Supply Chain Risk

UU KU Risk Risk is everywhere. The greatest opportunity for any organization rests in its ability to manage risk to its own advantage. The world is not that simple though, and the mysterious nature of the universe presents unknowable challenges in front of us all as we navigate through our lives and experiences. "Managing risk is the number one concern of CEOs and COOs and financial executives in North America and Europe see supply chain disruptions as the second biggest threat to their operations, " (Bidgoli, 2010).

Success in any endeavor results from mindfully weighing pros and cons to find appropriate solutions that can maximize benefit. The entire journey is a narrow path, but those organizations and individuals who can navigate without fear have an opportunity to make the best of risk. The purpose of this essay is to discuss how risk management within supply chain logistical systems can be effectively applied. This essay will list two sets of risks: unknowable-unknowable risks, and knowable-unknowable risks.

Examples will be given to highlight the impact these two categories of risk present to managers who are responsible for managing the supply chains within their respective organizations. Additionally each source of risk will be accompanied by an appropriate management to mitigate the impact that these risks can have upon an organization's quest to maximize their competitive advantage in a specific industry or market. Unknown-Unknown Unknown-Unknown (UU) risks are described as being virtually not in any human control.

The mysterious nature of these risks puts mangers at a disadvantage, due to the fear of the unknown. Source 1: Natural Disaster Natural disasters are very dangerous because nature herself is the cause of the problem. Natural disasters include such things as earthquakes, floods, typhoons, mudslides, avalanches, meteor showers and others. These events are largely unpredictable and present the most serious threat to any and all supply chains that fall within their range of destruction.

To mitigate the dangers of natural disasters flexibility is always a key issue, but insurance policies can accentuate the redundant efforts built within any operational concept designed to lessen the effects of natural disasters. Insurance cannot help short-term disruptions in the supply chain that are caused by natural disasters but in the long-term can be an effective strategy. Source 2: Geopolitical Risks The complex nature of geopolitics puts many businesses on the defensive due to the overwhelming lack of control that they may be experiencing.

This source of risk to the supply chain contained in geopolitical situations needs to be effectively managed as another UU source of risk. These risks occur in dangerous parts of the world and suggest that business needs to take extra precautions to mitigate these risks. Such actions should include setting up back up plans that can be covered by adjoining areas where the risk is much lower. Since political strife and turmoil can develop rapidly, this mysterious confluence of events requires extra attention from risk managers.

Source 3: Epidemics Epidemics have wiped out millions of people in recent history. It is a real and mysterious threat. This source of UU risk can have devastating impacts on businesses if they are not prepared to respond. Epidemics are contagious and need to be contained in order to preserve other valuable resources. Epidemics can happen in humans and animals causing unique sets of problems.

Juttner (2006) wrote "In recent years the widespread disruptions caused by fuel protests, and then by foot and mouth disease in the UK, by terrorist attacks and the threat of weapons of mass destruction in the U.S.A., or by the SARS outbreak in China, Hong Kong and Canada have transformed perceptions of security across supply chains, and have underlined their vulnerability.

In our technology-entwined global marketplace, an earthquake in Asia can seriously disrupt business in North America or Europe." Source 4: Terrorist Attacks Terrorist attacks are also unpredictable when dealing with supply chain issues. There is little a business can do other than insure its supply chain assets. Supply chains need to be protected against terrorist attacks, however the nature of each attack is quite different and to defend oneself against the myriad of sources of terrorist attack is quite impossible.

Since terrorist attacks are so infrequent, they require little risk management in most situations. In some industries this may be different however, such as large scale natural resources shipping routes and supply chains found in the oil industry. Known -- Unknown Know-Unknown (KU) sources of risk to the supply chain functioning of any organization are based more on traditional problems of logistics and transport. KU sources of risks are much more controllable, routine and in some cases typical problems that must be dealt with on a continual basis.

Source 1: Execution Problems Execution problems are most commonly attributed to human error and misjudgment. People will always make mistakes and to expect perfection in supply chain management is not realistic in the world we live in. To mitigate the problems associated with execution problems falls on the integration of human resources in the execution. Hiring personnel that can handle the appropriate tasks is an effective approach to this problem. Training sessions and continually improving fundamental skills are also helpful in lessening the impact of execution problems that occur so often.

Source 2: Forecasting Accuracy Logistics relies on the forecasting abilities of supply chain managers. Forecasting is not very accurate in some aspects however and usually provide vague guidelines of behavior. Determining exact amounts of supply based on historic demand levels is useful but statistical inference depends on subjective interpretation by supply chain managers when being utilized. By not depending on forecasts too much, and by complementing them with different predictive measure can help organizations eliminate the confusion and inaccuracy these forecasting reports often provide.

Source 3: Suppliers Performance Supplier risk management is a somewhat controllable and therefore knowable source of risk. "Supplier risk management is not a new concept; however, the type of risk that can affect the supply chain and the way in which these risks are.