Dulambaeva
R.T., Tomashpayeva S.S.
Supply chain
risk management
This article presents the main trends in
supply chain risk management and compares the effectiveness of different
models. Over the last decade, when the supply, production and distribution processes
began to take place in more than one country, the supply chain between
organization and structures with which it is associated lengthens and becomes
more complex and expensive. In the context of globalization it is necessary to
search effective logistics solutions that would take into account the
complexity of supply chain configuration, the geographic scope of business
operations, and multidimensional integration of material, information and
financial flows.
Logistics system in practice includes a
set of diverse elements, whose functioning depends on various factors and
entails different types of risks (external and internal). The basic principle
of effective logistics is reliability at the both micro and macro levels. It
means that any risk in logistics system functioning should be minimized or
neutralized. Nowadays risk management is a carefully planned process. The main
task of risk management organically involved into the general purpose of
improving the organization’s efficiency. Ignoring or undervaluing risk
possibilities should be replaced by the active management techniques.
Supply chain risk management is the
coordinated efforts of an organization to help identify, monitor, detect and
mitigate threats to supply chain continuity and profitability. Its functioning
requires collaboration and coordination among an organization’s sales,
marketing, production, development, procurement, finance and IT departments.
Threats to the supply chain include faults and failures during all its stages
and the choice of management tools is heavily influenced by the distinctive feature
of certain stage (picture 1).
|
Supply chain stage |
Possible threats |
Risk management tools |
|
PURCHASE |
The discrepancy of
product quality and price. Increase in price of production factors. |
Functionally-price
analysis. Compliance with budget limitations. Optimization of the transaction
conditions (by Pareto). |
|
TRANSPORTATION |
Increase of transport
costs. Supply schedule violation. Loss or damage of products during transportation. |
Delivery route
optimization. Dispatching and monitoring. Property insurance. Division of
responsibility between the participants. |
|
MATERIAL SUPPORT |
Imbalance (mismatch)
between delivery volume and needs. Inconsistency in quality of material
resources. Deficit or excess of reserves. |
Rationing of material
resources consumption. Input control. Operational procurement and optimal
reserve level maintenance. |
|
IN-PLANT LOGISTICS |
Disruption of production
cycle. |
Inventory management of
unfinished production. Preparation of materials for productive consumption. |
Picture 1 – Possible risks and
applicable management tools in supply chain
The methodology of risk analysis
combines two complementary approaches: quantitative and qualitative.
Quantitative approach is aimed at measurement of data. This allows
generalizations of results from a sample to an entire population of interest
and the measurement of the incidence of various views and opinions in a given
sample. After all, quantitative research is usually followed by qualitative
which aims to explore select findings further. Qualitative approach is
considered to be particularly suitable for gaining an in-depth understanding of
underlying reasons and motivations. It provides insights into the setting of a
problem. At the same time, it frequently generates ideas and hypotheses for
later quantitative research [1].
After the risk assessment is completed,
top-managers should take proactive measures to mitigate findings from the risk
analysis. They can choose to accept the risk, mitigate the risk, or transfer
the risk by purchasing insurance against the possible loss due to the risk. The
best solution is avoiding risks at all, but this is not always possible.
Anyway, there should be managed an effective supply chain protection, which
includes: basic standards for physical security, access controls, personnel
security, education and training, procedural security, information-technology
security, business partner security, and conveyance security from the point of
origin to final destination [2].
The most commonly used risk management
technique is a risk prevention based on forecasting. The forecast accuracy
depends significantly on baseline data: amount of information, degree of data
aggregation, demand variation (presence or absence of trend, seasonality),
current phase of the lifecycle and other factors determined by the long-term
dynamics. There are many different fore-casting methods and manager should
choose the most appropriate one and build plans according to it.
Another one planning technique is a
question positioning. It helps to consider different situations and thereby
prompts to get ready for them. As a part of complex planning process, question
positioning is included in other management conceptions, for example, in PDCA
cycle (Deming cycle). PDCA (plan–do–check–act) is an iterative four-step
management method used in business for the planning, control and continual
improvement of processes and products.
Risk mitigation mechanisms frequently
use graphical representations. Process mapping is a workflow diagram to bring
forth a clearer understanding of a process or series of parallel processes. The
most useful among them are: Deming's Total Quality Management model,
International Standard Organization criteria, Goldratt's Theory of Constraints,
Balanced Score Card [3].
Risk management focuses not only on the
risk mitigation. Risk treatment is the process of identifying opportunities for
treatment and control. The goal of this activity is finding ways to reduce or
eliminate negative consequences and reducing the occurrence of negative
probability. Risk treatment activities also aim to strengthen positive outcome
of business processes. Taking profit from the risk cannot be achieved without
involving all the members of work group and viewing a full supply chain cycle.
Six sigma is a disciplined, data-driven
approach and methodology for eliminating defects (driving toward six standard
deviations between the mean and the nearest specification limit) in any process
– from manufacturing to transactional and from product to service. It uses a
set of quality management methods, mainly empirical, statistical methods, and
creates a special infrastructure of people within the organization who are
experts in these methods [4]. This conception is widely used by foreign
organizations, but is not expanded to CIS countries.
The main problem of risk management
development in CIS countries is fragmentation of supply chain and separated
risk consideration: transportation risks, risks of outsourcing, warehouse inventory
management risks and etc. In foreign practice this stage of logistics has
already passed. While Kazakhstan (as well as other CIS countries) practices
research operational aspects of supply chain management, foreign countries
practice contractors and suppliers cooperation, research data availability
problems and manage global risks.
References:
1.
M. Lemke, A. Niekler, G. Schaal “Content Analysis
between Quality and Quantity”/ Datenbank-Spektrum Volume 15, 2015 – Issue 1;
2.
George A. Zsidisin, Gary L. Ragatz, Steven A. Melnyk
“Effective Practices for Business Continuity. Planning in Purchasing and Supply
Management”/ East Lansing, Mich.: Michigan State University, July 21, 2003;
3.
P.J. Singh, A. Smith, A.S. Sohal “Strategic supply
chain management issues in the automotive industry”/ International Journal of
Production Research, Volume 43, 2005 – Issue 16;
4.
T. Geoff “SIX SIGMA: SPC and TQM in Manufacturing and
Services”/ Gower Publishing, Ltd., 2001.