- May 22, 2020
Risks in Supply Chain Management
Risksin Supply Chain Management
Risksin Supply Chain Management
Businessenterprises that expand their supply chains to the global level mayexploit tangible success, and are assured of lower costs. However,they expose themselves to several supply chain risks such as thoserelated to natural catastrophes and issues of quality control. Forexample, in the year 2011, Japan experienced severe earthquake,tsunami, and nuclear calamities, and that caused considerabledisruptions to its automobile sector, which in turn led to problemsin the international electronic manufacture (Christopher,2016).In other words, as long as a company operates in several countries inthe world, it faces such risks as the ones mentioned above, and thatimpacts the production and distribution of its commodities. Manysolutions have been proposed to counter such constraints, andexamples include accurate forecasting, using clear procedures, andimproving the effectiveness of the supply chain. Therefore, thispaper details the risks of supply chain operations and theinterventions in place to ensure that global businesses functionnormally. Furthermore, the paper utilizes China’s Swire Beveragesas a case to analyze the risks and corrective measures regardingsupply chain operations.
WhatSupply Chain Management Entails
Supplychain management-SCM is increasingly becoming important for companiesand researchers. It defines the integrated procedure that involvesthe working together of business entities such as the manufacturers,suppliers, retailers, and distributers. That partnership aims toensure that there is proper planning, coordination, and controllingof the flow of commodities from the producers to the clients.Specifically, the chain comprises of two specific flows namely theforward flow of goods, and the backward flow of information(Christopher,2016).With respect to that, there are several decision areas that must beconsidered in the SCM, and these include: location, production,inventory, and transportation. First, the decisions on location aredriven by the demands in the marketplace as well as theacknowledgement of the satisfaction of customers. Hence, decisionsare made for strategic positioning of the business, facilities fordistribution and stocking, and market proximity. Second, strategicdecisions concerning production concentrate on what the clients needand the demands of the market. Hence, what to produce, the quantityto avail, capacity of production, the most desired quality, and thevolume of products that would ensure that the demand of the customersis successfully satiated (Christopher,2016).
Third,decisions that focus on inventory take keen consideration of thequantity of goods to be kept in-house. Thus, most decisions made aremeant to enable the consumers to derive satisfaction with thefluctuating demands in the market. Nevertheless, regulation policiesare considered to verify the right levels of supplies in terms oforder and reorder points such that the clients’ satiation levelsare maintained high. Finally, transportation decisions, thoughclosely associate with those of the inventory, are aimed to ensurethat the products reach the consumers at the desired place, on time,and in the recommended quality and quantity. It is upon the companyto select the means of transportation (air, road, water, e.t.c) if itis located far away, or to move its operations closer to the marketif the location is assessed and determined as strategic (Christopher,2016).
RisksRelating to Supply Chain Management
Thecomplex nature of SCM requires that the businesses assess the variousforms of risks involved as well as the factors that bring about suchchallenges. There are three major risk categories as far as the SCMis concerned. These include the supply risks, the demand risks, andthe operational risks. Supply risks pose significant barriers thatprevent the supply chain from meeting the market demand with respectto quantity alongside the quality of parts and finished products.These forces, upon their manifestation, results in a situation termedas the supply disruption (Christopher,2016).Conversely, demand risks adversely affect the outbound supply chaincomponents, and the outcomes are as a result of the fluctuation ofthe demand in a manner not predictable by the company, especially ifthe forecasting performed by the business is ineffective. The outcomeof such a trend is referred to as the demand disruptions. Finally,there are the operation risks, which are seen to affect the supplychain elements. Consequently, the capability of the chain to supplyessential services and parts or finished products is impaired,meaning that the enterprise is unable to meet the market requirementsof time, cost, and quality. In the current systems, transportationand quality control matters are the most outstanding operationalrisks (Christopher,2016).
FactorsImpacting Supply Chain Risks
Themost common factors the impact the risks observed in the supply chainare geopolitical, technological, environmental, and economic matters.Each of these elements has tangible probability of bringing aboutdisruptions in the supply chain at the global domain, which ratesfrom high to low. Similarly, there are mitigation levels related witheach outcome, and that varies from uncontrollable (e.g. naturalcatastrophes like the earthquakes), to controllable, where theorganization involved can influence the issue that causes disruptionsto ensure success in the SCM (Christopher,2016).
Environmentalissues are perhaps the most felt sources of supply chain disruptions,and least controlled through mitigation, that is, they areuncontrollable. Natural disasters (earthquakes) and extreme weatherconditions (e.g. rise in sea level) fall in this category. In Japan,the 2011 earthquake disrupted the supply chain of the automobileindustry, contributing to high losses incurred. Pandemics are alsomapped as potential environmental factors the cause risks, and thereis uncertainty concerning the possibility of having them remedied(Christopher,2016).
Themost felt factors under geopolitics include trade restrictions orlegislations and political instability or war/conflicts. Businesseswhich operate in politically unfavorable settings are likely to failbecause there is tension that limits the chances of a customerpurchasing the products. Other geopolitical factors includecorruption, piracy, and theft and illegal trading. The black orillegal markets, for example, can pose serious threats to the supplychain because such avenues create an atmosphere of unhealthyrivalries in which the competitors supply complementary goodscheaply. However, the companies tend to have considerable controlover these factors, that is, geopolitical issues are controllable(Christopher,2016).
Themost incisive economic issues are linked to demand shocks, which aremostly characterized by unpredicted shifts in economic and orpolitical compartments. Furthermore, the volatility of price isanother area of threat because it impacts the input costs. Othereconomic factors to watch include border delays, energy shortages,and the fluctuations of currency. Where there are border delays, maybe due to wars or tax issues, there will be a slow-down in the rateof transportation of products, which is one of the major areas offocus of supply chains. Like the factors of geopolitics, the playersof the supply chain can control the economic threats on theiroperations. For example, the trade restrictions formulated by thegovernments can affect the supply chain, but the company has theability to comply or to mount pressures, which would compel thegovernment to change the price legislations if they are deemedunfavorable (Christopher,2016).
Althoughthere are mild challenges related to infrastructural failures, themost common technological threat regards the disruptions of theInformation Communication Technology (ICT). Any failure in the areaof ICT results in automatic breakdown of the supply chain, whichutterly relies on information technology to run most of itsactivities. Earnestly, SCM is so complex that it requires a stablecommunication platform for relaying backward information about thestatus of the market it serves. Consequently, IT has become anintegral part of the system, and any hindrance to its functionalitywill result in a disrupted flow of information, hence the failure ofSCM (Christopher,2016).
Solutionsto Supply Chain Risks
Accordingto Christopher(2016), thereare three major action areas that can help in the management of thechain management risks discussed above. First, the industries andsupply chain players must work towards ensuring theta there isvisibility and value chain alignment towards the eventual objectiveof providing the goods to the client. For visibility to be in placethere must be a total comprehension of value flow along the chain.Hence, businesses must be aware of the weak links in the operations,e.g. by conducting a risk assessment, and adopt the relevantmeasures. Second, the ownership of the whole chain should be in a waythat it is possible to tackle the risk along the chain. Hence, theindividual achievements and incentives should be aligned for theattainment of the overarching objectives, without limiting theactions to functional excellence. Finally, the skills and competenceswithin the supply chain must be put in place to ensure that decisionsrelating to location, inventory, production, and transport areaccurately made (Christopher,2016).
SupplyChain Management, the Case of Swire Beverages Company
SwireBeverages serves as the holding firm of Swire Coca-Cola Company,which bottles all the brands of the soft drinks of the Coca-Cola inthe city of Hong Kong. Its wide brand portfolio permits it to presentboth carbonated and non-carbonated non-alcoholic drinks to in themarket. However, the rapid expansion of the brands of the Coca-Colabusiness mounted pressure on the bottling network facilities of theSwire, which initially used manual systems (Schnitger,2016).To keep pace with the predicted expansion of Swire’s bottlingfacilities in China, and also the growing complexity of itscommodities and the supply chain, the company required remedies.Swire also encountered rising demands for customer services, hencethe need for a new supply joint to meet the market demand.Furthermore, the seasonality of the soft drink industry, alongsidethe challenges in forecasting the market trends, presented tangibleproblems to the operation. Consequently, the Swire adopted thefollowing interventions to ensure that it functioned appropriately asa supplier of the Coca-Cola brands (Schnitger,2016).
Swireoptimized its chain operations by synchronizing with the real-timecustomer demand across all the channels. Hence, it chose the JDAsoftware for the SCM, and was successful in controlling its 10bottling plants, 47 beverage factories, 75 lines of production, morethan 153 distribution centers, and at least the 2700 supplies andlogistics affiliates found in China. Using JDA, the company canaccurately forecast and predict the trends in client demand, and alsohelp in the maximization of sales. Furthermore, the incorporation ofJDA enabled Swire to share information over the website, and it alsoassisted in the optimal planning of capacity and sourcing whileconsidering the costs and challenges across the entire chain.Furthermore, the company introduced JDA sequencing to help in theoptimization of resources and materials in all the stages ofbottling, and it improved the factories by lessening the changeoversas well as perfecting the product combinations of the respectivebottling lines (Schnitger,2016).
Besides,Swire sufficiently managed its expansion while also working to betteror maintain the primary supply chain metrics. Consequently, thecompany recorded a 24% growth in forecasting accuracy and a rise of10% success in the production line alongside the decline in itsout-of-stock incidence by 75%. Due to the initiated low inventory andstock-out levels, the clients enjoyed an increased availability ofdrinks in the market. Furthermore, the company managed processconformity across all the chain operations, which was alsocharacterized by a rise in the generation of revenue, the increase inthe value of shareholder, and an improvement in the effectiveness ofthe operations. Since entering a partnership with JDA, the sales ofbeverages by the company has risen in China, recording yearly growthrate of 11.6% between 2002 and 2011 (Schnitger,2016).
Additionally,the business realized the significance of incorporating patentinformation technology (IT) systems in the improvement of the SCM.Consequently, the firm has an APS (Advanced Planning and Scheduling),which is an IT system that helps in the easy flow of information inthe entire supply chain. Furthermore, through innovation, Swire isworking tirelessly to have its supply chain fine-tuned. While usingthe JDA solutions, the company aims to develop a vendor managedinventory system between the non-carbonated supply chain of Coca-Colaand the Swire. That would permit the companies to share inventories,decrease out-of-stocks, and make the supply chain better (Schnitger,2016).
Finally,Swire has successfully coped with the speedy expansion in terms ofcomplexity and sales volume in the presence of the more demandingclient service levels. It has simultaneously enhanced or maintainedevery part of its primary chain metrics. The principles upon whichthe company based the enhancement of its supply chain initiativesinclude teamwork, clear procedures, effective communication, andquality production and branding. Its success shows the significanceof an efficient SCM. From the strategy to the operational level, thecompany synchronized the network of its supply chain, overcame thechallenges of operation, and retained its leadership position in theotherwise highly aggressive beverage sector in China (Schnitger,2016).
Businessenterprises that expand their supply chains to the global level mayexploit tangible success, and are assured of lower costs. However,they expose themselves to several supply chain risks such as thoserelated to natural catastrophes and issues of quality control. Fromthe above discussion, it is obvious that the supply chainmanagement-SCM is increasingly becoming important for companies andresearchers. It defines the integrated procedure that involves theworking together of business entities such as the manufacturers,suppliers, retailers, and distributers. SCM is a complex systemcomprised of several decision areas that must be considered and theseinclude: location, production, inventory, and transportation.Similarly, there are risks related to SCM, and they include thesupply risks, the demand risks, and the operational risks. Thecausative factors for the risks above are geopolitical,technological, environmental, and economic matters. Each of theseelements has tangible probability of bringing about disruptions inthe supply chain at the global domain, which rates from high to low.Although these problems are real, businesses that implement soundcorrection strategies often end up with the best functioning supplychains. For example, Swire Beverages Company utilized APS and JDASoftware IT tools to ensure that its location, inventory, production,and transportation processes reinforced each other and that earnedthe company a better competitive advantage in China.
Christopher,M. (2016). Logistics& supply chain management.NY, United States: Pearson Higher Ed.
Schnitger,P. (2016). Coca-Cola in China: Will Their Brands Survive in ThisChallenging Market?. In MarketEntry in China (pp.183-195). New York, U.S.: Springer International Publishing.