1
1
Supply Chain Risk Management
Setting the Stage
Floods,. earthquakes,. tsunamis,. tornadoes,. and. billowing. clouds. of. ash.
from.obscure.volcanoes.all.share.something.in.common..Over.the.last.sev-
eral.years.these.events.have.been.featured.prominently.in.the.news—and.
each.has.had.the.inevitable.effect.of.disrupting.the.supply.chains.of.entire.
industries..But.these.kinds.of.disruptions.were.not.on.the.minds.of.Astellas.
Pharma.executives.when.thieves.stole.a.trailer.from.a.truck.stop.containing.
$10.million.of.the.company’s.pharmaceutical.products..What.followed.was.
a.lesson.in.supply.chain.risk.that.felt.like.a.swift.punch.in.the.gut.
When.the.accountants.had.completed.their.final.tabulations,.they.found.
that.the.stolen.products.represented.only.a.fraction.of.the.losses.suffered.
by. Astellas.. Based. on. a. recommendation. from. the. U.S.. Food. and. Drug.
Administration,. the. company. contacted. every. party. in. its. supply. chain,.
ranging.from.wholesalers.to.hospitals,.warning.them.of.the.stolen.drugs..
As.a.preventive.measure.the.company.withdrew.from.the.marketplace.all.
drugs.with.the.same.lot.numbers.as.those.that.were.stolen..Some.of.the.sto-
len.pharmaceuticals.required.strict.climate.control,.something.the.thieves.
(who. were. eventually. caught). were. not. too. concerned. about,. making. a.
return.of.these.products.a.necessity..The.loss.of.this.trailer.eventually.cost.
the.company.$47.million,.wiping.out.a.large.chunk.of.its.North.American.
profit.for.that.quarter.1
Welcome.to.the.sometimes.unpleasant.world.of.supply.chain.risk.man-
agement..This.chapter.starts.our.journey.into.this.evolving.discipline.by.
setting.the.stage.for.important.concepts.that.appear.throughout.this.book..
We.begin.by.providing.various.definitions.and.perspectives.of.this.thing.
called. risk.. Next,. we. present. reasons. why. a. focus. on. supply. chain. risk.
management.has.become.a.necessity.rather.than.a.luxury..This.is.followed.
Schlegel, Gregory L., and Robert J. Trent. Supply Chain Risk Management : An Emerging Discipline, Taylor & Francis Group, 2014.
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2 • Supply Chain Risk Management: An Emerging Discipline
by.an.explanation.of.various.risk.terms.and.concepts,.a.categorization.of.
risk,.and.a.presentation.of.generic.risk.management.approaches.
the COnCept Of RiSk and RiSk ManageMent
A. logical. place. to. start. is. to. explain. what. we. mean. by. risk,. particularly.
since.this.concept.can.be.defined.in.various.ways..One.common.perspec-
tive. simply. says. that. risk. is. a. situation. involving. exposure. to. danger. or.
loss..Another.perspective.takes.this.a.step.further.by.adding.that.risk.is.the.
probability. or. threat. of. damage,. injury,. liability,. loss,. or. other. negative.
occurrences. that. are. caused. by. external. or. internal. vulnerabilities. and.
that.may.be.avoided.through.preemptive.action.2.Another.view.states.that.
risk. is. the. effect. of. uncertainty. on. objectives.. Risk. can. also. be. viewed,.
at. least. partly,. as. the. inability. to. capitalize. on. an. opportunity.. For. our.
purposes. we. define. risk. as. the. probability. of. realizing. an. unintended. or.
unwanted.consequence.that.leads.to.an.undesirable.outcome.such.as.loss,.
injury,. harm,. or. missed. opportunity.. Warren. Buffet. once. observed. that.
risk.comes.from.not.knowing.what.you.are.doing.
Most.risk.observers.believe.that.when.a.risk.becomes.a.reality,.something.
bad. usually. happens.. Not. surprisingly,. supply. chain. managers. almost.
always.look.at.risk.in.terms.of.something.to.be.avoided..And.to.say.that.
most.supply.chain.managers.are.generally.risk.averse.would.be.an.under-
statement..Conversely,.entrepreneurs.look.at.risk.through.a.different.lens..
They.view.risk.in.terms.of.upside.opportunities.and.missed.opportunities.
when.failing.to.act..To.those.individuals,.creative.risk.taking.is.essential.
to. any. goal. where. the. stakes. are. high.. Thoughtless. risks. are. destructive,.
of. course,. but. perhaps. even. more. wasteful. is. thoughtless. caution,. which.
prompts.inaction.and.promotes.failure.to.seize.an.opportunity.3
Aswath. Damodaran,. a. professor. at. New. York. University,. writes. that.
every.major.advance.that.civilizations.have.made.involves.someone.will-
ing.to.take.a.risk.by.challenging.the.status.quo..He.further.states.that.the.
most.successful.firms.in.any.industry.actively.seek.out.and.exploit.risk.to.
their. own. advantage.4. He. states,. “Successful. firms,. over. time,. can. attri-
bute. their. successes. not. to. avoiding. risk. but. to. seeking. out. and. taking.
the. “right”. risks.. This. perspective. views. risk. as. an. event. or. activity. that.
may.have.an.impact.on.an.organization’s.ability.to.achieve.its.objectives.
Schlegel, Gregory L., and Robert J. Trent. Supply Chain Risk Management : An Emerging Discipline, Taylor & Francis Group, 2014.
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Supply Chain Risk Management: Setting the Stage • 3
or. may. cause. a. missed. opportunity.. The. single-.minded. view. that. risk. is.
all.about.avoidance.is,.in.his.view,.narrow.and.constraining..It.can.also.be.
quite.paralyzing.
Damodaran’s. review. of. risk. supports. three. conclusions. that. align. well.
with.the.philosophy.of.this.book..The.first.is.that.while.some.risk.defini-
tions. focus. strictly. on. the. probability. of. an. event. occurring,. richer. per-
spectives.extend.this.to.incorporate.a.valuation.of.the.consequence.of.that.
event..In.other.words,.risk.is.multidimensional..Throughout.this.book.we.
will. present. techniques. that. consider. probability. and. consequences. and.
model.them.accordingly..A.second.conclusion.is.that.in.some.disciplines.a.
clear.distinction.is.made.between.a.risk.and.a.threat..With.this.perspective.
a.threat.is.thought.to.be.a.lower.probability.event.while.risk.is.regarded.as.a.
higher. probability. event.. Finally,. some. definitions. of. risk. focus. only. on.
the.downside.of.risk,.whereas.other.perspectives.are.more.expansive.and.
consider. all. variability. as. risk,. including. lost. opportunities.. A. company.
that.has.more.demand.for.its.products.than.what.it.is.capable.of.producing.
appears.to.have.a.welcome.problem..In.reality,.the.strains.placed.on.that.
company.as.it.struggles.to.satisfy.demand.can.affect.customer.satisfaction,.
brand.reputation,.profitability,.and.even.survival.
Each.day.every.company.and.human.being.face.risk.situations..At.the.
individual.level,.did.you.drive.a.car.or.fly.in.a.plane.today?.Did.you.cross.
a.busy.street.or.share.the.road.with.cars.while.riding.a.bike?.Did.you.eat.
food.at.a.restaurant.where.you.did.not.see.how.the.food.was.prepared?.Did.
you.walk.down.a.flight.of.stairs?.Did.you.step.into.the.shower?.Do.you.have.
money.in.the.stock.market?.Did.you.take.an.exam.without.studying?.If.the.
answer.to.even.a.few.of.these.questions.is.yes,.you.have.exposed.yourself.
to. risk,. just. like. everyone. else. on. the. planet.. The. challenge. becomes. one.
of.not.allowing.a.fear.of.risk.to.paralyze.us.from.pursuing.opportunities.
that.are.important.to.our.personal.and.professional.advancement..Risk.is.
something.we.need.to.manage.
defining enterprise Risk Management
It. is. important. to. differentiate. between. enterprise. risk. management.
(ERM).and.supply.chain.risk.management.(SCRM),.distinctions.that.are.
central.to.this.book..Almost.all.corporate.executives.are.aware.of.ERM,.a.
concept.that.has.been.around.for.decades..Using.a.definition.developed.by.
the.Aberdeen.Group,.ERM.is
Schlegel, Gregory L., and Robert J. Trent. Supply Chain Risk Management : An Emerging Discipline, Taylor & Francis Group, 2014.
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4 • Supply Chain Risk Management: An Emerging Discipline
the.process.for.effective.identification,.assessment,.and.management.of.all.
significant.risks.to.an.entity..This.includes.not.only.the.traditional.areas.of.
financial. and. hazard. risk,. but. also. larger. operational. and. strategic. risks..
ERM.refers.to.the.people,.tools,.systems,.and.structures.that.are.part.of.a.
broader.framework.of.Governance,.Risk,.and.Compliance.5.
Chapter 9. will. highlight. several. ERM. frameworks,. including. the.
then. COSO. (Committee. of. Sponsoring. Organization. of. the. Treadway.
Commission). framework. and. the. ISO. (International. Organization. for.
Standardization). standards. relating. to. risk. as. well. as. Governance,. Risk,.
and.Compliance.
Corporate.executives.have.been.concerned.with.enterprise.risk.for.years,.
particularly. at. publicly. traded. companies.. The. Securities. and. Exchange.
Commission. (SEC). requires. publicly. traded. companies. to. identify. the.
material.risks.they.face.at.the.corporate.level.in.Section 1A.of.their.com-
pany’s.10-K.report..Failure.to.identify.these.risks.can.result.in.claims.by.
shareholders.that.the.company.did.not.adequately.warn.them.of.potential.
risks,.which.could.present.some.liability.to.a.company.
Risk.identification.within.the.10-K.reporting.requirements.is.an.impor-
tant.part.of.the.ERM.process..Historically,.the.vast.majority.of.risks.iden-
tified.in.the.10-K.report.related.to.financial.and.legal.risks..Operating.and.
other.supply.chain.risks.simply.were.not.perceived.as.important.enough.
to. be. addressed. at. the. ERM. or. 10-K. level.. Unfortunately,. the. world. has.
changed.and,.from.a.risk.perspective,.not.for.the.better.
Table 1.1.identifies.the.enterprise.risks.identified.in.Apple’s.10-K.report..
More.than.one.third.of.the.key.risks.identified.by.Apple.have.supply.chain.
connections. or. implications. (those. risks. are. designated. with. a. check.
mark);.something.that.is.becoming.increasingly.prevalent.as.supply.chain.
risks. earn. the. dubious. “honor”. of. making. the. enterprise. risk. list.. While.
supply.chain.managers.have.been.asking.for.increased.attention.at.the.cor-
porate.level.for.years,.increasing.the.number.of.supply.chain–.related.risks.
on. the. 10-K. report. is. probably. not. what. they. had. in. mind.. Watch. what.
you.wish.for.
ERM. is. traditionally. the. responsibility. of. finance,. treasury,. insurance,.
and. legal. groups. at. the. corporate. level.. In. fact,. a. survey. by. Accenture.
revealed.that.at.the.corporate.level,.98%.of.organizations.have.what.they.
consider.to.be.a.chief.risk.officer..And,.according.to.Accenture,.96%.of.risk.
management.owners.report.to.the.CEO.6.With.that.said,.the.chief.risk.offi-
cer.is.often.a.dual.position..At.General.Motors,.for.example,.the.chief.risk.
Schlegel, Gregory L., and Robert J. Trent. Supply Chain Risk Management : An Emerging Discipline, Taylor & Francis Group, 2014.
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Supply Chain Risk Management: Setting the Stage • 5
taBle 1. 1
Apple.Enterprise.Risk.Factors:.10-K.Report
•. Global.economic.conditions.could.materially.adversely.affect.the.company.
•. Global.markets.for.the.company’s.products.and.services.are.highly.competitive.and.
subject.to.rapid.technological.change,.and.the.company.may.be.unable.to.compete.
effectively.in.these.markets.
.✓ To.remain.competitive.and.stimulate.customer.demand,.the.company.must.
successfully.manage.frequent.product.introductions.and.transitions.
.✓ The.company.faces.substantial.inventory.and.other.asset.risk.in.addition.to.purchase.
commitment.cancellation.risk.
.✓ Future.operating.results.depend.upon.the.company’s.ability.to.obtain.components.in.
sufficient.quantities.
.✓ The.company.depends.on.component.and.product.manufacturing.and.logistical.
services.provided.by.outsourcing.partners,.many.of.whom.are.located.outside.of.the.
United.States.
.✓ The.company.relies.on.third-.party.intellectual.property.and.digital.content,.which.
may.not.be.available.to.the.company.on.commercially.reasonable.terms.or.at.all.
•. The.company.is.frequently.involved.in.intellectual.property.litigation.and.could.be.
found.to.have.infringed.on.intellectual.property.rights.
•. The.company’s.future.performance.depends.in.part.on.support.from.third-.party.
software.developers.
.✓ The.company.depends.on.the.performance.of.distributors,.carriers,.and.other.
resellers.
.✓ The.company’s.retail.segment.has.required.and.will.continue.to.require.a.substantial.
investment.and.commitment.of.resources.and.is.subject.to.numerous.risks.and.
uncertainties.
•. Investment.in.new.business.strategies.and.acquisitions.could.disrupt.the.company’s.
ongoing.business.and.present.risks.not.originally.contemplated.
.✓ The.company’s.products.and.services.may.experience.quality.problems.from.time.to.
time.that.can.result.in.decreased.sales.and.operating.margin.
•. The.company.is.subject.to.laws.and.regulations.worldwide,.changes.to.which.could.
increase.the.company’s.costs.and.individually.or.in.the.aggregate.adversely.affect.the.
company’s.business.
•. The.company’s.success.depends.largely.on.the.continued.service.and.availability.of.
key.personnel.
.✓ The.company’s.business.may.be.impacted.by.political.events,.war,.terrorism,.public.
health.issues,.natural.disasters,.and.other.circumstances.
•. The.company’s.business.and.reputation.may.be.impacted.by.information.technology.
system.failures.or.network.disruptions.
•. The.company.may.be.subject.to.breaches.of.its.information.technology.systems,.
which.could.damage.business.partner.and.customer.relationships,.curtail.or.
otherwise.adversely.impact.access.to.online.stores.and.services,.and.could.subject.the.
company.to.significant.reputational,.financial,.legal,.and.operational.consequences.
continued
Schlegel, Gregory L., and Robert J. Trent. Supply Chain Risk Management : An Emerging Discipline, Taylor & Francis Group, 2014.
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6 • Supply Chain Risk Management: An Emerging Discipline
officer.is.also.the.company’s.general.auditor..At.other.companies.the.chief.
risk.officer.may.be.the.chief.financial.officer.(CFO)..And.at.some.compa-
nies.the.chief.risk.officer.may.be.part.of.the.insurance.group.
defining Supply Chain Risk Management
Now. that. we. have. a. working. knowledge. of. ERM,. what. is. supply. chain.
risk. management. (SCRM)?. The. definition. partly. reflects. someone’s.
professional. discipline. or. where. they. reside. in. the. supply. chain.. In. the.
information. technology. space,. the. National. Institute. for. Standards. and.
Technology.defines.supply.chain.risk.management.as.a.“multidisciplinary.
practice.with.a.number.of.interconnected.enterprise.processes.that,.when.
performed.correctly,.will.help.departments.and.agencies.manage.the.risk.
of.using.information.technology.products.and.services.”7.MITRE,.a.pri-
vate,. not-.for-.profit. corporation. that. provides. engineering. and. technical.
services. to. the. federal. government,. defines. SCRM. as. “a. discipline. that.
addresses.the.threats.and.vulnerabilities.of.commercially.acquired.infor-
mation.and.communications.technologies.within.and.used.by.government.
information.and.weapon.systems..Through.SCRM,.systems.engineers.can.
minimize.the.risk.to.systems.and.their.components.obtained.from.sources.
that. are. not. trusted. or. identifiable. as. well. as. those. that. provide. inferior.
material.or.parts.”8.A.third.perspective,.and.the.one.that.most.closely.aligns.
with.our.philosophy,.says.that.supply.chain.risk.management.(SCRM).is.
“the. implementation. of. strategies. to. manage. everyday. and. exceptional.
taBle 1. 1 (continued)
Apple.Enterprise.Risk.Factors:.10-K.Report
•. The.company’s.business.is.subject.to.a.variety.of.U.S..and.international.laws,.rules,.
policies,.and.other.obligations.regarding.data.protection.
•. The.company.expects.its.quarterly.revenue.and.operating.results.to.fluctuate.
•. The.company’s.stock.price.is.subject.to.volatility.
.✓ The.company’s.business.is.subject.to.the.risks.of.international.operations.
•. The.company.is.exposed.to.credit.risk.and.fluctuations.in.the.market.values.of.its.
investment.portfolio.
.✓ The.company.is.exposed.to.credit.risk.on.its.trade.accounts.receivable,.vendor.
nontrade.receivables,.and.prepayments.related.to.long-.term.supply.agreements,.and.
this.risk.is.heightened.during.periods.when.economic.conditions.worsen.
•. The.company.could.be.impacted.by.unfavorable.results.of.legal.proceedings.
•. The.company.could.be.subject.to.changes.in.its.tax.rates,.the.adoption.of.new.U.S..or.
international.tax.legislation,.or.exposure.to.additional.tax.liabilities.
Schlegel, Gregory L., and Robert J. Trent. Supply Chain Risk Management : An Emerging Discipline, Taylor & Francis Group, 2014.
ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1680353.
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Supply Chain Risk Management: Setting the Stage • 7
risks.along.the.supply.chain.through.continuous.risk.assessment.with.the.
objective.of.reducing.vulnerability.and.ensuring.continuity.”9
One.way.to.view.supply.chain.risk.management.is.to.think.of.it.as.the.
intersection. of. supply. chain. management. and. risk. management.. One.
thing.we.know.about.SCRM.is.that.no.standard.definition.exists..This.is.
one.indicator.that.SCRM.is.still.an.evolving.discipline..Risk.is.embedded.
within.so.many.business.disciplines.that.it.should.come.as.no.surprise.that.
different.groups.perceive.this.concept.differently.
Why fOCuS On Supply Chain RiSk ManageMent?
Anecdotal.accounts.of.why.supply.chain.risk.management.must.become.a.
corporate.concern.are.not.hard.to.come.by..In.fact,.we.will.present.dozens.
of. examples. that. reveal. the. downside. of. risk.. While. natural. disasters. like.
hurricanes.and.floods.grab.the.headlines,.the.reality.is.that.supply.chains.
face.a.whole.range.of.risks.that.most.observers.believe.only.to.be.increasing..
A.survey.by.American.Productivity.and.Quality.Center.(APQC).revealed.
that.75%.of.responding.companies.indicated.they.were.hit.by.a.major.supply.
chain.disruption.during.the.two-.year.period.prior.to.the.date.of.the.survey.
A. classic. example. of. supply. chain. risk. involves. a. fire. that. destroyed. an.
electronics.supplier.in.New.Mexico.that.supplied.Nokia.and.Ericsson.with.
critical. components. for. their. phone. businesses.. The. response. to. this. risk.
event.shows.the.strategic.implications.of.effective.(or.ineffective).risk.man-
agement..Nokia’s.ability.to.quickly.secure.components.from.other.sources,.
compared.with.Ericsson’s.lack.of.preparation.for.responding.to.this.event,.
resulted.in.a.dramatic.industry.shift..Ericsson’s.supply.disruption.not.only.
cost.the.company.several.hundred.million.dollars.in.lost.sales,.but.it.essen-
tially. ended. the. company’s. position. as. a. player. in. the. growing. wireless.
phone. business.. Chapter 9. will. investigate. this. example. in. greater. detail..
Consider.some.other.supply.chain.risk.events:
•. A.U.S..producer.of.power.tools.was.surprised.to.find.that.the.Asian.
supplier.it.contracted.with.to.produce.its.lower-.end.products.began.
selling.those.products.under.its.own.label.in.Asia..The.U.S..company.
was. further. surprised. to. find. that. the. supplier. shared. its. product.
designs. with. other. Asian. companies.. The. U.S.. producer. eventually.
found.itself.competing.in.North.America.with.its.own.products.
Schlegel, Gregory L., and Robert J. Trent. Supply Chain Risk Management : An Emerging Discipline, Taylor & Francis Group, 2014.
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8 • Supply Chain Risk Management: An Emerging Discipline
•. Some. German. thieves. developed. a. creative. way. to. steal. freight. on.
highways..The.thieves.position.a.car.in.front.of.a.truck.to.slow.it.down.
while.another.car.is.positioned.next.to.the.truck.to.prevent.it.from.
passing. the. car. in. front.. Then,. a. third. vehicle. pulls. up. behind. the.
truck.and.at.that.point.one.of.the.gang.members.opens.the.back.of.
the. truck. to. remove. cargo.. Thieves. have. used. this. method. to. steal.
cargo.more.than.50.times.10
•. Nylon-12.is.a.critical.resin.for.producing.fuel.lines.and.other.automo-
tive.components..Unfortunately,.the.resin.supply.for.the.entire.world.
is.essentially.produced.in.a.single.facility.in.Germany..What.is.even.
more. unfortunate. is. the. explosion. that. ripped. through. that. plant,.
taking.out.half.of.the.world’s.output.in.the.blink.of.an.eye..Within.
hours. automotive. original. equipment. manufacturers. (OEMs). had.
established.crisis.management.teams.to.scour.the.globe.for.new.sup-
ply.sources.
•. Eight.heavily.armed.thieves.dressed.as.police.and.driving.two.police.
vans.with.flashing.lights.drove.through.a.hole.in.the.perimeter.fence.
of. the. Brussels,. Belgium,. airport. and. onto. a. runway.. In. less. than.
five.minutes.the.thieves.opened.a.plane’s.cargo.door.and.unloaded.
120. packages. holding. $50. million. worth. of. polished. and. uncut.
diamonds.. The. thieves. escaped. with. the. diamonds. and. are. forever.
embedded.in.criminal.folklore.
We.could.go.on,.but.you.get.the.idea..Moving.beyond.anecdotal.accounts,.
an.emphasis.on.supply.chain.risk.management.is.necessary.today.because.
supply.chains.face.many.factors.that.result.in.higher.risk,.more.so.than.at.
any. time. in. modern. history..Some. of. these. risk. factors.are. self-.inflicted;.
others.are.not..IBM.researchers.have.identified.a.solid.set.of.factors.that.
lead. us. to. a. clear. conclusion—supply. chains. are. becoming. more,. rather.
than.less,.risky..Table 1.2.summarizes.this.important.set.of.factors.
Other. factors. inadvertently. expose. a. company. to. heightened. supply.
chain. risk. through. unintended. consequences.. This. includes. just-.in-.time.
delivery.and.lean.systems.that.result.in.little.to.no.buffer.inventory;.a.trend.
toward.centralized.decision.making.that.may.reduce.response.times.and.
flexibility.at.local.levels;.continuous.cost.reductions.that.may.affect.a.com-
pany’s.ability.to.plan.and.respond.to.risk.events;.greater.use.of.single.sourc-
ing,. which. often. leaves. a. company. with. few. supply. options. and. higher.
supplier.switching.costs;.and.widespread.outsourcing,.potentially.leading.
to.a.loss.of.supply.chain.control..Sometimes.we.are.our.own.worst.enemy.
Schlegel, Gregory L., and Robert J. Trent. Supply Chain Risk Management : An Emerging Discipline, Taylor & Francis Group, 2014.
ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1680353.
Created from apus on 2021-06-09 03:04:17.
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Supply Chain Risk Management: Setting the Stage • 9
A. study. by. the. Aberdeen. Group. identified. some. good. reasons. why. a.
company.should.make.SCRM.an.embedded.part.of.its.corporate.culture..
First,.a.need.to.protect.an.organization’s.brand.and.competitive.advantage.
is. a. strategic. necessity.. Risk. events. have. a. nasty. way. of. affecting. brand.
value. quickly.. Simply. think. about. how. stories,. whether. they. are. true. or.
not,. can. impact. the. value. of. a. brand.. Next,. the. increasing. volatility. of.
the.global.economic.environment.and.markets.is.resulting.in.greater.risk.
exposure.. Third,. corporate. mandates. to. institute. and/.or. improve. risk.
management.and.governance.programs.are.only.going.to.increase..And,.a.
growing.need.to.comply.with.new.or.changing.regulatory.requirements.is.
forcing.a.greater.emphasis.on.risk.management..Finally,.constant.pressure.
to. improve. shareholder. and. customer. confidence. while. trying. to. reduce.
costs. may. result. in. actions. that. result. in. greater. risk. exposure,. such. as.
searching.for.suppliers.in.untested.emerging.supply.markets.
A.range.of.surveys.and.studies.conclude.that.supply.chain.risk.is.grow-
ing.. To. disregard. what. has. become. obvious. is. short-.sighted. and. danger-
ous.. We. can. easily. cite. source. after. source. that. concludes. essentially. the.
same.thing—supply.chain.risk.and.its.impact.on.corporate.performance.
continues.to.grow..It.would.be.challenging.to.argue.that.supply.chains.are,.
on.average,.becoming.less.risky.
taBle 1. 2
Factors.That.Make.Supply.Chains.Riskier
•. Increased.globalization.through.outsourcing,.which.stretches.end-.to-.end.supply.chains
•. Additional.regulatory.compliance.imposed.by.government.entities,.further.
complicating.international.trade.(such.as.C-.TPAT.and.SEC.conflict.mineral.
reporting.requirements)
•. Increased.levels.of.economic.uncertainty.and.market.volatility,.which.create.
additional.variability.in.demand.and.supply.and.make.it.more.difficult.to.
accomplish.demand–supply.planning
•. Shorter.product.life.cycles.and.rapid.rates.of.technology.change,.which.increase.the.
risk.of.inventory.obsolescence
•. Demanding.customers.that.create.additional.time-.to-.market.pressures.by.requiring.
better.on-.time.delivery,.higher. .fill.rates,.and.improved.service.level.efficiencies
•. Supply.side.capacity.constraints,.making.it.more.difficult.to.meet.demand.
requirements
•. Natural.disasters.and.external.environmental.events,.which.affect.global.supply.
chains
•. Complex.networks.of.suppliers.and.third-.party.service.providers,.as.well.as.large.
interdependencies.among.multiple.firms,.which.increase.the.need.to.coordinate.risk
Schlegel, Gregory L., and Robert J. Trent. Supply Chain Risk Management : An Emerging Discipline, Taylor & Francis Group, 2014.
ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=1680353.
Created from apus on 2021-06-09 03:04:17.
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10 • Supply Chain Risk Management: An Emerging Discipline
Some SCRM Observations
Extensive.experience.and.research.enables.us.to.make.some.observations.
about. the. state. of. risk. management.. (Chapter 2. will. provide. a. more. in-.
depth. presentation. of. the. “as. is”. state).. Perhaps. most. importantly,. most.
observers.have.concluded.that.the.potential.impact.of.risk.has.increased.
over.the.last.15.or.20 years..In.one.survey,.almost.75%.of.risk.managers.say.
that.supply.chain.risk.levels.are.higher.than.in.2005..More.than.70%.say.
the.financial.impact.of.supply.chain.disruptions.has.also.increased.11.And,.
there.is.no.question.that.supply.markets.have.become.more.volatile..The.
size.of.fluctuations.in.commodity.prices.has.more.than.tripled.since.2005.
compared.with.the.period.of.1980–2005,.based.on.International.Monetary.
Fund. data.. If. you. really. think. about. this. hard. enough,. you. might. just.
get.depressed.
We. can. also. conclude. that. too. many. firms. are. not. prepared. to. handle.
the.supply.chain.risks.that.may.come.their.way,.even.though.most.manag-
ers.understand.that.supply.chain.risk.is.a.growing.concern..While.ERM.
has. been. at. the. forefront. for. many. companies,. SCRM. has. been. more. of.
an. afterthought.. A. recent. study. revealed. that. for. firms. with. less. than.
$500.million.in.annual.revenue.(which.is.the.vast.majority.of.companies),.
only.25%.take.a.proactive.approach.to.risk.management.12
Another.observation.is.that.while.many.risk.categorizations.and.topol-
ogies. exist,. a. convergence. appears. to. be. happening. around. the. key. cat-
egories. of. supply. chain. risk—a. convergence. this. book. uses.. Finally,. as. it.
relates.to.mitigating.or.lessening.the.impact.of.risk.events,.we.tend.to.see.
the. same. set. of. standard. approaches. that. fail. to. reflect. bold. or. …
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