk sources. Threats are enough powerful to damage
information, assets, process and system. Threats can be intentional or accidently
injected into the systems. There are many types of threat risks and their risk resources
are categorized according to confidentiality, integrity and supply chain’s availability.
 Assets vulnerabilities may cause the source of risks. The vulnerabilities are grouped
into five categories. These categories are disturbance, control, demand, supply,
environmental, enterprise sources and networks. These vulnerabilities are sometimes
are in controlled state or sometimes it is not. The environment or natural are not
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predictable, but the management team could forecast the weather and get ready per
the risk.
 The threats are divided into four groups, i.e human factor, processes, system and
external factors. Risks are associated with every group one or more that depends upon
the group.
 To control the risk many tools and methods are designed. Control measures are taken
by the organizers, procedural and technical.
Methods and tools for risk identification
The methods of supply chain risk identification are:
1. Geomaping or supply chain mapping: This method provides the details about the
dependencies and hand offs in the supply chain that cause the risks.
2. Supply chain operation reference (SCOR): This method researches the historical
problems and the reason of risks. Provide guidelines to overcome the further risks.
3. Brainstorming: brainstorming with highly expert people in the supply chain. They have
experience in risks of supply chain and provide a huge information about the risk’s
sources, nature, time periods of the risks etc.
4. Assessment surveys: Well-designed surveys help to gather the information about the
supply chain risks in quick and effective ways.
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5. Sites visits: The risk management team visit sites to identify the risks. They collect
information from the workers, weather forecasts, company, machinery and other factors
that affect the supply chain and cause risks.
6. Information audits: There are some systems that audit the past issues and trends and
generate the performance result. An Audit provides information about the area of
organization where risks effect and decrease the performance and also predict the future
performances of the organization.
The tools of supply chain risk identifications are:
1. Risk checklists: Preparing a list of risks that are very common in company environment
and from the past records of the organization (Ghadge & Dani, 2012).
2. Cause and effect diagram: In this tool, a diagram of an organization’s supply chain to
trace the causes of risks. And with this also find out the effects of risks on that particular
area.
3. Gantt chart: Gantt chart represents the tasks or procedures with time. Critical path can
be identified with the help of the Gantt chart. That shows the area of disruptions.
Risk analysis: Risk analysis helps to understand the risks. Risk analysis the sources of risks,
nature of risks, results and impact of them to organizational performance whether it is positive or
negative. This information helps to plan the better risk management plan for the future. In risk
identifications that affect the consequences should be identified. Risk analysis finds out the
reason and understand that factors that how frequently the risk happened and their impacts. Risk
analysis calculates the risk from its factors and report to the organizations.
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Tools and techniques for risk analysis are:
There are three methods to analysis the risks. These are qualitative, semi-quantitative and
quantitative methods.
1. Qualitative methods define the level of probability of occurrence and risky impacts based on
different scales and measures. There are several levels of probability in qualitative methods
are rare, unlikely, likely and most certain. The levels of probability and impact combined
result into the degree of risks, i.e. low, medium and high (Singhal & Agarwal, 2011).
2. Semi-quantitative methods the numerical values replaced the judgment levels. The range of
scale 1 to 4 for probability in terms of very unlikely, improbable, probable and very probable.
Analytic hierarchy process approach is used to calculate the relative weight of supply chain
risks.
3. Quantitative methods may perform by the simulation methods when there is a huge amount
of information is available from the past records. The tools that are used to calculate the
probability of occurrence and risky event impacts are fault and event trees, Monte Carlo
techniques and petri nets.
Conclusion
In this research report, all the risks found in the supply chain are explained in detail. It is
concluded that there are many risks that the organizations are facing and it has a negative effect
on the performance of the organization. The organization should use or adopt the different tools
and techniques to analyze the risk and to solve the problem occurs through these risks.
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