SCMG502 Week 6 Discussion
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American Public University *
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502
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Industrial Engineering
Date
Jan 9, 2024
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docx
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Good even fellow classmates and professor,
The primary purpose of any supply chain is to meet the needs of the customer while also generating profits in the process. Depending on uncertainty, supply chains are designed to either be responsive to customers, or efficient. Therefore, a supply chain’s effectiveness is related to how responsive a company is to customer demand and efficiency is how supply chains can execute their functions to meet that demand in a cost-effective manner and find a balance between the two concepts for supply chains to thrive. However, there is always the potential for risk to present itself that can pose a threat to the purpose of supply chains. Supply Chain experts Heckmann and Nickel (2014) define supply chain risk as, “the potential loss for a supply chain in
terms of its target values of efficiency and effectiveness evoked by uncertain developments of supply chain characteristics whose changes were caused by the occurrence of triggering-events.” Triggering events are what the different risks can fall under. These events include disturbances, disruptions, disasters, and hazards (Heckman & Nickel, 2014). Disturbances are deviations from supply chain norms, disruptions threaten the normal processes in business operations, disasters can be from natural/man-made disasters like weather or outages, and hazards like contamination or pandemics. Additionally, there are many internal and external risks
that can be subcategorized into primarily operational and financial risks that risk drivers that include supply delays, demand fluctuations, price fluctuations, and exchange rate fluctuates (Chopra, 2017, p. 143). Operational risks have internal risks that come from within a supply chain involving processes, people, systems, which can all be influenced from external factors as well. Financial risks in global supply chains have a lot of external risks that deals with losses from market price movements, debt payments, exchange rates, and all costs influenced from policies and regulations from international trading (Heckmann & Nickel, 2014).
There are different risk mitigation strategies that can be implemented when dealing with a certain type of risk. One primary example that was seen with the pandemic was the dependency
on single suppliers that created disruptions in supplying customer demand from regulations restricting international trade. A good mitigation strategy would have been for companies to have
multiple suppliers that would mitigate the risk of those disruption from just having only one supplier. In addition, another risk mitigation strategy for this scenario would have been to increase inventory of the lower-value products that were needed like hand sanitizer and toilet paper to mitigate stock-outs. However, the price of these mitigation strategies could increase other risks like potential cost increase from using different supplier that can’t achieve economies of scale, or the risk of obsolescence from the mitigation strategy of increasing inventory of other types of products (Chopra, 2017, p.144). Some of these operational risks can increase the financial risks of incurring more expenses from the potential increasing costs in different areas of the supply chains. Thus, it is critical to find a balance between how much risk should be mitigated compared to any increases in costs for supply chains. Finding a balance may consist of combining different mitigation strategies to not increase other risks, as the best approach for supply chains to maintain efficiency and responsiveness.
References
Chopra, S. (2017). Supply Chain Management: Strategy, planning and operation
(7th ed.). Pearson Education.
Heckmann, I., & Nickel, S. (2014). A Critical Review on Supply Chain Risk – Definition, Measure and Modeling. Omega. 52. 10.1016/j.omega.2014.10.004. https://www.researchgate.net/publication/267628434_A_Critical_Review_on_Supply_Cha
in_Risk_-_Definition_Measure_and_Modeling
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