Logistics and Supply Chain Management, 4th Edition

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Today’s marketplace is characterised by turbulence and uncertainty. Market turbu-

lence has tended to increase in recent years for a number of reasons. Demand in

almost every industrial sector seems to be more volatile than was the case in the

past. Product and technology life cycles have shortened significantly and competi-

tive product introductions make life-cycle demand difficult to predict. Considerable

‘chaos’ exists in our supply chains through the effects of such actions as sales

promotions, quarterly sales incentives or decision rules such as reorder quantities.

At the same time the vulnerability of supply chains to disturbance or disruption

has increased. It is not only the effect of external events such as natural disas-

ters, strikes or terrorist attacks but also the impact of changes in business strategy.

Many companies have experienced a change in their supply chain risk profile as

a result of changes in their business models. For example, the adoption of ‘lean’

practices, the move to outsourcing and a general tendency to reduce the size of

the supplier base potentially increase supply chain vulnerability.

As a result of this heightened risk, organisations will need to develop appropri-

ate programmes to mitigate and manage that risk.

The impact of unplanned and unforeseen events in supply chains can have

severe financial effects across the network as a whole. Research in North America

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suggests that when companies experience disruptions to their supply chains the

impact on their share price once the problem becomes public knowledge can be

significant. The research suggests that companies experiencing these sorts of

problems saw their average operating income drop 107 per cent, return on sales

fall 114 per cent and return on assets decrease by 93 per cent. Figure 10.1 shows

the impact on shareholder value of supply chain disruption.

Managing risk in the

supply chain

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Why are supply chains more vulnerable?

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Understanding the supply chain risk profile

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Managing supply chain risk

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Achieving supply chain resilience