Sources of Risks that affect Supply Chains

In supply chain management there are certain sources of risks to the supply chain that are categorized as known unknowns. Known unknowns refer to risk events whose probability of occurrence and the likely consequences are known. There are also “unknown unknowns” sources of risks to supply chains which include uncertainties that are beyond the forecast and predictability of a company. This includes natural disasters such as the earthquake that hit Japan affecting the production of electronics around the world and leading to prolonged business disruptions for the automotive industry and the floods in Thailand that had very negative effects on the hard disk drive market leading to shortages (Culp, 2012). This paper describes the unknown unknowns and the known unknown sources of risks that can affect supply chain and the management strategies that can eliminate or lessen the effects of the risk on the overall supply chain.

Lead time Variability Lead time variability refers to “how long and with what consistency – it takes to receive goods or materials from suppliers. ” Normally companies’ aim at ordering supplies so that they arrive just in time to be purchased by their consumers or to be used in their manufacturing processes. This helps companies to keep inventory costs lower. However, achieving this goal has almost become impossible due to the seasonal variability in lead time. Variability in lead time poses the risk of excess inventory or inventory shortages or both in other cases. Companies should employ an effective business continuity management plan as part of the disaster planning and management plans (Kettering University, 2016). In addition, companies should build redundancy and resilience into supply chains, so that materials and other products needed for production come from different geographical locations.

The Global political landscape The volatility of both the national and global politics is also another source of risk to supply chains. The predictability of the decisions made by politicians and the consequences of political uprisings on global economies is not an easy task that can be prioritized by any company because it is outside of the direct influence of the business. However, companies should stay abreast on political matters that have the potential to influence business operations and develop a mitigation plan. Forecasting accuracy With the recent transition to demand-driven operations, most companies have invested heavily in marketing strategies and surveys to predict the variability in demand so that they can effectively meet their client’s future demand while minimizing inventory costs.

This has exposed many companies to the known unknown risk of errors in forecasts or consumer demand behavior that deviates from the tenets of the forecast thus rendering the forecast useless. Shortcomings in forecasting accuracy have the consequences of increased inventory costs or under stocking which may eventually put pressure on the supply chain leading to the bullwhip effect. In order to eliminate the effects of forecast inaccuracies, managements should segment their supply chain to match the customers and the company’s value proposition and channels. In addition, a company should ensure that information is shared across the value chain and also manage the complexity of its product’s portfolio (Pierce, 2014). This results in more disposable income for consumers leading to increased demand for products.

An increase in demand may strain the supply chain. Experts have proposed a strategy for countering the risk of fluctuations in oil prices which involves segmenting the supply chain. This involves sourcing of products from multiple suppliers, manufacturing a variety of products and keeping fast moving products at strategic distribution centers and retailer outlets. The slow-moving products are then stored in a centralized warehouse (Parizo, 2018). Political Risk and Supply Chains. Retrieved from https://www. apics. org/docs/default-source/executive-summit/executivesummit2017whitepaper_anderson. pdf?sfvrsn=2 Cragg, T. com/sites/steveculp/2012/10/08/supply-chain-risk-a-hidden-liability-for-many-companies/#490b148e594d Gangadharan, R. (2007, February 5). Supply Chain Strategies to Manage Volatile Demand. Retrieved from https://www. sdcexec. europeanbusinessreview. com/types-risk-supply-chain-avoid/ Kettering University. (2016, June 7). The Impact of Natural Disasters on Global Supply Chains.