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Understanding Supply Chain Risk
Written by Brian Neureuther, Ph.D., Professor, Business & Global Supply Chain Management, State University of New York College at Plattsburgh.
February 2010 Issue
Controlling and assessing risk and supply chain disruption is a significant aspect of a firm's overall supply chain management strategy. Issues with supply chain vulnerability are causing many firms to look at new, unique ways in which to mitigate the risk associated with the uncertainty of events and how these affect the partners and activities within the supply chain. Supply chain systems are pervasive with risk, from the growth of global markets, to the uncertainty of supply, to the demand uncertainty, to the threat of terrorism, and to even meteorological uncertainty. In addition, the current direction of business itself, with sourcing from global markets, supplier base reductions, and reducing inventories of safety stock make the impact of supply chain disruptions even more disastrous. The ability for supply chains to be flexible and to react to changes in customer demand becomes very difficult in this era of lean supply chain management and, perhaps, almost impossible when supply chain disruptions occur. Finally, when we add the process of goods coming across international borders we now have to examine further delays that may be caused by policies such as C-TPAT, Container Security Initiative, and the 24 hour manifest.
Understanding the impact on supply chain disruptions is critical for organizations. It is very possible that, from a supply chain perspective, a small disruption may not be too costly for your immediate customer or supplier, but may be very costly for customers or suppliers that are farther away in the supply chain. As lead time increases, the time it takes product to move from a supplier to any given supply chain partner downstream, so does the impact from supply chain disruptions on cost and product availability .
Many risk-mitigating activities can be used to aid an organization and their supply chains in an attempt to reduce the risks associated with supply chain disruptions. Organizations may want to look at using multiple suppliers instead of just a single supplier. From a global perspective, it may even be possible to use suppliers in different geographical regions to protect against uncertainty from natural disasters. Organizations may be able to pool inventory by aggregating demand across several locations in the supply chain and across several suppliers. Risk pooling can work for just about any resource, including transportation. Creating a supply chain in which information is highly visible, where all partners in the supply chain have access to the same information with respect to inventory levels, inventory placement, and demand forecasts, reduces the threat of disruption due to a higher degree of supply chain coordination.
There are several more methods organizations can use to help mitigate risk throughout their supply chains. As organization's become more globally oriented and more goods move through international ports, it is important that organizations look at methods to mitigate supply chain risk. The inherent conflicts associated with leaner supply chains and the need to protect supply chains from disruptions often work at odds with each other. Striking a balance between lean and risk mitigation must be a priority in today's environment. 
On June 15-17, 2010 the State University of New York College at Plattsburgh, the Department of Business and Global Supply Chain Management, and the Plattsburgh-North Country Chamber of Commerce will host the second annual Cross Border & Global Supply Chain Management Conference on the SUNY Plattsburgh campus. For more information, or to register, go to click here.
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