Risk Management and Mitigation
A supply chain's strength is often gauged by its weakest link, and in this interconnected ecosystem, any disruption can lead to a domino effect, impacting various aspects of business operations. Effective risk management strategies necessitate an understanding of the diverse forms of risks, their potential impact, and the trade-offs involved in different mitigation approaches.
A prime example of a risk mitigation strategy in global supply chains is maintaining multiple suppliers for a specific product, component, or material (Um & Nan, 2021). This strategy, known as Supplier Diversification, helps manage Supplier Risk. If a primary supplier encounters an issue that interrupts their productionsuch as natural disasters, labor strikes, or geopolitical issueshaving alternate suppliers can ensure the continuity of the supply chain and reduce the risk of disruption. This strategy is especially valuable when sourcing critical components, materials, or products with few global sources.
However, this risk mitigation strategy brings potential costs and risks. Firstly, managing relationships with multiple suppliers inherently adds complexity to the supply chain (Wieland, 2021). This can include negotiating different...
Secondly, there's the risk of quality variability. Different suppliers may adhere to different quality standards, which could lead to inconsistency in the final product. Strict quality control with multiple suppliers can be...…disruption of day-to-day operations, which could be due to equipment breakdowns, IT system failures, process inefficiencies, or labor disputes. Finally, Business Risks are linked to the financial and business aspects of the organization and can be brought on by exchange rate fluctuations, increases in raw material costs, changes in tariffs and taxes, etc.In conclusion, understanding the inherent risks within global supply chains is fundamental in shaping effective risk management strategies. By recognizing the types of risks - supply, demand, environmental, operational, and business - companies can tailor their approaches to address their specific vulnerabilities. Although each risk mitigation strategy may have associated costs and could potentially introduce new risks, strategic planning and regular…
References
Um, J., & Han, N. (2021). Understanding the relationships between global supply chain risk andsupply chain resilience: the role of mitigating strategies. Supply Chain Management: An International Journal, 26(2), 240-255.
Wieland, A. (2021). Dancing the supply chain: Toward transformative supply chainmanagement. Journal of Supply Chain Management, 57(1), 58-73.
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