Lecture 9 - Supply chain risk Flashcards
What is the equation for risk?
Risk = Probability x Severity
Name an example where the design of a supply chain has determined the outcome of a disruption?
Nokia and Ericsson.
Nokia = Supplied by many Phillips plants not just New Mexico plant, able to adapt models to meet demand.
Ericsson = Experienced major backlog and delays, causing them to go out of manufacturing phones singularly.
Name some supply chain risks (Chopra and Sodhi, 2004)
Disruption Delays Forecast Intellectual Property Systems Procurement Receivables Inventory Capacity
What are the causes of disruptions?
- Natural disaster
- Labour disputes
- Supplier bankruptcy
- Act of war
- Terrorism
- Nationalisation
Why are supply chains increasingly vulnerable?
GLOBAL SOURCING - Increasing number of handoffs, not necessarily location.
LEAN OPERATIONS - Reduced inventories.
SUPPLY CHAIN COMPLEXITY - Globalisation and outsourcing.
SUPPLY BASE REDUCTION - Prevalence of sole sourcing.
Where can supply chain disruptions occur?
PROCUREMENT (SOURCE)
Suppliers can be affected by disaster and has to reduce a product or a strike so faces labour disputes.
OPERATIONS (MAKE)
Factory is damaged (eg Bangladesh fire)
Labour disputes
LOGISTICS (DELIVER)
Extreme delays - roads to distribution cnetres may be disrupted
Name an example which demonstrates how bad disruptions can be
JAPANESE EARTHQUAKE
- Toyota profit and value plunged by 77% and 7.9%
- Nissan lost 6.5%
- Toshiba lost 16%
Price of the yen decreased, stock market reaction.
- Cost of rebuilding factories
- Supply chain disruption
- Unfulfilled orders
How can disruptions be prevented?
MULTIPLE SOURCING
eg: 2000 lightning strike New Mexico caused disruption at Phillips plants. Nokia used multiple sourcing so ok, Ericsson used single sourcing so production stopped.
BUILDING INVENTORY (serves as a buffer)
DIVERSIFICATION
How to prevent delays?
Hold more inventory
Supplier diversification
Manufacturing diversification
Excess (flexible) capacity - eg Toyota employees being flexible.
Alternative ways to ship parts - eg high value components shipped by air.
What are forecasting risks?
Errors in forecasting occur when there is a difference between expected and realised demand.
- Unfulfilled demand (opportunity costs)
- Unsold products (costs)
What are delay risks?
More common but smaller than disruptions, delays are detrimental to supply chain function and can cause backlogs.
How can forecasting risk be mitigated?
BUILD INVENTORY
- Sometimes good for functional products
- Not good for innovative products
IMPROVE FORECAST
- Get online info directly from retailer
- Share info with suppliers
- Invest in ICT
POSTPONE ASSEMBLY
- Mix and match components
- Avoid unsold parts
- Not so great for finished goods
How can forecasting risk be REDUCED?
AGILE MANUFACTURING
If selling more/less than expected, increase/decrease capacity.
- Keep some spare manufacturing capacity available
- Flexible contracts with manufacturers
- Shift manufacturing resources to another product
What is intellectual property risk?
Risk of items being copied by others.
eg: Fake bags, shoes, products
eg: Burberry not copyrighting print
What is the model of supply chain risk management?
0 - Prioritise category
1 - Map supply chain (through bill of materials)
2 - Identify sources of risk (demand, supply, environment, network)
3 - Prioritise risk (use Failure Mode and Effects Analysis)
4 - Develop mitigation strategies
5 - CI activities
