FAQs (Frequently Asked Questions) On Supply Chain Risk
Following are some of the frequently asked questions (FAQs) on supply chain risk that we have encountered in our speeches, workshops, seminars, and other forums. Feel free to ask more questions if your particular question is not answered below.
Why we are qualified to write this list of FAQs on supply chain Risk?
Having restructured the global supply chains of some of the largest explosives companies on earth, we know the risks in supply chain management are real. Every industry that we worked for - retail, beverages, food, milk, dairy, meat, livestock, explosives, chemicals, cotton, rice, graphite, solar power, natural gas, crude oil, fertilizers, electronics, packaging, glass manufacturing, machine parts, automobiles, industrial goods, mining, - faced its own set of diverse and unique risks.
Click on our project methodology above to see how supply chain risk management is an integral step in each and every project that we have undertaken in the last three decades. We have also written the authoritative guide - Global Supply Chain Group’s Guide to Supply Chain Security.
Since when no one had heard of supply chain, our co-founder Vivek Sood has been considered one of the most authoritative professionals in the field when it comes to the subject of supply chain risk and security in Australia, Asia, North America, South America and Europe.
He has written four seminal books about using supply chains to gain massive advantage in business. He also regularly delivers keynote speeches at business schools and conferences such as University of Technology Sydney, Supply Chain Asia, Asian Bankers Forum, APEC Business Advisory Council.
He has been quoted in the authoritative business press and over 100 academic papers written by supply chain researchers around the world. Vivek and his team have examined thousands of supply chains during their projects over the last three decades and helped hundreds of executives build safe, cost effective and sustainable supply chains and careers.
Risk in supply chain - FAQs
What are the risks that supply chain systems face?
The main kind of risks that are present in the supply chain environment is the following:
- Informational Risks
- Financial & Contractual Risks
- Natural Calamities
- Terrorism & Sabotage
- Cargo Theft
- Physical Risks
- Health Risks and Bio Hazards
What are the Informational Risks in the supply chain?
One of the five key flows in supply chain is the information flow. As the product, value, risk and cash flows through the channels of supply chains through its various nodes and intersections, information is constantly being created, recorded and flowing to facilitate the flow of the four other key elements of supply chain management. Get a copy of our Quick Notes on Five Flow of Supply Chain Management to find out more on this topic.
The whole supply chain system is a data-driven environment with interconnected nodes which uses high-end communication systems like IoT, and so on.
The following graphic - taken from our report GLOBAL SUPPLY CHAIN GROUP'S GUIDE TO SUPPLY CHAIN SECURTY - illustrates the key threats to information security:
With the growing trend, most of the procurement, payments and transactions are made with the aid of the internet so that the criminal minds can hack into the system by accessing just a single node somewhere in the network.
These cyber-threats funnel the system into a crisis of losing the confidential and vital data to unwanted sinks which will lead to decreased performance of the organisation among its competitors.
What are the Financial & Contractual Risks in the supply chain?
These risks range from an unexpected or unfavorable change in exchange rates to a supplier's or customer's bankruptcy. You face a financial risk in supply chain every time your cash-to-cash cycle is under threat - either in terms of time dilation, or in terms of monetary deflation.
Some other examples of financial risks include budget overruns, and finding the limitation, constructive changes, and missed milestones requiring additional funding.
Financial risks also encompass unexpected cost increases that may be linked to other risk factors such as changes in the scope of work necessary to complete the activity successfully — thus compromising the entire system as the whole.
case study - Financial and Contractual Risk Managment in Samsung
In this case study we will discuss the financial and contractual risk management inside the Samsung for a high level perspective.
In 1938 Lee Byung Chul founded what eventually became Samsung Corporation.
From the beginning Samsung was a huge success, and today its outstanding financial and contractual risk management helped it become one of the tech giants of the world, with Samsung crossing 210 billion dollars revenue mark.
The company spans over multiple nations and straddles multiple divisions - Electronics, Home appliances, Health care, Information Technology and many more.
The critical areas that Samsung focus on during a product launch are features, efficiency and the price. The key reason behind the growth of Samsung is their ability to provide jam-packed features for the best price.
In the mobile phone marketplace, Samsung leads the practice of introducing products with unique features which are not present in its competitors. This practice was clearly visible in the case of galaxy note 9, s10, s10 plus.
They were some of the most highly demanded phones of this year. Their unique features make Samsung more sought after smartphone compared to it's costly counterparts. Samsung is dedicated to creating superior products and services for the customers, at a reasonable price point. To be able to do so profitably, it is critical to keep the costs under check.
Samsung is world famous for its cost-effective projects. The cost managers of Samsung are responsible for maintaining all operations within their standard cost models. They always keep an hawks eye on the books - including on investment needed for every project.
The labor cost of Samsung is much lower than that of its competitors. The average salary of the workers in Samsung was $44000 in the year 2003, which was much lower than its close competitors'.
As Samsung undertakes a relatively high volume of projects, the primary headache for its management will be the risk management for every project.
Samsung uses debt funding for ensuring optimum safety for her investors and projects.
These debt funds are tax-efficient with longer holding periods. This funding makes the Samsung vulnerable to paying the interest when the company earns less from the projects. The debt provides a tax shield, and imposes additional discipline and cost effectiveness on its operations.
Most companies struggle to make their budget numbers, and have to massage the numbers at the end of the quarter because of cost of complexity and supply chain slippages.
Supply chain contracts are can place an entity under onerous obligations which are sometimes poorly defined, or difficult to execute and measure. Companies spend a lot of time and money trying to fulfill obligations that are sometimes impossible in the first place. A frequent example is 100% fulfilment rate, but there many other similar examples.
What are the risks of Natural Calamities in the supply chain?
The majorities of global organisations in supply chains are fragile and cannot withstand natural disasters. Fire, storm, tsunami, earthquake, flooding, weather event, global warming, tornado etc are just some of the natural events that can eventuate at any place at any time.
What is the Significance of the risks caused by Terrorism & Sabotage to global supply chains?
Along with the globalisation, terrorism and criminal activities are also rising, threatening the global supply chain flows.
As the global supply chains become more elaborate and complex - the number of nodes, handovers and routes increase and become complicated. At the same time it becomes harder to monitor them all 24/7.
Criminal and rogue elements spot gaps in the security coverage, or use sophisticated surveillance techniques to identify such gaps for their own purposes. That is the reason for advanced supply chain security using Global Supply Chain Group’s Guide to Supply Chain Security.
How big is the risk of Cargo Theft?
Warehouse theft, inventory pilferage, missing cargo, truck theft, and piracy; these are just a few of the security risks hampering supply chain integrity every day.
Growing local competition, more immense international market opportunities that have opened up due to globalisation, and better transportation solutions available today that allow corporations to move large quantities of assets at low cost, these are the reasons why running a safe supply chain is vital to the success of businesses today.
A supply chain network susceptible to theft is a supply chain prone to disruption. Supply chain disruption adversely affects an organisation's ability to maintain a lean supply chain operation, control costs, manage their logistics and delivery schedules and meet customer expectations.
The dire need to secure shipment security, build customer loyalty and upscale supply chain resilience is what's pushing businesses to invest more than ever before in securing the supply chain.
What are the Physical Risks in the supply chain?
The Physical risks in the supply chain are mainly composed of human-made disasters and accidents in the storage facility or supply chain networks. The products and the systems in the supply chain are prone to physical damage caused by accidents. For example, the cranes with damaged booms in the cargo handling facility present a risk of break down of the crane, causing the cargo to get damaged physically due to falling or crushing under load. So the supply chains must be assessed for physical risks, and inherent risks must be eliminated.
What are the Health Risks and Bio Hazards in the supply chain?
The supply chains usually contain the handling of hazardous and toxic goods which presents chemical, health as well as a biohazard. The corrosive or poisonous materials are highly susceptible to leaking into the environment, which can cause loss of life of the workers. So the hazardous materials must be handled with the safe systems of practice that are available internationally. Also, such materials must be kept along with the material safety data sheet so that anyone taking the material gets an essential awareness about the potential risk.
What is meant by supply chain risk management?
It is the process of purposefully assessing supply chain to
- find existing risk
- or to forecast future risk and
- finding the adequate solution to mitigate the issues and
- planning accordingly to achieve the business goal smoothly.
Good supply chain risk management and supply chain security go hand in hand.
What is the history of supply chain risk management?
It all started after the industrial revolution as the companies become more vertically integrated, which in turn increased the supply and production exponentially, which increased the size and span of the company, which pushed the risk management into the light As the incoming of the globalisation the companies got exposed into more and more global and global threats which made the risk management and essential and unavoidable term in the supply chain.
What are the benefits of risk management in the supply chain?
By the risk management, we can evaluate the inherent flaws and week link among the supply chain systems and do a prescriptive analysis to gain the solution to the issue. Also, risk management will help us to forecast future threats in the supply chain. Thus we can prepare a game plan to tackle the incoming threat strategically.
What will be the future trends in supply chain risk management?
In future, the virtual supply chain will be implemented with the help of AI and augmented systems. It will support us to drill down into the supply chain in a short window of time and to do the brainstorming effectively with a fair amount of accuracy to generate more effective and accurate game plans to tackle the forecasted risks.
What Are some of the key fundamental Principles of supply chain risk management?
Sink of swim Report: how information technology can save or ruin supply chains
Access the short guide to this report by filling in the form below:
Notes on FAQs
Clearly, any such list of frequently asked questions (FAQs) about supply chain can never be fully exhaustive. Neither is anyone, including us, the final authority and arbitrator on this or any other topic.
You will have your own opinions on many of these topics, and will have many other questions.
We throw open the comments section to you for your opinions and questions. We will try to address all of these, and the best ones will attract a reward in the form of one of our books, or publications.