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Operations Article | Managing the Global Supply Chain

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Managing the Global Supply Chain: A Risk Measurement Perspective

- by Krishnakanth K. K. & Pankaj Ghai *

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Page - 10

Risk Mitigation10

Before constructing a supply-chain risk management strategy, a multi organization level shared understanding of supply-chain risk needs to be created. A typical two step approach is suggested:

  • Stress testing is a group exercise that helps managers and their companies understand and prioritize supply chain risks. "What if" scenarios help key players focus on the supply chain one link at a time. This strategy offers an especially effective way to gain buy-in and shared ownership in project teams tackling supply-chain risk.

  • Tailoring Risk Management Approaches: For this, the different types of risks mentioned above have to be identified and the following general risk-mitigation may be adapted according to the situation.

    Mitigation Approaches and Tailored Strategies

    Mitigation Approach Tailored Strategies
    Increase Capacity

  • Focus on low-cost, decentralized capacity for predictable demand.

  • Build centralized capacity for unpredictable demand.

  • Increase decentralization as cost of capacity drops.

    		•
    Acquire Redundant Suppliers

  • Favor more redundant supply for high-volume products, less redundancy for low-volume products.

  • Centralize redundancy for low-volume products in a few flexible suppliers.

    		•
    Increase Responsiveness

  • Favor cost over responsiveness for commodity products.

  • Favor responsiveness over cost for short lifecycle products.

    		•
    Increase Inventory

  • Decentralize inventory of predictable, lower value products.

  • Centralize inventory of less predictable, higher value products.

    		•

    Next

    10 Sunil Chopra and Manmohan Sodhi, "Managing Risk To Avoid Supply Chain Breakdown", MIT Sloan Management Review, Fall 2004.


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    * Contributed by -
    Krishnakanth K. K. & Pankaj Ghai,
    PGP Students.
    IIM Lucknow.

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