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Supply chain logistics risks: From the back room to the board room
Joseph L. Cavinato,
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To cite this document:
Joseph L. Cavinato, (2004) "Supply chain logistics risks: From the back room to the board room",
International Journal of Physical Distribution & Logistics Management, Vol. 34 Issue: 5, pp.383-387, https://
doi.org/10.1108/09600030410545427
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companies and organizations. The idea that every supply chain is made up of five internal
chain/network constructs is presented, and these are physical, financial, informational, relational,
and innovational. Further, four categorizations of relevant product/supply costs are presented as
are four types of supply risks.
After the supply shortages, urgencies, and inflation of the Second World War, risk and
uncertainty moved into the background of business thinking and decision-making for
several decades. Supply availability grew, if not in a home country it did from abroad.
Domestic and international transportation speeded up, it became more plentiful and
lower in cost. Communications technologies and use increased exponentially thereby
creating the impression that distances were shrinking and attendant problems could
more easily be addressed. Risk was a function handled by insurance specialists who
concentrated on facilities, employees, and export/import shipping losses.
.
Increasingly, major end of supply chain firms, in the form of large retailers and
major manufacturers, have so much buying power that their first and second tier
supply base is continuing to weaken financially. With the trend of supplier
rationalization, this places the buying company at increasing supply risk.
.
The food supply chains of the world are being examined for their porous and
exposed nature with thoughts of increased control and labeling as “secure
supply”.
Every one of these examples involve risk in the logistics of supply chains. Every one of
them is beyond the traditional risks of product being lost or damaged in transportation,
a warehouse burning or being flooded, or a supplier shipping low quality product.
With broader risks, the preparations for and protections against them become more
encompassing than in the past.
from one firm to the next. The risks here are through settlement process disruption,
improper investments, and by not bringing cost transparency to the overall supply
chain. Security in settlement processes involving accounts payable (purchasing) and
accounts payables (distribution) are the first areas of risk concern as are the
management of securitized accounts receivables in between the firms when this
mechanism is in use.
Informational sub-chains parallel the physical and financial chains through the
processes and electronic systems used for creating events and triggered product
movements and service mobilization. The essentials cover efficiency, security, and
access. A longer term risk involves the creation and investment into information
systems that are neither fully capable nor efficient for intended purposes and future
business needs.
Relational sub-chains relate to the chosen linkages between buyers, sellers, and
logistics parties in between them. A spectrum of relationships exist ranging from arm’s
length price ones on the traditional side to closer and more sophisticated ones that
include cooperative, collaborative, innovation focused, joint venture and vertical
integration forms. As was discovered by sales organizations as well as purchasing
departments starting in the late 1980s and early 1990s, each form of relationship in a
buyer-seller relationship can bring different forms of value for one or both. More
recently, supply chain management and purchasing managers have found the growing
need to build stronger internal linkages and relationships across others within the
same firm.
Innovational sub-chains map the discovery, flow, creation, and bring-to-market
processes both within a firm and involving suppliers and other outsiders. The supply
here is the creation and bringing to market a form of innovation for the benefit of the
firm. Physical supply chains have often been noted for anecdotal examples of how they
constrict or prevent innovation, but more recent attention has been directed toward the
more positive aspects of those relationships and information links which support
innovation. This is often a strong facet of new forms of purchasing in firms where new
product revenue is emphasized from year to year.
Agile logistics addresses supply chain risk (Christopher and Towil, 2001). Here, its
scope is generally around customer demand and matching manufacturing and logistics
capacity and capabilities to it. By viewing the supply chain in the contexts of these five
IJPDLM sub-chains, supply chain activity scope greatly extends to that of the business as a
34,5 whole.
risk of non-availability than value in use or sale. Leverage items represent those high
volume ones usually component parts of the firm’s finished products or services.
Finally, criticals are those high impact, usually new to the product life cycle, items that
provide today’s high margins. The relevant costs and associated risks of products and
services are different dependent on their positioning by both buying firms as well as
selling firms.
Figure 1.
Relevant product/service
supply costs
Supply chain
logistics risks
387
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Figure 2.
Product/service
supply risks
potential terrorists’ actions. With longer and more complex food supply chains, the
need for control is more challenging in this regard.
Some supply chain/logistics leaders are discussing the concept of applying
governance models across entire supply chains from third- and fourth-tier suppliers
through to ultimate customers and consumers. This requires the identification of each
and every step in the process, some forms of certification and oversight, definitions of
contractural requirements, models of enforcement, and creates yet another point of
intersection by supply chain/logistics through legal arrangements with suppliers and
customers.
Risk and uncertainty are evidence that the field is ever-broadening and the
practices, processes, concepts, theories must expand with it.
Notes
1. H.R. 3763, Sarbanes-Oxley Act (2002), Section 401(A), Disclosures in Periodic Reports;
Disclosures Required, Amending the Securities Exchange Act of 1934 (15 United States Code
78m).
2. A conference jointly held by the Institute for Supply Management and Accenture, Inc., St.
Petersburg, FL, June 23-24, 2003.
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Kraljic, P. (1983), “Purchasing must become supply management”, Harvard Business Review,
Vol. 61 No. 5, pp. 109-17.
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