Global Supply Chain Complexity And Risk Management
Introduction
Consumers of food are actively seeking guarantees that the food products bought and consumed by them is of a similar high standard in terms of safety and quality while being consumed as against its safety and quality when it was manufactured. They want assurances that the food items they buy are safe and that they can trust the food manufacturers throughout the entire food supply chain. As we are progressing, newer and stricter laws and regulations related to food safety are being adopted all over the globe. Due to the onset of globalisation and opening up of international markets, transport of food related raw materials and finished products take a lot of time to transport over larger distance. As a consequence of these two factors, the food supply chain along with all of its components, is becoming more complex than ever.
Thus, due to this complexity, the probability of risks and disruptions in the food supply chain has also increased tremendously. In addition to this, catastrophic weather events like tsunamis, earthquakes, floods and so on have a devastating effect on the food supply chains and further increase the chances of disruption. This in turn has a profound financial impact on the organisations. The big size of the organisations involved, the operational aspects like seasonal production, long manufacturing lead times, different quality standards of food items and so on also add to the complexity which increases the food supply chain’s exposure to acute disruptions. Thus, due to this complexity, the probability of risks and disruptions in the food supply chain has also increased tremendouslyIn this report, we would be first identifying different prominent risks in relation to the global food supply chain. This would be done using different journals papers, academic articles, books as well related and appropriate online channels. Once different risk factors have been identified, they will be assessed and ranked using a risk map and risk score. After ranking the risks based on their severity, their qualitative and quantitative impacts would be explained. Lastly, the effects of lack of appropriate risk management techniques on an organization would be discussed.
Literature Survey
Supply chain risk is defined and interpreted in many different ways. Different people have different views and opinions as to what constitutes as a risk. Supply chain risks result from various uncertainties like capacity breakdown, quality issues, fires and natural disasters like tsunamis, earthquakes and so on. Various supply side risks exist in connection to product design, finished product quality, costing, feasibility, engineerability, supplier bottlenecks, legal compliances, environmental, health and safety issues. According to Ghoshal (1987), risks can be classified as:
According to Jüttner, Peck & Christopher (2003), different types of risk sources for supply chains may be organised into three different categories:
Different sources of risk can be variables related to different organisational, environment or supply side aspects which cannot be foreseen with confidence.
According to Tang (2006), risks can be classified as operations related risks and disruptive risks. Operational risks are uncertainties related to customer demands, supply and cost. On the other hand, disruptive risks result from natural disasters like tsunamis, earthquakes, flash floods, typhoons as well as man-made disasters like economic meltdown, cyber-attacks, terrorist attacks, currency fluctuations, employee strikes and so on. Another way of risk classification is:
Based on this literature survey and the Supply Chain Resilience report between 2013 and 2017, following list of risks can be considered as prominent in relation to food supply chain:
Undertrained staff.
Assessment of risk and disruption factors
Supply chain risk management can be termed as a method used to help avoid or reduce the negative effects of the risks and uncertainties on the supply. It consists of different the following different steps:
In simple terms, risk measurement is a combination of likelihood of occurrence and severity. Mathematically, risk is calculated as the product of likelihood of a risk event and the or severity (business impact) of that event. For any given risk, it is governed by the level of likelihood and the severity.
We are going to first assess and classify the risks based on the likelihood of them taking place and the severity of the impact they will have on the business.
Based on the risk map, we can see that adulteration of costly raw materials, food contamination and supplier bankruptcy are the top three disruption sources for the food supply chain. Any kind of risk has direct or indirect financial impacts on all the entities involved in the supply chain. Loss of productivity, increased cost of working, customer complaints, loss revenue and so on are some of the most commonly reported impacts of the risks. Every time, one consequence of a disruption leads to several other consequences in a chain of events which happen over a period time. An example; loss of productivity leads to loss of sales and income due to the increased cost of working. This delays the product deliveries which might result in loss of customers, eventually leading to customer complaints. The prolonged negative impacts of this are deteriorating brand value and image. For companies with listed shares on the stock market, share price erosion is a sure shot impact of the risks. This creates an uneasiness and dissatisfaction with the internal and external customers of the company as well as the shareholders. Thus we can see that there are qualitative as well as quantitative impacts if appropriate risk management techniques are not deployed to take care of the risks.
Supply chain risks are increasing rapidly in terms of occurrence and consequences. This is especially true for the food supply chain where the food products face several potential risks during their journey from the producer to the consumer and even before that as raw materials. For a food supply chain, most of the risks listed in this report cannot be completely avoided. The best that a firm can do is to try and reduce its impacts by various risk management techniques.
Around 11 risk factors under which 46 different risks were identified in this report. These risks were then ranked based on the risk rating score deduced by multiplying their likelihood score by the severity score. Adulteration of food and food contamination were identified as the top potential risks which should be addressed by all the managers involved in the food supply chain. A more exhaustive list of risks and in-depth report and analysis can be prepared upon more thorough interaction with the supply chain managers. Further, gathering more statistical and quantitative data would help to better analyse the food supply chain. This would help us in better understanding the different food supply chain risks.
Risk Identification
Conclusion
