Supply Chain Management 3

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Supply Chain Risk Management


Supply Chain Risk Management


Supply Chain Risk Management (SCRM) is seen as among the main topics that need to be addressed about the Supply Chain Management (SCM). Admittedly, the increased terrorist attacks, the increased number of weather related/man-made catastrophes, as well as the spread of diseases and viruses have led to the more exposed vulnerability of complex as well as globalized supply chains. In this way, studies have tried to find systematic and structured concepts for risk management within supply chains. Despite the reality that researchers have come up with different approaches in order to reduce the lack of sensitization and awareness towards the underlying risks in supply chains, it must be agreed that there exists methodological gaps in not only conceptual and empirical but also industry-specific research. According to Jüttner et al. (2003), a framework of incorporating most significant aspects and strategies the establishment of a common set of definitions is yet to be developed, which makes the SCRM field seem somehow chaotic and disorganized. In this way, supply chain risk focuses on any likely negative consequence, both expected and unexpected in the process of extending message, materials, as well finances from the supplier to the end consumer. . Admittedly, over the last few decades, the last few years, (Christopher et al. 2014) weapon and information systems There have been different definitions provided by many scholars in relation to Supply Chain Risk Management. The Supply Chain Risk Management refers to the management of supply chain risk by coordinating and collaborating among the partners supply chain in ensuring continuity as well as profitability (Tang, 2006).In simple defense and security issues, SCRM can be defined as a discipline of management that seeks to address the threats as well as vulnerabilities of commercially acquired communications and information technologies within and used by government

The major intention of Supply Chain Risk Management (SCRM) is to reduce the risk consequences of hazardous events through the increase of supply chain resilience, which refers to the ability of a system returning to the previous state or changing to a new and more desirable one after it has been disturbed (Finch 2004). At the same time, SCRM seeks to reduce the vulnerability of the system or reducing the exposures to extreme disturbances that arise from risks in the supply chain including risks that come from external sources (Christopher 2011).

In order to ensured that vulnerability to expected and unexpected risk in supply chain systems is reduced, different scholars provide varying solutions (Tang 2006). However, majority of the scholars have seemed to be agreeing on the reality that the processes of risk management should be divided into three categories for effective risk management. The three stages of risk vulnerability reduction involve identification, assessment, and mitigation of risks (Jüttner et al. 2003).

Risk identification refers to efforts of discovering the sources of risks, events that trigger the occurrence of such risks, as well as identifying the early signs or indictors in the supply chain, which may lead to the vulnerability (Christopher et al. 2011). The objective is to consider the relevance of these factors for further steps to be taken. Notably, another important issue under identification of risks is the categorization of risks since different categories provided a general outlook of risks, which are inherent in the supply chain. Accordingly, risks can be categorized into two groups (Leeman, 2010). The first category is the supply-demand coordination risk, which refers to the operational risks that may occur due to the existence of imbalance between supply and demand. Secondly, risks are categorized into disruption risks, which are related to the unforeseen events that lead to the interruption of normal business operations. In some instances, these two ways of categorizations are referred to as the operational catastrophes and strategic uncertainties respectively. According to Manuj, Mentzer (2008), Jüttner et al. (2003), Christopher, and Peck (2004), the risk categorized shows be done by dividing them into four or more types. In most cases, such categorization include the supply risks, customer-induced demand risks internal risks, and environmental risks that are not included in the supply chain such as resource risks, policy risks, ecological risks, macro-economic risks as well as issues of security .

On the other hand, assessment of risk is mostly reliant on the quality of the preceding step since evaluation can only be done on only risk consequences whose sources have been identified (Hugos, 2011). In this way, the main activity involves collecting as well as analyzing necessary data that is helpful in estimating the timing, possibility of risk occurrence, and evaluation of severance of the impact after risk event have been triggered. Subsequently, it is prudent the consider the prioritization on specific risks as well as dedicating limited resources to such concerns (Jacoby, 2010). However, it is clear that risk consequences mostly overlap in timing as well as sources, which impedes the objective treatment using scientific measures (Lambert 2008). Notably, contrary to the process of identifying risks, this strategy is mostly of quantitative basis and it relies on the statistical methods as well as historical data in calculating the likelihood of occurrence of risk events and the impact of their severity.

Finally, the data that has been collected and evaluated in the above steps is used in developing the suitable countermeasures including strategies of mitigation, which can be implemented before the risk event (Oehmen et al. 2008). However, the contingency places should be applied after the risk event. According to Jüttner et al. (2003), the a-priori prevention is mostly less costly as well as more effective compared to the treatment. The main functions involved in risk mitigation entail the analysis of related benefits and costs of the required investments. Jüttner et al. (2003) notes that there are four strategies of mitigation, which include cooperation, control, avoidance, and flexibility.

Notably, one can mitigate various risks thought selectively dropping specific suppliers, products, and client out of the entities of portfolio or exiting the entire market (Manuj & Mentzer, 2008). At the same time, risk can as well be actively controlled by integrating the supply chain, buffer capacity or inventory, hedging using speculation aspect on the insurance or financial market, as well as diversifying the supplier portfolio. using cooperation especially when it comes to the information visibility through off-shoring or outsourcing as well as supplier development, it is possible to transfer and share critical upstream risks in the chain of supply. Finally, currently increasing feasibility seen as one of the major countermeasures for any risks through application of processes such as multiple postponement, multiple and localized suppliers with flexible contracts. The objective of mitigating risks is the reduction the potentiality of risk occurrence as well as lowering the adverse impacts that could be experienced on the supply chain after risks have occurred. The bottom line is that if an institutions is able to apply all the above process, the vulnerability to risks will be highly reduced.

The Role and Importance of Supply Chain Risk Management

Evidently, significant interruptions to global supply can lead to major disruptions. Notably, such disruptions can make an institution’s revenue reduce drastically as well as sending capital costs rocketing. At the same time, the market share of a firm can be tremendously cut, soar costs over budget, threaten real time production, as well as distribution of products. Admittedly, it is not possible to sell products if they are not manufactured or delivered. Therefore, a firm or institution’s credibility with investors, clients, and stakeholders is adversely affected.

Based on the above observation, one of the benefits of having supply chain risk management is to caution against revenue disruption (Oehmen et al. 2008). In a recent study involving more than over 600 top financial executives, it was found that most senior leaders are concerned of the supply chain disruption. Most of the top financial executives cited disruption of revenue as the greatest potential risk in their respective businesses. However, it must be noted that this reality is replicated in any other institutions across the globe. The core role of any venture is to make profit. Therefore, disruption of the supply chain poses a great threat to this main objective. Additionally, the disruption of revenue resulted into business instability that could take up to one year before recovering, which is dependent on the magnitude of business and extent of disruption. Therefore, in reference to this reality, supply chain risk management is not only justified, but also intrinsically essential.

The global supply chain systems are currently facing different types of threats (Coyle et al. 2012). In this way, SCRM is instrumental in helping institutions and individuals cope with such threats before they occur. The nature of threat that poses risks to supply chain systems include currency based, political, cyber-attacks, among other risks. Notably, such threats can come from every which-way, especially with supply chains being as large and globally convoluted as they now are currently.

Understandably, it should be emphasized that prevention is better than cure. In relation to this philosophy, the most suitable way to deal with any harm to not only an institution but also the society is to prevent it. Some firms use Six Sigma in preventing quality problems, which can as well be applied in significantly reducing the likelihood of supply chain disruptions.

Finally, through SCRM, governments and institutions are able to make sound decisions. For example, before starting any venture institutions are able to analyze the viability of projects by listing the risks involved and the likelihood of them happening. Therefore, SCRM is crucial in helping governments to make well-informed decisions in light with the different types of risks involved.

In defense systems, one of the greatest risk in the world today is the cyber-attack. Traditionally, maintaining network security has been the biggest concern of global security, at an individual, institutional, or government levels. Over the last few years, network security has evolved with network-based defense techniques such as firewalls, encryption and intrusion detection systems. Although security organs have enhanced heir systems, cyber-attack remains the greatest threat to global peace both from within and outside security institutions.

The Relevance of Current Research in SCRM In Relation To Defense Industry

Under increased uncertainty, it has become more critical to manage supply chains (Oehmen et al. 2008). Stakeholders have raised alarm over insecurity issues especially due to terrorism threats across the global. Experts note that most measures of anti-terrorist will lead to the reduction in the reliability of the network, which has been challenging processes of supply chain management. Admittedly, longer supply lines as well as system uncertainties are not new problems for managers of supply chains. Over the last decades, institutions have reduced the number of suppliers thus coming up with programs that lead to healthier associations with less and key suppliers.

In addition, it is critical to note that there are variations that are associated to the processes of mitigating threats. Accordingly, it is prudent to track supply chain risk drivers after risk assessment. On the other hand, Manuj and Mentzer (2008) have listed selection as well as implementation of risk management strategies as critical activities prior to the execution of any risk mitigation. At the same time, Christopher et al. (2011) have stressed out that the importance of establishing a culture of risk management at board level, understanding the design of one’s supply chain as well as the willingness to reengineer the supply chain. According to Christopher et al. (2011), such efforts are as crucial as the actual risk management processes.

In curbing the risk of experiencing threats in a local, regional, or global scale, security firms and governments have embarked on E-procurement services, which are aimed at reducing corruption. In this way, firms are able to reduce instances of where officials are compromised by corrupt individuals or entities. At the same time, study has shown that in order to reduce threats, security considerations must push firms and governments to do away with the public exchanges and replace them with private auctions, which thus dealing with only known or pre-screened suppliers. Experts also advice that security organs will have to abandon auctions altogether in favor for long-term relationships with specific suppliers.

In order to have low risk supply chains, corporates need to work together with governments such as in sharing of information. Private entities can therefore use the vast government expertise on the nature of threats and ways to deal with them. However, it must be appreciated that most multinational companies have presence in many parts of the world. Consequently, such firms can provide governments with relevant information for national defense purposes.

Extent of SCRM in Current Defense Industry

Evidently, one of the most progressive case studies is the steps that the United States took after the September 11, 2001 terror attack. The impacts of the attack and measure therein challenged supply chain managers to adjust relations with their suppliers as well as customers. The supply chain managers had to contend with difficulties of transportation as well as amending inventory management strategies. The US government started settling into new long-term realities, which were marked by added administrative costs, added security costs, and longer and less certain transportation times.

Further, since the attack, many US and European companies begun reconsidering using overseas suppliers. Consequently, offshore suppliers were seen as being less expensive, though they required longer lead-time as well as more susceptible to disruptions in the system transportation. In dealing with such eventualities, companies have come up with different strategies such as pooling risks together, working closely with governments for security concerns and sharing of information, as well as enhancing inventory management.


In reference to the above analysis, it is clear that supply chain risk management is instrumental in ensuring that security departments, agencies, and institutions are able to deal with seen and unforeseen risks. The current terrorism threats in the world makes supply chain risk management even more intrinsically critical.


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