CONTRIBUTION BY TOM CRAIG – SUPPLY CHAIN AND LOGISTICS CONSULTANT AND PROFESSIONAL AT LTD MANAGEMENT
Supply chain risk gets global attention. The World Bank and World Economic Forum comprehend the issue and its importance.
The term covers broad issues and narrow topics. Insurance companies talk about supply chain risk in terms of assets. Others talk about sources for particular products. Some take a near-apocalyptic view. These diverse interpretations make identify risks more challenging.
Surprisingly, many supply chain risk discussions exclude the actual supply chain. They do not recognize logistics infrastructure, logistics service providers, and how products move through supply chains. Many times, a picture, such as a ship, is used to show the “supply chain”. As a result, they overlook risks.
These also do not present the information supply chain and how it affects movement of goods. Nor are Incoterms mentioned and what they mean to buyers versus sellers controlling the passage of goods. Yet, such details can cause risk.
Three key components of supply chains are:
- Product / material / commodity / component sources
- Logistics infrastructure
- Logistics service providers
Supply chains originate at their sources; those are often factories. For commodities, such as food, there are multiple sources, the actual farms and the locations where the food is processed, chilled, frozen, or however treated. In those cases, both places should be included in the supply chain scope. Also, the review should continue through to destination delivery.
Causes: There are many kinds of risk – organizational, operations, strategic, and commercial. Causes can be pervasive. These disrupt the availability of products or their flows. They vary by products and industries and include:
- Natural disasters
- Inadequate logistics infrastructure
- Logistics service providers bankruptcies, mergers, or other actions that impact the supply of and ability to provided needed services
- Infrastructure breakdowns
- Company management
- Logistic service providers that do not operate and perform as needed
- Improper or unmanaged outsourcing
- Bottlenecks / Congestion
- Combinations of the above
Risk is also caused by the trade parties. Buyers and sellers in their pursuit of best prices or their lack of understanding supply chains create risk.
Model: The supply chain risk model blends principals of supply chain management.