Risk Management in Supply Chain

Its in the nature of being human that one they realize that their “stuff” as a consumer wont be available to them anymore they start to hoard at whatever is available. A similar effect takes place in the industrial level also says Stanford Professor Hau Lee. This results in very significant financial losses from things like excess inventory or inventories that are mismatched, thus causing spiraling downward effect from the suppliers to manufacturers. His research paper talks about reducing a significant amount of risk by sharing information throughout the supply chain and develop a concrete plan when these kinds of trouble loom over distribution channels.

The demand supply model of goods throughout the world has somewhat been disrupted by many of the early 21st century incidents like the war on Iraq, the 9/11 terrorist strikes, the Outbreak of SARS and bird flu. The paper begins with Lee, the Thoma Professor of Operations, Information, and Technology, started his research in 1998 as he was investigating the confidence drop in supply chain according to an article on The New York Times. He noticed that everything there was an upset in the system like the dot com bust or the Y2K panic, many companies over the world began to overreact causing drastic fluctuations. The paper named “Mitigating Supply Chain Risk Through Improved Confidence”, co authored by Martin Christopher, professor of marketing and logistic at UK’s Cranfield University, parallels many case studies that they have written since then. The research by them states that when companies start to get worried that products, materials or components will not get delivered on time, they choose inefficient practices like using lower quality local suppliers, holding inventory, padding delivery time to customers. These responses are highly irrational, states Lee, apart from costing money, putting companies at risk of financial loss, alienating loyal customer base. These are primary effects of a distorted supply chain forced to go awry. The research gives an example of Cisco Systems, claimed as one of the most expensive examples. In the 1990’s the company could not keep up with the network infrastructure products, so all levels of the supply chain buffered themselves by placing additional orders, which caused Cisco to inflate inventory. When the market demand declined in 2001, Cisco was left with $2 billion of excess inventory(Lee,2004).

Sharing information about their markets, sales and production timetables with other partners across your supply chain can help regain confidence in supply chain notes Lee. "Having good information systems that talk to one another through real-time Internet technologies is critical for