Q1. Where is the supply chain of an organization vulnerable to potential risk?
The supply chain of an organization comprises numerous functional areas that make up the processes of the whole supply chain of the organization. There are some parts that are particularly vulnerable to potential risk. They are;
- Inventory Management
- Sales/Customer Service
Q2. Why is the organization vulnerable?
The organization is vulnerable because of the constantly changing and evolving market conditions and characteristics. The evolving business environment brings with it new potential risks as different facets of the business environment change with the needs, tastes and fashions and wants of the market. (Christopher, 2005)
Companies are mainly forecast driven, where long lead-times of response and long planning horizons characterize the planning process. As a result, this functional area is vulnerable to the potential risk of the wild swings of demand.
With the onset of lean and just-in-time practices, the inventory management functional area of the supply chain is particularly vulnerable to potential risk (Muzumdar & Balachandran, 2001). This is because numerous sectors of industries aim to reduce costs by concentrating on the reduction of inventory. While these models function well in stable market conditions, they become less feasible when demand volatility increases.
The unpredictability of demand is characteristic of the 21st century markets. This is caused by the high market turbulence levels. This volatility in demand is caused by shorter life cycles that are mostly driven by the change in technology (Muzumdar & Balachandran, 2001). This increases the risk of obsolescence for the customer service and sales department. This forces the department to constantly keep up-to-date with the latest technology.
Q3. How will this risk affect the organization if it happens?
The organization will suffer the following consequences
- Increased obsolescence for the company.
- Reduced costs for the company, however, the company will be less flexible
- Manufacturing and distribution will be centralized and therefore the company may experience delays as transportation will consume more time due to the greater distances that have to be covered from on production site to another.
Q4. How will this risk affect the organization’s customers and suppliers?
The organization’s customers will be affected in the following ways:
- Late delivery of orders
- The probability of the obsolescence of the product from the company
The organization’s suppliers will be affected in the following ways:
- Longer lead-times of response and long planning horizons characterize the planning process and thus there is a longer transaction periods
- Suppliers will be segmented for specific raw materials rather than bulk buying from one supplier
Q5. What are the causes of the risk?
The market is constantly changing and evolving towards the reduction of costs through reduction of inventory (Christopher, 2005). This reduction in inventory causes an increase in the amount of risk associated with inventory.
The changing trend to lean and just-in-time practices. This is where the efficiency is given preference over effectiveness. Through the employment of the Just-in-time practice, the company becomes more dependent on suppliers. This kind of practice is feasible in a stable market condition. The volatile market conditions of the 21st century make this practice not feasible and is prone to the volatility of demand increases.
With the increase in the trend of the globalization of the manufacturing and assembly, most companies rely on off-shore manufacturing and sourcing (Christopher, 2005). This is motivated by cost. However, the cost is defined by the value of manufacturing and outsourcing. When the total cost of the supply chain are considered, then it causes higher risk levels that are triggered by greater buffer stocks, extended lead times and an increased level of obsolescence.
Christopher, M. (2005). Managing Risk in the Supply Chain. Logistics and Supply Chain Management, 231-258.
Muzumdar, M., & Balachandran, N. (2001). The Supply Chain Evolution: Roles, Responsibilities and Implication for Management. APICS The Performance Advantage, 59-62.