Risk pooling mitigates demand and lead time uncertainty in logistics and supply chain management. Over the past decade, firms have observed more supply chain vulnerability than ever due to the. Methods of risk pooling in business logistics and their. The most important concept in supply chain management risk pooling risk pooling.
The main focus of this paper is to analyze the effects of risk pooling under different supply chain settings. A business is only as strong as the chain of suppliers it works with. Summary of lecture notes for chapter 2, simchilevi et al. New approaches for supply chain risk management abstract by chieh lee washington state university august 2014 chair. The problem has been decomposed by echelon using lagrangean relaxation. In this spotlight series, supply chain dive identified five types of supply chain risk, and some practical tips for mitigating them. There are numerous examples of the failure of a subcontractor bringing failure to overall projects. Inventory management and risk pooling in the supply chain part 1 duration. Supply chain system design integrated with risk pooling.
A risk pool is one of the forms of risk management mostly practiced by insurance companies. Inventory management and risk pooling in the supply chain. Supply chain process prompted us to design an integrated map that coherently. Supply base optimization 218 supply risk management 218 global sourcing 220. Jun 06, 2016 in an earlier series of articles part 1 and part 2, pierre mitchell and i emphasized how supply chain risk management scrm is becoming a top priority in procurement as organizations are losing millions from cost volatility, supply disruption, noncompliance fines and incidents that cause damage to the organizational brand and reputation. Download as pptx, pdf, txt or read online from scribd. Ensuring that your goods arrive on time is only a piece of the whole. Managing risk in supply chains business queensland. Supply chain risk management must also address unknown risks. Pdf risk management plays a vital role in effectively operating supply chains in the presence of a. A statistical concept that suggests that demand variability is reduced if one can aggregate demand, for example, across locations, across products or even across time. For example, in producing sugar the supply chain might involve sugarcane farmers, processors, packaging manufacturers, distributors, wholesalers and retailers. Both these situations are not desirable for a business.
Eric ting national taiwan ocean university department of transportation and navigation science. Pdf risk pooling, a technique to manage risk in supply. Why supply chain risk management is key to supplier management. Placing risk pooling in the supply chain, business logistics. Resulting residual risks are passed to enduser enterprises in the form of. Managing vendor relationships, building strong payment protocols, and knowing the. Supply chain risk pooling refers to the practice of consolidating as much of a businesss supply chain as possible into one flow. On the effects of risk pooling in supply chain management. In other words, its putting all your eggs in one basket. B8817 supply chain management inventory pooling and supply. Risk diversification and risk pooling in supply chain design. Section i understanding and assessing risk in the supply chain.
Risk pooling explains the idea of reduction in variability on how high demand from a customer is offset by low demand from another customer lund, 2000. The concept of risk pooling is widely and importantly used in supply chain management. The paper aims to understand buyersupplier power and dependence scenarios following a risk sharing contract. Purchasing and supply chain management fourth edition robert m. Activities identify the key supply arrangements for your organisation, driven by the key elements of your business strategy. Secure download servers against unauthorized and inappropriate access.
Pdf in the world of global competitiveness, every company strive to optimize its operations services in order to expand its. Jan 25, 2016 inherently forecasts are much more accurate at an aggregate level. Jan 08, 20 summary of lecture notes for chapter 2, simchilevi et al. In supply chain management, the two major applications of risk pooling center on form postponement and geographic postponement. Inventory management, supply contracts and risk pooling. Risk pooling running head risk pooling risk pooling ashley. Risk pooling is an important concept in supply chain management. Munson my dissertation topic lies under the general theme of supply chain risk management. John mannersbell clearly describes the evolving risks to supply chains and how multinational corporations should be dealing with them at a strategic level.
So leaders must recognize and work to understand the factors that promote strong risk management in the supply chain. Pdf risk pooling, a technique to manage risk in supply chain. Supply chain risk management and the software supply chain. Supply chain of apple, dell or any other company and then try to visualise the supply chain from sourcing part to the distribution part of the company. If loss occurs, the level of damage mitigation and postrisk response that is. Supply chain minded is a very active and fast growing online supply chain community. The most important concept in supply chain management risk. Now also an important supply chain management concept, risk pooling reduces. Riskpooling strategies to reduce and hedge uncertainty redesign the supply chain, production process or product to either reduce the uncertainty a firm faces or. The problem is mixed integer nonlinear problem and decomposed into two stages.
Difficulties the students focus on correctly following the rules, not developing an effective strategy demand pattern does not reflect a realistic supply chain scenario doesnt demonstrate several important issues in scm the real objective is to minimize the total system cost, not individual performance. Risk diversification and risk pooling in supply chain. Supply chain risk is depth the number of layers of supply in which the risk is assessed and managed. The most important concept in supply chain management. Highlights this paper considers the location, productiondistribution and inventory. In form postponement, the objects being aggregated are products i. Risk pooling effect is incorporated in the system to minimize the supply chain cost. Apr 03, 2008 this is in contrast to the classical result that when supply is deterministic and demand is stochastic, centralization is optimal due to the risk pooling effect. Supply chain assets may face loss due to the unknown risk. We aim to inform and connect professionals active in supply chain, purchasing, manufacturing, warehousing, transport, distribution. Supply chain risk management a framework for assessing risk introduction. Supply chain risk assesses the various sources of external threats, including environmental, geopolitical, economic and technological. Risk diversification and risk pooling in supply chain design article in iie transactions 448.
Jan 26, 2016 supply chain risk can be a confusing idea. Mar 04, 2009 risk pooling strategies to reduce and hedge uncertainty redesign the supply chain, production process or product to either reduce the uncertainty a firm faces or hedge uncertainty so that the firm. Increased risk to supply chains are due to evolving dependence on globally sourced commercial information and communication technologies ict for mission critical systems and services. Aug 07, 2017 todays risks are so diverse, it can be tough to prioritize. Risk pooling, a technique to manage risk in supply chain management. Search our database for more risk pooling downloadable research papers. Extend physical and logical security to electronic supply chain product and data flows, and supply chain data. Using risk sharing contracts for supply chain risk mitigation. If the forecasts are inaccurate you either risk having too much or too little of a product. Use authenticated, encrypted channels for supply chain data.
Table of contentsi 1 introduction 2 the theory behind risk pooling 3 a case study 4 observations from the case. Risk pooling is an efficient and promising strategy to meet this challenge by reducing the underlying demand uncertainty through aggregation. The ten risk pooling methods can be implemented everywhere along the supply chain and mainly pertain to the value activities storage 1, transportation 2 and 3, procurement 4 and 5, production of goods and services 6, 7, and 8, and sales and distribution 9 and 10. Sc1x supply chain and logistics fundamentals lesson. This article overviews the five key risks of price, quality, delivery, legal and reputation. The primary challenge in supply chain management scm is matching supply with uncertain demand. Decentralized systems practical issues in inventory management inventory where do we hold inventory. The 5 types of supply chain risk supply chain dive.
The study develops a supply chain risk sharing contract to mitigate demand uncertainty and price volatility related risks in a globalised business environment. First introduced in the supply chain context in designing and managing the supply chain, risk pooling is a statistical concept that suggests that demand variability is reduced if one can aggregate demand, for example, across locations, across products or even across time. Supply chain risk management the drive to improve cost efficiency and streamline operations motivates many in both the public and private sectors to expand partnerships, increase outsourcing of noncore activities, and expand their global footprint into new territories. When both supply may be disrupted and demand is stochastic, we demonstrate that a risk averse firm should typically choose a decentralized inventory system design. When one business within the supply chain fails to deliver their product or service to the next business in the chain, the entire supply chain can be disrupted. Limit suppliers in selection pool 244 determine the method of supplier evaluation. Good practice and preparation is key to improved responsiveness to what is unknown. Introduction to supply chain management instructor.
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