Dealing with Product Uncertainties in a Supply Chain

The article “Aligning Supply Chain Strategies with Product Uncertainties” by Hau L. Lee is a good starting point for SCRM, since it combines a simple, business ready framework for two major supply chain risks.Furthermore it includes many examples to reinforce the theoretical framework.

All supply chain risks in this framework are built around the product in scope. From there two risks are assessed: Demand uncertainty and supply uncertainty.

Demand uncertainty

Lee tries to find demand patterns for different product categories, he therefore splits the products of a company into two categories: functional products and innovative products.
Functional products first of all have a stable demand, usually due to a long product life cycle. Usually the product variety is low and the volume per SKU high. The author correctly concludes: “Clearly, different supply chain strategies are required for functional versus innovative products.”

Supply uncertainty

As well as the demand side, the supply side risks are classified as well. Supply processes can be stable and evolving. Stable supply means: reliable suppliers, less process change and less quality problems. Evolving supply processes are those with still unreliable suppliers, eg. also limited supply sources.

Uncertainty framework

Building on these risks Lee derives the following risk matrix.

Uncertainty Framework (Lee, 2002)

After defining the risks of different product categories Lee explains what mitigation strategies should be used in each situation.

Matched Strategies (Lee, 2002)

Conclusion

This article can be perfect for consultants. The Uncertainty framework and the resulting strategies are described with easy to understand categories and graphics. But also for research it provides a basic framework for supply chain risks and the management. Possible extensions should include more risks. It would be interesting to see how this kind of framework scales with more risks and especially if it is possible to maintain the ease of use.