SUPPLY CHAIN RISK MANAGEMENT

Dung H. Nguyen
Faculty of International Economic Relations
University of Economics and Law

‹#› Het begint met een idee

CONTENTS

 Introduction
 Risk management
 Supply chain risk mitigation framework
 Managing global risks

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INTRODUCTION – INTERNATIONAL SUPPLY CHAIN MANAGEMENT

 Dispersed over a larger geographical area

 Offers many more opportunities than just the domestic
supply chain
 Risk factors are also present

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INTRODUCTION – INTERNATIONAL SUPPLY CHAIN MANAGEMENT

 International distribution systems

o Manufacturing occurs domestically, but distribution and marketing
take place overseas.
 International suppliers
o Raw materials and components are furnished by foreign suppliers.
o Final assembly is performed domestically.
o In some cases, the final product is then shipped to foreign markets.
 Offshore manufacturing
o Product is typically sourced and manufactured in a single foreign
location.
o Shipped back to domestic warehouses for sale and distribution.
 Fully integrated global supply chain
o Products are supplied, manufactured, and distributed from various
facilities located throughout the world.

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RISK MANAGEMENT

 Risk management is the process for systematically identifying,

analyzing and responding to risks throughout an organization.
 Supply chain risk management is the process of systematically
identifying, analyzing and dealing with risks to supply chains.

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RISK MANAGEMENT – EXAMPLE

Source: McKinsey & Company (2020)

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RISK MANAGEMENT

 Outsourcing and offshoring  supply chain is geographically

more diverse and hence more exposed to various risks.
 Lean manufacturing and just-in-time  a progressive supply
chain and low inventory levels
o This type of strategy could result in a shutdown of production

lines because of lack of raw material or parts inventory.

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RISK MANAGEMENT – SOURCE OF RISK

Source: Simchi-Levi et al. (2009)

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MANAGING THE UNKNOWN-UNKNOWN

 Invest in redundancy
o Respond to unforeseen events
o Careful analysis of supply chain trade-offs
 Increase velocity in sensing and responding
o Can help the firm overcome unexpected supply problems
o Failure to sense could lead to failure to respond to changes in
the supply chain and force a company to exit a specific market

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MANAGING THE UNKNOWN-UNKNOWN

 Different responses of Nokia and Ericsson on a fire at one of

the supplier’s facility
o Supplier was Philips Semiconductors in Albuquerque, NM
 Nokia:
o Changed product design to source components from alternate
suppliers
o For parts that could not be sourced from elsewhere, worked
with Philips to source it from their plants in China and
Netherlands
o All done in about five days
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MANAGING THE UNKNOWN-UNKNOWN

 Ericsson’s experience was quite different

o Supplier was Philips Semiconductors in Albuquerque, NM
o Took 4 weeks for the news to reach upper management
o Realized five weeks after the fire regarding the severity of the
situation.
o By that time, the alternative supply of chips was already taken
by Nokia.
o Devastating impact on Ericsson: $400M in potential sales was
lost; $1.68B loss to Ericsson Cell Phone Division in 2000 
forced the company to exit the cell phone market
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MANAGING THE UNKNOWN-UNKNOWN

 Create an adaptive supply chain community

o The most difficult risk management method to implement
effectively.
o Requires all supply chain elements to share the same culture,
work towards the same objectives and benefit from financial
gains.
o Need a community of supply chain partners that change and
reorganize to better react to sudden crisis.

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RISK REDUCTION

 Operational risks:
o Strategic alignment

o Upstream/downstream supply chain integration

o Visibility

o Flexibility and redundancy

o Short replenishment lead times

o Small order lot sizes

o Rationing short supplies

o Everyday low pricing

o Cooperation and trustworthiness

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RISK REDUCTION

 Security risks:
o Access control

o Physical security

o Shipping and receiving

o Transportation service provider

o ISO 28000

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RISK MANAGEMENT PROCESS

1. Identify the sources of potential disruptions

2. Assess the potential impact of the risk
3. Develop plans to mitigate the risk

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SUPPLY CHAIN RISK MITIGATION FRAMEWORK

Source: APICS (2016) 16

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FRAMEWORK FOR BUILDING A RESILIENT SUPPLY CHAIN

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Source: APICS (2016)
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MANAGING GLOBAL RISKS

 Speculative strategy
o A company bets on a single scenario: Spectacular results if the
scenario is realized; Dismal ones, otherwise.
 Hedge strategy
Losses in part of the supply chain will be offset by gains in
o
another part
 Flexible strategy
o Allows a company to take advantage of different scenarios
o Designed with multiple suppliers and excess manufacturing
capacity in different countries
o Factories designed to be flexible

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SUPPLY CHAIN RISKS AMID THE CORONAVIRUS OUTBREAK

 Lockdowns cause labor and supply shortages in factories

 Regulatory uncertainty slows the restart of factory operations
 Public health requirements impact industrial operations
 Closed borders delay movement
 Provincial border checks exacerbate trucking shortage
 Labor shortage causes congestion at airports and seaports
 Limited air and rail cargo capacity to increase prices
 Ripple effects felt across supply chains overseas

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 SUPPLY CHAIN RISK MANAGEMENT

THANK YOU!

‹#› Het begint met een idee