Supply Chain Risk Management, Second Edition

David L. Olson

• Publisher: Business Expert Press
• Year: 2014
• Print ISBN: 9781631570575
• eBook ISBN: 9781631570582
• Topic: Business
• Subtopic: Operations
• Index: Business

The supply chain management field is one of the fastestgrowing fields in our economy, given the heavygrowth in international trade as a means to accessoutsourced production opportunities to lower costsand the growth in information technology to coordinatesupply chains. However, this opportunity to lowercosts entails significant risks, such as tsunamis, earthquakes, political unrest, and economic turbulence.This book discusses risks in supply chain management, followed by graphic and quantitative tools (riskmatrices, selection methods, risk simulation modelling, linear programming, and business scorecardanalysis) to help manage these risks.

CHAPTER 1

Introduction

Supply Chains and Risk

Supply chains have connected sources of goods to customers for as long as humans have done business. Military organizations have always been involved in logistics, which is moving things over a supply chain, and they still are, as demonstrated by the movement of U.S. and allied forces to Iraq and Afghanistan. But armies aren’t the only organizations involved in supply chains. Toyota’s lean manufacturing, Dell’s make-to-order operations, and Walmart’s revolutionary retail operations all rely on supply chains linked across many source organizations through computer systems.

Supply chains provide all of us with many benefits as consumers. Producers of goods and services need to take advantage of the many opportunities for efficiency provided by global linkage. However, these opportunities are not free— they involve risks. This book is about the risks involved in supply chains, especially in contemporary global operations.

Some supply chains can be quite simple—bananas picked in Costa Rica may be directly delivered to the plantation owner who might be living in the Cayman Islands. Beans can be picked in California and delivered to a farmers’ market in Nevada. However, most goods require a lot of processing, especially foods and drugs, partially for reasons of preservation and partially for reasons of safety. Standard Oil had a widespread supply chain from oil wells throughout the world to places where crude oil was refined. Steel producers had even more complicated supply chains, from various kinds of mines (again, worldwide) to various processing facilities, to blast furnaces, to open-hearth steel producing ovens, to rolling mills, and on to steel yards, which in turn fed many different manufacturers (shipyards, automobile plants, appliance makers, roller bearing producers, etc.).

It might clarify the definition to describe what is not a supply chain. Different people will define supply chains in different ways, but distance and proprietary relationships can matter. In-plant transportation is not a supply chain. You might think that the involvement of multiple owners matters. However, a supply chain is not defined by multiple owners, as organizations like Standard Oil, U.S. Steel, and Alcoa have had massive vertical global supply chains.

At the personal level, dealing with a headache could conceivably involve picking medicinal herbs from your own garden. That would not involve a supply chain. Most of us prefer the reliability and security of going to a reputable store and purchasing aspirin. Packaged aspirin involves a complex supply chain. It is becoming harder and harder as time passes to think of things that do not involve supply chains. When older people (e.g., the author) grew up, food came from the family farm— not a supply chain. Now there are far fewer people growing up on farms— most people grow up in cities, where food supply chains are necessary.

Globalization and Supply Chain Risk

Supply chains are attractive because they allow access to the most cost-effective sources in a system. Globalization has played a major role in expanding the opportunities for many manufacturers, retailers, and other business organizations to be more efficient. The trade-off has always been the cost of transportation, as well as the added risk of globalizing.

Nearly 1,000 years ago, one of the more interesting supply chains was developed by people living along the Baltic Sea. Trade in the Baltic and North Seas developed in the 9th through 11th centuries. However, the lucrative trading was constantly disrupted by robbers (including Vikings). To protect traders from pirates and to provide safe havens for merchants in their trading posts, the Hanseatic League was formed. This was an early form of supply chain risk management.

Supply chains have always involved risk. The Silk Road connected Europe and China, and its camel caravans were highly vulnerable. One way to avoid bandits was to go by water, and shipping is still a primary means of moving material over supply chains. However, just going over water does not avoid criminal activity, as piracy is nearly as old as the trade it preys upon. Historically, most pirates have operated on the cusp between sanctioned legality and hanging offense. Sir Francis Drake was subscribed (a word for partially funded) by Queen Elizabeth I, who took the attitude that if Drake was successful, he had to turn over half his profits to the crown, while if he was caught, she would support his hanging. Drake got his start by preying on the supply chain between Spain and Latin America. The Spanish would export trouble, tyranny, and disease in return for gold and silver, enabling them to become very wealthy without having to develop much productive capacity. They would instead trade their heavy surplus of gold and silver to the rest of Europe for whatever they wanted (thus providing the demand for wool and food production in England, France, and Germany).

We think of piracy as occurring in the time of Blackbeard and Captain Kidd. But piracy is still very much with us. Pirate attacks have quadrupled in the past 10 years.¹ Hotbeds of piracy today are, of course, off the coast of Somalia, but there has long been a problem in northern Indonesia, and the Caribbean has a strong drug-related supply chain industry. The world’s navies are giving more attention to controlling piracy, especially in the area around the Straits of Hormuz, which is...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Abstract
• Contents
• Chapter 1: Introduction
• Chapter 2: Supply Chain Risk Management Process
• Chapter 3: Risk Matrices in Supply Chain Risk Management
• Chapter 4: Supply Chain Selection Decisions
• Chapter 5: Simulation of Supply Chain Risk
• Chapter 6: Supply Chain Management Risk Models
• Chapter 7: Optimization Models in Supply Chain Risk Management
• Chapter 8: Balanced Scorecard in Supply Chain Management
• Epilogue: Recapitulation
• Notes
• References
• Index
• Ad page
• Backcover