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Type of Risks in Supply Chain
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Added on 2019-09-16
Type of Risks in Supply Chain
Added on 2019-09-16
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ContentsRQ1- Type of risks in Supply chain............................................................................................................2RQ2- Impacts of supply chain risks on organization’s performance...........................................................5RQ3- Tools and Techniques........................................................................................................................8Methods and tools for risk identification.....................................................................................................9Conclusion.................................................................................................................................................11References.................................................................................................................................................121
RQ1- Type of risks in Supply chainThere are many risks that experienced in the supply chain. There are always some factors andreason 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 areorganizational, network and environment risks. The followings are some risks and their drivingfactors 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 machinerybreakdown that cause risk. The driver of disruptions are natural disaster like flood, fire,storms, heavy rainfall, machinery breakdown, labor strikes, bankruptcy, security reasonslike terrorism, operating errors, power cuts etc. To avoid or prevent these risks is not easytasks, but managers must have a risk mitigation plan for the Disruptions.Delay Risks: The production growth of an organization affects due to the delay inmaterial flows. These occur often and have many reasons for that. There are many driversfor 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 beovercome by increasing and balancing the filling capacity and inventories reservations.System Risks: In the era of information technology, every organization has theinformation system that helps them to manage the work. But every system has their ownweakness that cause failures and risks in supply change [ CITATION Cag12 \l 1033 ]. Thedrivers of system risks are network failure or breakdown, issues with E-commerce,integration errors, database failure and IT infrastructure breakdown. A secure backup2
system that is well designed and communicated will help to overcome this risk with datarecovery 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 projectioncauses the forecast risks. Forecast risks depended upon the demand and forecast. A lowforecast might decrease product production for sell and the high forecast increase theproduction and increase the inventory and decrease product price mark. The forecasterrors occur from wrong predication of seasonal demands, high product variety, marketcompetitions and product market life cycle. Information distortion within the supplychain is a result of the forecast inaccuracies. Promotions and incentive that leads tobuying and purchasing is another cause of information distortion.Intellectual property risks: An intellectual property of any organization is important fortheir growth and for their reputations. A less integrated and more global supply chainincreases the intellectual property risks. And with this the manufactures used bycompetitors are outsourced by the company. Intellectual property risks cause an effect oncompany reputation and profits [ CITATION McC08 \l 1033 ].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 unexpectedincrease 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 revenueflows. Price hike risks might be coming from various reasons like signing contract for along period of time, having unnecessary suppliers, owning inventory, limited instances,etc. Long term procuring from same sources can cause profit damage if the price ofsupplies falls.3
Receivables risks: These risks are related to the final product sales, that affects thecompany growth and production. The drivers of receivables risks are customer’s strengthand financial conditions of the customers. Companies have to understand about the needsand their credibility for the product. And these will reduce the receivable risks. There arefurther more certain ways to reduce the receivable risks like to increase the number ofcustomers [ CITATION JDi14 \l 1033 ].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 smallwith high prices can lead to inventory risks that effect on the supply chain. Companiescan decrease the inventory risks with responsive suppliers of short life cycle products andalso the capacity increment can lower inventory risks.Capacity risks: the drivers of capacity risks are the cost of capacity and capacityflexibility. The capacity can be decreased and increased with the time. The capacity mustbe flexible to overcome the risks. The capacity of any company decides the supply of thatproduct and that also effects on the demand. It also depends upon the geographic locationto 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 environmentalrisks, 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.4
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