Monday, September 22, 2014
Managing Supply Chain Network Under Risk
Supply chain network design is a very critical and an important process. It involves many strategic decisions like facility locations and tactical decisions like inventory. Traditional supply chain models have ignored the long-term co-relation between the two, but now integrated supply chain models have emerged. A limitation of most supply chain models is that they assume that most of the facilities run smoothly without taking the environment or external factors into consideration. Therefore, supply chain models with disruption consideration have come to attention recently.
Every supply chain, logistics system and infrastructure network is subject to disruptions. Although supply chain disruptions have existed as long as supply chain, they have received recent attention because of some high-profile disruptions like hurricane Katrina in 2005. Another reason is the focus on lean management, which calls for slimming down processes by cutting down waste. Although they’re effective when the environment is behaving as predicted, they’re fragile and disruptions can leave them virtually paralyzed. Supply chain networks are usually multi-location entities. Having disruption in any one location will have a cascading effect on the other locations. For example, two strikes at General Motors Plant in 1998 led to the shutdown of over 100 plants in other locations, which caused closure of 26 assembly plants eventually leading to empty dealer lots.(1)
Supply uncertainty and demand uncertainty, both share similarities. They are the reasons for not having enough supply to meet demand. So companies try to compensate by holding extra inventory, having multiple suppliers or try to improve forecasts with better software and algorithms. As supply chains become more efficient, they increasingly become more vulnerable to disruptions. Globalization is also a contributing factor to the increasing length of supply chain. The increase in the risk factors in the supply chain have made it challenging for businesses to operate and the resources to mitigate these risks have become more limited with time. There are two reasons which have made the environment more risky: adopting lean management which results in lack of resources to handle the impact of disruptions and outsourcing which causes a loss in control of resources. (2)
What arouses my interest are the changes brought about in the pharmaceutical industry because of so many Mergers and Acquisitions, how are companies designing their supply chain network to ensure optimized use of their drugs? If international, how are they dealing with the Government regulations in terms of storing, transporting and commercializing their products?
1. 1. 10 things to know about historic 1998 UAW strike against General Motors in Flint (with photo gallery from strike) – www.mlive.com
2. 2. How to handle disruptions in supply chains – An integrated framework and a review of literature – www.academia.edu