SUPPLY CHAIN

RISKS

BARCELON, MARIA OLIVIA T.

UST GS
SUPPLY CHAIN - system of organizations, people, activities, information, and resources involved in moving a
product or service from supplier to customer.

RISK - A probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by
external or internal vulnerabilities, and that may be avoided through preemptive action.

SUPPLY CHAIN RISK - probability of an incident associated with inbound supply from individual supplier failures
or the supply market occurring, in which its outcomes result in the inability of the purchasing firm to meet
customer demand.

Fire broke out in Philips-owned semiconductor plant in New Mexico (March 2000)
Rare earth elements (scarce metal that are vital ingredients for many 21st century technologies)

GLOBALIZATION AND SUPPLY CHAINS HAVE A SYMBIOTIC

REALTIONSHIP.
 GLOBAL SUPPLY CHAINS
(LATE 20TH AND EARLY 21ST CENTURY)
The Rise of International Trade

New Political Climate - the end of Cold War and fall of Iron Curtain; entrepreneurs were now able to cooperate
and compete. And brought closer economic ties and multilateral arrangements.

World Trade Organization

North American Free Trade Agreement

European Economic Area

 Between 1951 and 2004, average annual growth rate of world
trade was 5.7%

Rapid growth in the world trade started in the late 1980s and
early 1990s.

The extra ordinary eightfold increase in Chinas export between

1999 and 2008.
Direct result of political liberalization of Deng Xiaoping
(Chinese Communist Party Leader)
Internet triggered the integration of China in the world
economy.
Supply Chain Management

Fordism - innovative strategy of Henry Ford, mass production

Toyotism - by Taiichi Ohno, defines globalization and dominates management thinking

Focused on efficiency and elimination of economic waste (muda).

Toyota Production System: objective is to eliminate three (3) unwanted inefficiencies:

Muri (overburden), Mura (inconsistency) and Muda (waste)

Lean Management

Production of goods should be outsourced to the most cost-efficient provider.

 SUPPLY CHAIN RISK
The 2011 Thailand Floods and Supply Chains

A systemic consequences for global supply chains. 30% increase in rainfall and 4 violent tropical storms, almost every
industry operating in Thailand was affected from agriculture, to manufacturing, and computing

Lean Management and Just-in-Time Production

Lean Management can be broken down into six subcategories:
Waste of time on hand (waiting)
Waste of transportations
Waste of processing itself
Waste of stock on hand
Waste of movement
Waste of making defective products

Management Education
Homogenization of management education
MBA Programs
 FROM MANAGEMENT OF RISK
TO RISK MANAGEMENT
Risk Management - the forecasting and evaluation of financial risks together with the identification of procedures to
avoid or minimize their impact.

Current Responses
UK Manufacturers Organization survey shows that 40% had experienced a significant supplier failure.
Found that a similar share had brought their production back in-house, while a quarter of companies had increased
their use of local experience.
But some companies have started to retreat from supply chain fragmentation, and brought more of their production
in-house and move beyond lean management.

The Problem of Complexity

Highly interconnected firms lack the resources to appraise all of their risk factors.
Learning from Supply Chains

1. Network resilience should be promoted.

2. Negative externalities such as counterparty risk need to be recognized and addressed

3. Regulation is needed to promote emergency planning for systemic shocks

4. Underused capital, stock, and people can be assets as well as liabilities, and regulation is required to
ensure adequate buffers in strategic sectors

5. Competition policy needs to address the geographical risks that emanate from the concentration of
industry in specific localities