Supply Chain Risk Management

Assignment 3 — Analysis of Case Study

Table of Contents

1. Introduction 3

2. Supply Chain Risk Management (SCRM) 3

3. Role and Importance of SCRM in Effective Management of Complex Systems Support 5

4. Relevance of Current Research in SCRM in Relation to Defense Industry 6

5. Inclusion and Management of SCRM in Current Defense Industry Projects 8

6. Conclusion 9

References 9

1. Introduction

According to Jüttner (2005), if a disruption occurs in any activity of a supply chain, then it affects the ability of a corporation to continue its operations, i.e. to send send the finished goods to the market or to offer key services to its customers. These disruptions are risk for an organization and they can generate adverse consequences to deal with. The major consequence is the financial consequences, in which a firm has to look for its cash flows, expenses and profits and is very concerned about it. Another consequence is the negative impact on the health and safety areas. For instance, if disruption has occurred and it has deactivated the moving ability of a firm to transfer its goods from one place to another, then there are chances that the goods will not be delivered on time. If the goods are perishable, then it will lose its worth and will form negative effects, if consumed. Another major consequence is the reputation damage for an organization that may appear after the delayed delivery of goods and services. This report is composed of four areas of the Supply Chain Risk Management, i.e., its definition, its role and importance, its relevance to the defense industry and its inclusion in the defense industry.

2. Supply Chain Risk Management (SCRM)

The application of strategies and practices to handle day-to-day risks and exceptional risks in the supply chain for the incessant risk assessment in order to eliminate vulnerabilities and to ensure the continuity of operations is known as the Supply Chain Risk Management [ CITATION Wie13 l 1033 ]. In SCRM, several tools and techniques are applied to tackle the uncertainties and risks that are impacting on the resources or the activities, which are related to the logistics, in the supply chain
[ CITATION Rit07 l 1033 ]. SCRM is the intersection of the Risk Management (RM) and the Supply Chain Management (SCM). Risk and uncertainty are the prime elements that are associated with the Supply Chain Risk Management. Risk is considered as an uncertain and unreliable resource that creates interruption in the supply chain. Whereas, uncertainty occurs in the supply chain process as a matching risk at the time of demand and supply [ CITATION Tan11 l 1033 ].

Supply Chain Risk Management

Figure 1: The Constructs of the Supply Chain Risk Management [ CITATION Jüt03 l 1033 ]

There are four constructs of the Supply Chain Risk Management, they are risk sources, supply chain, adverse supply chain risk consequences and mitigation strategies of supply chain risk. In the supply chain, the sources of risk enter and disrupt the activities and operations, which produce adverse consequences. The sources or factors of risk are supplier disruption, skills management and regulatory compliance [ CITATION Cam08 l 1033 ]. By using the risk mitigation strategies through the Risk Management, the risk can be reduced to a great number. The risks can be mitigated in the supply chain, if the related variables are truly familiarized by the organization. The variables that can mitigate the risk in the supply chain are risk sharing, information sharing, corporate social responsibility and aligning incentives [ CITATION Raj15 l 1033 ].

Supply Chain Risk Management can be employed to reduce vulnerability within the supply chain. It can take several actions to mitigate or eliminate and manage risk in the logistics and financial functions. In SCRM, there are different ways to deal with the risk, such as transferring the risk, ignoring or accepting the risk, limiting the consequences, forming contingency plans, opposing to change and moving to the other environment. To tackle the risk and uncertainty in SCRM, the firms must use different options as mitigation strategies, for instance, adjusting the supply chain design, increasing the stock, reducing the variability, increasing agility, adding space capacity, improving the states of planning and forecasting, vendor rating, increasing collaboration, binding contracts, rationalize the range of products and using insurance [ CITATION Wat11 l 1033 ].

3. Role and Importance of SCRM in Effective Management of Complex Systems Support

Supply Chain Risk Management plays a vital role in effective management of complex systems support. Systems Support is a network of personnel, goods, services and organization that make efforts to sustain and maintain a business, so that it can grow well. Through SCRM, many effective management responses can be given in against of vulnerability. For example, security, redundancy, collaboration, availability, efficiency, visibility, velocity and flexibility [ CITATION Pet10 l 1033 m Pon09].

There are times, when the risks are inherent in support of complex defense systems. In such situation, there are critical factors that can offer success to a supply chain company or unit. These factors are resilience, agility, flexibility and robustness[ CITATION Ber12 l 1033 ]. Supply Chain Resilience is the characteristic of a supply chain that can decrease the disruption probabilities, reduce the time to recapture either acceptable or normal performance and decrease the disruption’s consequences, which are about to happen. The demands of quantity and variety varies and in such circumstances, the production systems have to face uncertainty. To cure the uncertainty, the supply chain can use the flexibility that can create a strategic approach [ CITATION Chr041 l 1033 ]. The supply chain risk can be addressed with the agile logistics that is valid for the demand of the customer and matching manufacturing capacity [ CITATION Cav04 l 1033 ]. Agility is the result of reducing the long lead times that occur in designing the products
[ CITATION Kha08 l 1033 ]. Robustness act as a success factor, because it can continue the operations even at the time of disturbances and it can satisfy the customers by delivering them the goods on time. It is a physical strength of a support system and it advocates a system at the time of execution to cope with the errors [ CITATION Tan06 l 1033 ].

Resilience can be built into the supply chain for systems support in many ways. One of them is to emphasize on the mitigation strategies that are used before the disruption [ CITATION Ber12 l 1033 ]. Moreover, a resilient supply chain can be formed by the four key principles. First is the use of re-engineering or other phenomenon that are applied before any disruption. The second principle is to implement a high level of collaboration in an organization that can identify risks and manage them as well. The third key principle is the use of agility that can react quickly in the time of the events that are unforeseen or unexpected. The fourth key principle is to apply the culture of risk management in an organization [ CITATION Chr04 l 1033 ].

4. Relevance of Current Research in SCRM in Relation to Defense Industry

The supply chain is the necessary tool of each and every industry to move its goods from point of production to point of purchase. Due to the risk sources, the organizations have to consider the Supply Chain Risk Management to not to face any disturbances during the activities. Therefore, in the defense industry, the SCRM and its current research, both are important and significant.

Supply Chain Risk Management 1

Figure 2: War and Terrorism as a Driver of Risk [ CITATION Cho04 l 1033 ]

From the above figure 2, it is clear that war and terrorism are the drivers of the risks and they create disruptions for the supply chain to carry out its operation in a normal way. War and terrorism are directly associated with the defense industry, because this industry produces the weapons and other military products that are used in war or fight [ CITATION Cho04 l 1033 ]. It is also observed that this industry affects the productivity and functionality of the other industries. Somehow, this industry positively affects the other industries and in some ways, it affects in a negative manner. Therefore, the Supply Chain Risk Management is related to the defense industry and the supply chain of defense industry has an impact on the other supply chain of the organizations that do not belong to the defense industry. Furthermore, there are four categories of risks in the SCRM, which are geopolitical, technological, environmental and economic risks. The first category surrounds the defense industry and this shows the other aspect of relevance of this industry with the SCRM [ CITATION Sin14 l 1033 ].

Supply Chain Risk Management is beneficial for the defense industry and the commerce industry as well. It decreases the vulnerability by using the holistic approach, which is coordinated among the stakeholders. The failure points in the supply chain are the reason for the risk emergence, yet such points can be resolved by the SCRM. The SCRM can mitigate the risks that appear in the commerce industry and defense industry and it can ensure the continuity of their supply chain. It can put an end to the risks that occur in the cybersecurity, logistics, risk management and finance areas of a commerce or defense organization.

To protect a nation and defend it from the other countries, a nation has to have a sound defense industry. This industry is responsible for upholding and safeguarding a country and to support its functions, the role of supply chain is very critical. As discussed earlier, there are several risks that can occur and to cope up with such risk factors, the Supply Chain Risk Management should be employed. In producing the military products and to provide it to the armed forces, SCRM plays a great role in preventing the disruptions and delays. Likewise, the SCRM is beneficial for the commerce industry, in which the buying and selling of products take place. SCRM can be employed in all the places, where the movement of certain things is involved. In order to continue the operations without delays, SCRM can act as a useful tool.

5. Inclusion and Management of SCRM in Current Defense Industry Projects

In the defense industry, performance-based contracting is used to reshape the services support in the supply chains. Performance-based logistics (PBL) is currently being used by the defense industry to replace the cost-plus and fixed-price contracts, so that the product availability can improve [ CITATION Kim07 l 1033 ]. Moreover, SCRM is included and managed in current defense industry projects to a great extent. It can be seen from an example of the United Technologies Corporation that was considered a part of the academic content for more than a decade. This company is headquartered in the USA and it is known for its high technology products in the field of defense and aerospace. It used the concept of the Supply Chain Risk Management in the year 2003 by introducing new systems to combine risk management and lean operations across its suppliers. For making the new systems work, it emphasized on the four elements, which were operations transformation leaders, measurement system of the supplier performance, lean assessments and supplier alert service [ CITATION Wat11 l 1033 ]. Similarly, the Ministry of Defense of the UK is applying the Active Risk Manager (ARM) in its supply chain to ensure a conventional way to deal with the risk in its projects and programs [ CITATION Act10 l 1033 ]. The point of using the examples here is to state that the SCRM is being used by the defense industry for more than a decade and the defense ministries use it for continuing its projects. This shows the great extent that how much the SCRM is employed in the defense industry projects.

6. Conclusion

Disruption in supply chain affects the ability of a corporation to continue its operations, i.e. to send send the finished goods to the market or to offer key services to its customers. These disruptions are risk for an organization and they can generate adverse consequences to deal with. SCRM is the intersection of the Risk Management (RM) and the Supply Chain Management (SCM). Through SCRM, many effective management responses can be given in against of vulnerability. Supply Chain Resilience is the characteristic of a supply chain that can decrease the disruption probabilities, reduce the time to recapture either acceptable or normal performance and decrease the disruption’s consequences, which are about to happen. Supply Chain Risk Management is related to the defense industry, it is included and managed in the current defense industry and it is used to a great extent in the defense industry projects and programs.

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