Logistics and Supply Chain Management, 4th Edition

LOGISTIC S & SUPPLY CHAIN MANAGEMENT

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Managing supply chain risk

Figure 10.3 below suggests a seven-stage approach to the management of

supply chain risk. Each of the seven stages is described in more detail in the fol-

lowing sections.

1 Understand the supply chain

There is in many companies an amazing lack of awareness of the wider supply/

demand network of which the organisation is a part. Whilst there is often a good

understanding of the downstream routes to market, the same is not always true

of what lies upstream of first tier suppliers. First tier suppliers are often dependent

themselves on second and even third tier suppliers for their continuity.

An example of this is provided by Chrysler which was reviewing the upstream

supply chain for the Jeep Grand Cherokee’s V8 engine.

4

The company mapped

all the hundreds of component flows and found that one of these components – a

roller lift valve manufactured by Eaton Corp. – was made from castings sourced

from a local foundry. When the Chrysler team visited that foundry they discovered

that the clay that was used to produce the castings came from a sole supplier who

was losing money and thinking of exiting the business.

It is this detailed level of supply chain understanding that is necessary if risk

is to be mitigated and managed. For complex supply chains or where complete

mapping of the entire network is not practical it would be appropriate only to look

in detail at the ‘critical paths’ – how these are identified is dealt with later.

Understand the supply chain

Improve the supply chain

Identify the critical paths (nodes and links)

Manage the critical paths

Improve network visibility

Establish a supply chain continuity team

Work with suppliers and customers to improve

supply chain risk management procedures

Figure 10.3 The supply chain risk management process