Useful Techniques to Minimize Risk in Supply Chain Risk Management

Useful Techniques to Minimize Risk in Supply Chain Risk Management Mohammadreza Nourbakhshian 1, Alireza Hooman 2,Arman Rajabinasr 3, Shahab Darougheha 4 1 Master of business administration, Graduate school of management (GSM), MMU, 2 DBA Student, Faculty of Management, Multimedia University, Malaysia, 3 MBA finance student, faculty of management (FOM), Multimedia University, Cyberjaya, Malaysia (MMU), 4 Master of science in technology management, Asia Pacific University of Technology & Innovation (APU), Abstract The current study tries to introduce nine famous methods that are used to minimize the risks of SCRM which is supply chain risk management. Although the suitable methods should be selected in accordance with the industries nature, this paper tried emphasize the ones that are most significant in any industry which is involved in supply chain management. Keywords: Risk, Supply Chain Risk Management, Minimizing Risk 1. Background Industries, particularly the ones that are heading towards longer supply chains such as dueto outsourcing, and are met with unsure supply and demands, handling and sharing the risk in the supply chain is a significantly important issue. The supply chain that is more integrated and leans on other more will most probably receive more accidents, uncertainties, and dynamics of the chain and transfer these to the other links of the chain. Thus, the supply chain becomes more vulnerable (Svensson, 200; Christopher et la., 2002) and it will continue to grow if organization start to depend even more on other companies through outsourcing. A bunch of business tendencies that increase companies vulnerability to risks in supply chains now are: using R&D and manufacturing outsourcing increasingly for suppliers; the internationalization of the chain of supply; the supplier base s reduction; the increase and growth of integrated and intertwined processes and relations between organizations; the reduction of buffers for example the lead time or the inventory; the growing demand for deliveries to be on time while the time windows and lead times are becoming shorter; shorter product life cycles and compressed time-to-market;fast and heavy ramp-up of demand early in product life cycles; and the limits of the capacity of basic components. It has been mentioned that organizations have to pay attention and concentrate on the risks of other links in their supplying chain along with focusing on their own risks (Souter, 2000). A basic component of SCM or the supply chain management is to share both the benefits and risks among the links of the supply chain (Lambert and Cooper, 200; Mentzer et AL., 2001). This fact has been mentioned a lot but never fully elaborated upon in supply chain COPY RIGHT 2013 Institute of Interdisciplinary Business Research 975

management s traditional literature. Supply chain risk management focuses on understanding and trying to avoid the catastrophic and destructive outcomes of business disturbances and disruptions happening in a supply chain be it a minor one or a disastrous one. 2. The risk management process A group of studies have developed a process for managing the risks which consists of four general phases (Hallikas et al., 2004; Harland et al., 2003; Zsidisin et al., 2003) which are identifying the risk, classifying the risk, calculating the risk, implementing or validating the actions taken for managing the risk, and sometimes monitoring the risks.zsidisin et al. (2005a) and Zsidisin et al. (2005b) believe that it is possible to for supply chain risk management to be operationalized through a continuous business plan (Zsidisin et al., 2005a) or through buying a continuous planning framework for supply chain (Zsidisin et al., 2005b) that has four steps which are knowledge management, awareness, remediation, and prevention. A model that has three stages been specifically created by Kleindorfer and saad (2005). These three steps are known as Sam and are as followed: realizing and pinpointing the vulnerability and risk sources, assessing, and mitigating. It is essential to practice the model s tasks in a continuous and concurrent fashion as the core element for disrupting the risk management. 3. Supply risk, supply chain risk and SCRM After an analysis of the Anglo Saxon literature, it was found out that supply chain risk and supply risk are in fact very alike. While the latter term is more operational and includes issues of supplying, delivering, ordering, and operational management with an exceedingly short term of focus; the first term tends to be more cross cutting and strategic and is related to establishing, organizing, and managing of the links between members of a supply chain and the results of supply risks. Organizations have only recently become interested in the matter of managing the risks of supply chains. In 2003, a British scientific journal found a workshop for supply chain risk management for the very first time (Logistics and Transport Focus; Rowat, 2003). This workshop gathered logistic professionals and experts in the line of supply chain management together. This workshop resulted in some useful suggestions among which was to To create a team for supply chain risk management that focuses on trying to identify, manage, and COPY RIGHT 2013 Institute of Interdisciplinary Business Research 976

reduce the risks along the large and extended chain of supply. That point in time was marked by the initiative of various events, and organizations forced to pay more attention to SCRM matters. Accidents such as September 11 th s attacks and the typhoon that throw South East Asia s suppliers into a confusion in 2001, and the Severe Acute Respiratory Syndrome s outburst in 2002 all depicted and proved the innate weaknesses in supply chains and the way they are managed. Supply chain risk management is a term that has been created in recent years. The term was used in two journals in 2003 one of which was in supply chain field, Supply Chain Management Review, and appeared in an article by Hauser (2003) called risk adjusted supply chain management ; while the other was in procurement area (or purchasing) in an article by Atkinson (2003) called SCRM Riding out global challenges. After the developments that were mentioned before took place both on professional experiencing level and practicing level, researchers started to explore these matters to a greater extent. Juttner (2005) was one of the first authors defining SCRM. He defined the term as identifying and managing risks of supply chain, using a coordinate approach between the members of the supply chain in order to reduce the overall supply chain s vulnerability. 4. Techniques to Minimize Risk A number of techniques have been developed as supply chain risk reduction methods, some of them have been investigated in the current study. These techniques have been categorized on the basis of their term including short, medium or long. Moreover in the other study, Tomlin (2006) has introduced and interpreted additional techniques with providing classification tactics of predicting reduction in use and responding methods which can be used in disruption. For instance, adaptability of volume is a reduction tactic that is suggested for reforming the suppliers in the interruption situations. Kleindorfer and Saad(2005) developed two groups of risks.first group is about the accordance of demand and supply and the other one is related to the reasons of probable events such as natural calamity, personnel strikes. In continue effective rules are suggested for disruption risk management related to the supply chain process; while most of them investigate internal and supply chains inter related organizational policies: (1) Integrating the supply chain that can be considered as an internal action,although compared with internal relation, optimizing is more suitable; (2) having various locations, resources, products, operational process and models, ready; detect the critical parts of supply COPY RIGHT 2013 Institute of Interdisciplinary Business Research 977

chain along with management system of tensions and early awareness; (4) evaluating potential risk and its probability, which can diminish them; (5) managerial exchange between the supply chain parties to strength the relations and total efficiency by the applying general operations; (6) wealth and support; (7) team work, collaboration and coordination between the partners of supply chain (8) Developing a continues evaluation system for finding out the weak points; (9) resource flexibility, modular design and ;(10) using total quality management (TQM) rules like for example six sigma as for diminishing the disruptive risks (Saad& Kleindorfr,2005). And also Suresh &Braunscheidel (2009) developed the market and its learning orientationin order to reduce the risk by considering the approaches for improvement of integration, dexterity and flexibility. In conclusion, based on the literature, 21 approaches have been developed as risk reduction factors. However, the most critical approaches have been investigated in the current study.based on the interviews, the following methods have been presented as the most useful tools for decreasing the risk. 1- According to the previous studies, stocks of internal security have great influence on supply risk reduction (Billington& Lee, 1993). Using stocks helps organization to deal with the fluctuation of supply flow, supply matters, interior production issues and local stocks; however, the costs of the storage and capital losses will be increased. 2. Using external security stocks as substitute is the nest solution. It is significant that suppliers are responsible for management and inventory excess. In different studies these responsibilities have been interpreted as VMI which is an abbreviation for Vendor Managed Inventory (VMI) or CMI, which is an abbreviation for Co-managed Inventory. Thus, the customer authority is an important element for supplier which related to the information exchanges and the level of reliability between the industry parties (Van, 2007, Yao, 2007). 3. The other technique was developed by Knemeyer (2005) about the multiply sourcing which can efficiently diminish the risk of supply chain by which organization have different suppliers. In this method,researches have shown that if the numbers of supplier increase, the costs will increase and also by means of capacity keeping the stack is impossible. On the other hand, the adaptability would increase the competitive advantage or in other words improve the organizations capability for dealing with the threats. 4. The next technique has been developed by Knemeyer (2009), which is an important part in different levels that can be used by the company in order to plan in the critical moments of supply chain s disasters. In deed four stage processes has been suggested in order to plan: (i) realizing the significant threats and location of supply chain, (ii) assessing the disadvantages COPY RIGHT 2013 Institute of Interdisciplinary Business Research 978

of each location. (iii) Assessing the alternatives against the location. According to Harland (2003), developing a characterize risk management in methods and being coordinate with different approaches which are needed for risk reduction is one of the most significant functions of the organization. Also taking part in designing a scenario for some Delphi studies and the panel of the experts concerning the predicting statistic methods is an efficientelement for improving the effects of new risk management. 5. The candidacy of the supply chain risk manager is the other method for management risk within the organization. In this method some retentive and developments would be provided for an individual within the organization, which are known as BCP an abbreviation for Business Continuity Planning (Zsidisin, 2005).Then, awareness would be created, which can protect the organization against the supply threats, probable risks and also knowledge management development. Mitroff&Alpaslan(2003) have suggested in their study a center by which the organization can evaluate the solutions related to the events, these solutions have been mostly expert from managers focus on SCRM. Through this method managers would come up with approaches and develop SCRM and tools. 6. Suresh and Barunscheidel (2009) introduced Information exchange and collaboration as the other method. They believe that using external integration with the other parties such as customers and main suppliers is an effective way in predicting the dexterity of supply chain by comparing the internal and external adaptability and integration. An organization can be able to reduce the processing time of finding solutions and also take better decisions in the uncertainty of markets environment related to the demand through improving the capability of external integrity in different ways such as sharing information (Huang & Liang, 2009). According to Christopher & Lee (2004), in the field of supply chain, the power lies within the information that is shared. The importance of the organizations ability in being visible in supply chain is related to their effectiveness and also their attempts to have an on time response to diminish the bad result of supply chain disturbance. In addition, an access to the efficient information system has a significant role in organizations visibility. Solidarity and cooperation are two other important elements in the supply chain (Smith, 2009). According to Lin and Li mentioned (2004), critical elements of SCRM success are interpreted as the uncertainty of suppliers, the cooperation of supply chain parties and unique vision of a supply chain s parties. 7. While disturbance and delays are interpreted as prediction aspects of a supply chain, developing effective programs for improving the performance of suppliers and production on COPY RIGHT 2013 Institute of Interdisciplinary Business Research 979

the basis of quantity and delays is an efficient method. In this method the significant and major function is to improve the performance of external partners through designing a structural purchase which leads to fill-ration improved order. Moreover, by these methods organizations would diminish some of their cost and increase their quality and delivery. 8. On the basis of Kleindorfer&Saad (2005) studies, the supply chain variation interest has been interpretedbased on the financial theories. Moreover, portfolio rule is developing mode of financial theory, in which a critical resultsindicate that portfolio diversification diminish the investors risk (Lavastre, 2012). In deed this theory generally is about the firm s application extension to compare possible location variation, produced products and services, applied available resources, operating process and modes. In brief,the mentioned method is concentrating on delivery, distribution and general operation through which an organization can lessen the potential risk. 9. In this method which is related to Harland (2005), the significance of the company in the center of SCRM and the supplying chain is discussed. To state it differently it can be said that based on the significance and the magnitude of the role it plays in the overall supply chain process; it can play a crucial part in developing an applying risk management techniques. Using its influence, the company in question can control the circulation of services and products among the members of the industry that are a part of the supply chain and offer a proper SCRM. 5. Conclusion Kleindorfer and Saad (2005) have developed two set of risks in relation to SCRM. The first set of risks is in relation with the supplies and demands being in accordance while the other set is related the causes of possible events like the strike of personnel or natural calamity. For this purpose, various methods for reducing the risks have been proposed by different experts like Smith (2009), Yao (2007), Lee &Billington (1993), and Van (2007). COPY RIGHT 2013 Institute of Interdisciplinary Business Research 980

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