Six Common Strategies for Supply Chain Risk Management
Six Common Strategies for Supply Chain Risk Management Supply chain risk management is currently one of the fastest growing areas, given the increasing volatility in businesses worldwide. With changing business requirements and a higher degree of uncertainty, supply chain strategies can no longer enjoy a static presence. With increasingly fluctuating demands, businesses need to consider internal and external risks and ensure that the detrimental impact of each is overcome. In order to ensure supply continuity, companies now have to ensure regular and continuous risk assessment in order to reduce the vulnerability in their processes. Supply chains in the current era therefore, need to be both agile and robust in order to identify asses, control and monitor their risks to deliver a better performance. Strategic supply chain risk management is divided into six major categories.
Risk Avoidance The first and foremost strategy to be used in risk management is that of avoiding risks. Supply chain managers need to be aware of the trade-offs associated with different options such that the operational uncertainty is reduced. Risk avoidance may include opting for less volatile markets or timely divestment to avoid losses.
Time Postponement In such a strategy managers induce greater flexibility by delaying the final product delivery, assembling, packaging or any other feature. For industries which deal with high levels of customization, postponement allows to reduce the uncertainty by fulfilling the final steps only after the customer order is placed.
Risk Speculation Speculation, as the name implies is a strategy which calls for decision making based on demand predictions. This strategy is usually used in environments which have specific criteria and standards for the concerned product.
Hedging Hedging strategies such as dual sourcing, allow supply chain managers to eliminate risks associated with a single event in order to avoid a complete failure of the supply chain.
Multiple contracting is also a type of hedging strategy which saves companies against supplier monopoly.
Controlling Some companies make use of vertical integration in order to reduce the supply chain risks. Partial integration is also a strategy which enables the company to transfer higher risks to the supplier end while also ensuring complete utilization of its resources. Flexible clauses in supply chain contracts that account for these structural changes are also an important part of risk management and need to be catered to.
Risk Sharing Supply chains operating on a global scale make use of a plethora of risk sharing strategies such as outsourcing and off-shoring. Outsourcing allows the company to distribute its risks to its suppliers across borders. Off-shoring on the other hand is used to focus on core functions while outsourcing riskier options. A common application of off-shoring is found in treasury services in order to avoid foreign exchange rate risks.
Source http://www.researchomatic.com/Supply-Chain-Risk-Management-18376.html
http://www.researchomatic.com/Offshoring-72175.html