Internal

How Risky is your Company?

Daniel Dumke — Mon, 05 Sep 2011 14:36:00 +0000

Today I picked a special article on corporate risks. “How Risky is your Company?” by Robert Simons of the Harvard Business School. Its a more business oriented view on how companies should handle risks, internally. But since internal risk management can be seen as a part of supply chain risk management, I also include it here.

Risk exposure

This article is about how risky one company is. About the internal risk. And by these risks, the author does not so much refer to the production processes, but the softer risks of managing a company.

The key contribution of Simons is the Risk Exposure Calculator. Of course not all risks are unintended. Most people would argue that risk is part of doing business, so a good risk calculator would only include the unwanted and unrecognized risks.

It is also not the goal to find one specific number to pinpoint the risks of a company, but to give hints for improvement.

Risk Exposure Calculator

The key elements of Simons calculator are three internal pressures: due to growth, culture and information management. A version of the calculator can be found in figure 1.

Figure 1: Tool to Calculate the Risk Exposure of a Company (Simons, 1999)

There are three pressure points in each category:

Growth

Pressure for performance
Setting challenging goals can have stimulating effects on employees, but also increase risks when employees try everything to achieve those goals: “They may, for example, accept customers with poor credit ratings or cut quality to accelerate operations.”

Rate of expansion in operation
If companies are expanding at a faster rate than the knowledge of their employees, it can also lead to additional risks: “Managers should ask themselves: Are operations expanding faster than our capacity to invest in more people and technology?”

Inexperience of key employees
This can also be a problem in times of growth, when key managers are employed without sufficient training.

Culture

Entrepreneurial risk taking
Risk taking is part of daily business and also a reason why a profit can be reaped from those deals. But of course, the more risk a company takes the more it has to take care of.

Bad news
This point measures how information, especially the bad news, travel upwards to the management. So the questions to ask here are: “How much bad news do I actually hear? Have I surrounded myself with ‘yes men’?”

Internal competition
For some conglomerates this last cultural pressure point is just the way of making business. But internal competition can also have negative effects like decreased information sharing within the whole company, and thus increasing risks.

Information Management

Transaction complexity and velocity
“To determine the score on this point, managers should do a rough calculation in their heads. What were the complexity, volume, and velocity of information a year ago? Have they risen, and by how much?”

Diagnostic performance measures
Simons argues that performance measures are often neglected in times of growth. This point should have a high score, if there is: “a feeling of frustration – a sense that it’s hard to get the right data at the right time. When there are gaps in diagnostic performance measures, managers end up getting the information they need by making phone calls and walking around. In short, they spend a lot of time doing the work a computer system should be doing.”

Decentralized decision making
The last point here is decentralized decision making, which can be used to improve motivation and performance. But also local managers often do not fully follow the guidelines set by the company and also information flow might be disturbed.

Overall the risk index can be calculated by adding up the individual scores. But the insights you gain are by answering the questions and not by the resulting number alone.

Controlling internal risks

Simons suggests ways to manage the above mentioned risk by focussing on five questions (figure 2).

Figure 1: Ways to improve Control and Reduce Risks within a Company (Simons, 1999)

Conclusion

This article after all was more inward facing than I thought, but nonetheless operational risks are an important part of every-day business and of course strategic management. Operational risks as described here probably became a little outdated due to some unpopular initiatives as the Sarbanes-Oxley Act (USA) or BilMoG (Germany), but there is a lot of potential for improvement and Simons describes several good cases supporting his points.

The major conclusion from his research is the contradiction between risks in times of high growth. All the risks Simons presented are usually growing during the “good times” when the business is growing. And many cases show that those risks can be the reason why those companies went out of business after the growth period was over.

This research can give you clues where improvements are necessary and also shows levers to improve control within the company again.

Reference:

Simons, R. (1999). How Risky is your Company? Harvard Business Review, 85-94

Rate This:

Tags:

Internal

operational

risk management

Supply Chain Risk Management Thesis (Impact of demographics on supply chain risk management practices)

Daniel Dumke — Sun, 13 Mar 2011 12:22:00 +0000

This is somewhat of the fifth contribution to my series on doctoral dissertations, apart from not being a doctoral thesis but a master thesis on Supply Chain Risk Management. Nonetheless, an immense effort and dedication is spent on these works only to find the results hidden in the libraries. So the goal is raise interest in the research of my peers.

Author / Topic

This thesis was written by Kenneth Kanyagui in 2010 as his master thesis at the Massachusetts Institute of Technology, Cambridge, USA. It can be downloaded here directly at the MITs web site. It has been supervised by Bruce Arntzen of the Center for Transportation & Logistics. The title is:
Impact of demographics on supply chain risk management practices.

Summary

In his thesis the author explores an interesting question: How do demographic factors affect supply chain risk management practices by supply chain professionals? Eg. are some demographic factors in managers hint for more elaborate SCRM practices?
Kanyagui used a survey to gather the data needed. Overall 1461 people from 15 countries completed the survey. The following factors influence the inclantaion of a company to have a risk manager:

Size of a firm in term of number of workers
Length of a time spent at a firm (by the respondent / supply chain manager)
South Africa and Switzerland are likely to establish risk managers

The particular sector / industry did not matter much for predicting responses to the risk manager question.

Additionally, there are several factors that affect if companies are working with suppliers on supply chain risk management.

The size of a firm, especially in terms of number of workers
Geography, especially for those coming from Mexico and South Africa
Educational background of the respondent, especially those who studied teaching or the liberal arts

Impact of Company Size on the Inclination to work with Suppliers (Kanyagui 2010)

Conclusion

There are some interesting findings from this survey and the scientific rigor seems to be held high at the MIT. Eg. using a survey review board (Committee on Use of Human Experimental Subjects) which sets certain standards for the execution of surveys.
From the overall possible factors only few seem to have an effect on the supply chain risk management employed. Nonetheless, those that have an effect are an interesting topic for further analysis.

Reference:

Kanyagui, K. (2010). Impact of Demographics on Supply Chain Risk Management Practice Massachusetts Institute of Technology, Master Thesis

Rate This:

Tags:

Risk from the Managers Perspective (Part 2)

Daniel Dumke — Fri, 12 Nov 2010 11:37:00 +0000

Today I will write about the implications of the risk understanding by managers covered in Part 1 of this series. After observing the mentioned factors on how managers perceive risks the authors categorize their conclusions in three areas.

Insensitivity of Risk Taking to Probability Estimates

[Decision makers] do not trust, do not understand, or simply do not much use precise probability estimates.

This quote summarizes one of the major findings. Probabilities – not risk at large – are not well understood and handled by managers. This is especially fatal when considering disruptions, events with low probabilities but high adverse effects. Because these events are then ignored since managers are overwhelmed by their sheer number. And of course this leads to organizations which are always surprised by events that they did not think of.

In some of my interviews during my research with business executives I spotted the same behavior: supply chain managers that never have thought of the possibility of a strike, a fire or another catastrophe. But the number of managers on the other end – so really managing these risks – seems to be even lower.

The Importance of Attention Factors for Risk Taking

Empirical research – as for example in Part 1 – indicate that risk preference varies with the context in which the decision has to be made. This includes everything from individual feelings of the manager, how and by whom the data is presented, the company context, etc.

In human decision making there is always the tendency to focus on a few key aspects of a problem at a time. Therefore it is of the utmost importance to define and calculate the key metrics correctly, but often not only the measures may pose a problem but also the target levels to assess performance (eg. break even) and survival levels. These two reference points partition possible states into three: success, failure, and extinction; and with that massively influence decision making in each of the three categories

Risk Taking, Gambling, and Managerial Conceit

Managers do care a lot about their reputations for risk taking, on the other hand are eager talk about how they assess the qualities of others in this regard and on the inadequacy of organizational incentives for making risky decisions intelligently. So risk taking seems to be a very important part of their definition of life as a manager. It is important to take risks, but not to “gamble”.

Hence, it is amazing to see that managers are still rewarded for good outcomes rather than good decisions (making).
The authors see this point very critical

Society values risk taking but not gambling, and what is meant by gambling is risk taking that turns out badly. Thus, risky choices that tum out badly are seen, after the fact, to have been mistakes. The warning signs that were ignored seem clearer than they were; the courses that were followed seem unambiguously misguided.

Conclusion

The authors conclude with the following recommendations for the proceeding:

Short run: Measures have to be designed which accommodate for these findings, but more importantly there has to be a concept on how to steer risk taking by managers.
Long run: These findings might have implications for the education of managers to improve the individual risk taking.

We may prefer to have managers imagine (sometimes falsely) that they can control their fates, rather than suffer the consequences of their imagining (sometimes falsely) that they cannot.

This article has been written in 1987, nearly one generation ago, but to be honest I believe most of the results are still true nowadays (to my knowledge there has not been another similar study, yet). Sadly, I do not think that neither companies have improved decision making nor education has picked up much. In my point of view the handling of decision making under uncertainty should be supported by IT and the organization.

Reference:

March, J., & Shapira, Z. (1987). Managerial Perspectives on Risk and Risk Taking Management Science, 33 (11), 1404-1418 DOI: 10.1287/mnsc.33.11.1404

Rate This:

Tags:

Risk from the Managers Perspective (Part 1)

Daniel Dumke — Wed, 10 Nov 2010 08:43:00 +0000

Today I finally read one of the most cited articles on subjective risk in general. In 1987 March and Shapira set out to shake up the existing theories on the perception and processing of risks by managers. Accordingly, they aggregated the information from various surveys on this topic.

The article is called “Managerial Perspectives on Risk and Risk Taking” and it can be downloaded here as PDF and I really recommend reading it.
In the first part I will analyze major empirical findings on how managers perceive risks, the second part will cover the implications from that and will be published this Friday.

Definition of Risk

Usually risk can be defined as a combination of an outcome and uncertainty / probability component. And most people would agree: An alternative with higher outcome is better and one with more uncertainty is worse. Decision theory therefore used the concept of the variance of the outcome distribution to describe risks and many models are based on this. But does this reflect how managers defines risks?

Probably not, the authors show that…

Most managers do not care about uncertainty of the positive outcomes: Eighty percent of the executives said they considered the negative ones only
For managers risk is not so much about probability, but much more about the magnitude of possible bad outcomes, so managers do not seem to be risk averse in general but more loss averse (with a clear focus on the amount not the probability)
Although many managers use numbers for quantifying risks and 42% argued that there was no way to translate a multidimensional phenomenon into one number. Interestingly 24% of the same managers felt it could be done and with additional probing said that actually it should be.

The last point is supported by a common quote:

A senior vice-president observed: “You don’t quantify the risk, but you have to be able to feel it.”

Attitudes toward Risk

It has been acknowledged for some time now that decision makers do not necessarily act purely rational, so several concepts of risk aversion have been developed from a theoretical point of view. But how do managers think about risks.

There are individual differences on the degree of risk aversion, but these differences are less influential than other differences in “incentives and normative definitions of proper managerial behavior”
Some managers show a very negative attitude towards individual risk taking (vs. group decision or “gambling”), this behavior is particularly characteristic of managers who see risk as single construct of the magnitude of the expected loss (ignoring the probability)
Managers tend to believe they are greater risk takers than they are in reality
Motivations to take risks

Risk taking is essential to success in decision making
Risk taking is an expectation on their job
Emotional pleasures of risk taking

Most managers would take more risks when faced with a failure to meet targets than when targets were secure. Furthermore, managers would take riskier actions when their own positions or jobs are threatened then when they are safe

Dealing with Risk

In theory dealing with risks is easy since there are alternatives to choose from and depending on the individual definition of risk and the risk preferences (see above) the correct decision is made. But the behavior of the decision makers shows distinctive features as well.
Very often manager focus on ways to reduce the negative outcomes while retaining the gain of a given alternative. The easiest way to do this is to reject the estimates which form the basis of the proposed alternative. And even after doubting the odds executives still feel that they will be better of since they expect being able to avoid the risks using their experiences.

Go on reading Part 2.

Reference:

March, J., & Shapira, Z. (1987). Managerial Perspectives on Risk and Risk Taking Management Science, 33 (11), 1404-1418 DOI: 10.1287/mnsc.33.11.1404

Rate This:

Tags:

Organizational Risk Perception and Reduction

Daniel Dumke — Wed, 03 Nov 2010 09:55:00 +0000

Today I read a rather old article from 1995 about “Organizational Risk Perception and Reduction: A Literature Review” by Vincent-Wayne Mitchell, now at the Cass Business School in London. I present it here since I think most of the concepts and strategies are still valid.

Objective and Methodology

The objective of Mitchell was to show the status of current research on how risks are perceived in organizational buyer behavior and what can be done to reduce these risk. He therefore conducts a review of the current literature.

Figure 1: Factors affecting organizational buyers’ risk perception (click to enlarge; Mitchell 1995)

Risk Perception

In figure 1 Mitchel aggregated the factors which enhanced risk perception and how it could be reduced. In the following I focus on the available strategies for reducing risks:

Information gathering
This strategy is obviously used when perceived risks are high, it can be categorized by the amount of information sought and the nature of it.
Approved supplier lists
This has been a key strategy for a long time now, already in 1995 more than 63% used it.
Group decision making
There are still different results on wether this strategy can reduce risks, in any case this tool has to be carefully designed for the company using it.
Deliberation
Time spent on high risk purchasing decisions is usually significantly higher than on the low risk cases
Highly structured purchasing procedures
A highly structured purchase procedure acts as a defence mechanism, diffusing or precluding high levels of psychosocial risk
Quantitative Techniques
It can be argued that the implementation of expert systems will lead to less complex and political decision processes, which also might lead to less risk.
Multiple sourcing and split procurements
is a typical strategy to reduce risk of interruptions of one supplier
Partnering and Alliances
Long term relationships and the trust involved can lead to reduced risk, as long as dependence is not to high
Consider more suppliers
If the perceived risk increases the number of considered suppliers is increased
A leading company in the field
Buying from a “brand” company might reduce risks for industrial buyers as well.
Performance Guarantees and Penalty Clauses
For a supplier a performance guarantee is sometimes the best way to reduce perceived risks on the client side
Multiple incentive contracts This strategy can help to align the goals between supplier and buyer.
User participation
Involving users in the purchase decision can help to reduce risk in two ways. First, it can bring specialized knowledge to bear on a decision. Second, it gives users a stake in the decisions affecting them.
Source loyalty
Buying from known sources can reduce risks as well

Conclusion

Again, I am wondering why the title of the article has to be so misleading. Of course it is on organizational risk perception, but it focusses solely on buy side risks. But purchasing is also an important corporate function so it is surely no time wasted.
But I am also missing a clear differentiation between the terms “perceived risk” and “risk”. Here the discussion is completely lacking: There exists a theory, that all risk can always be only seen as perceived risk, since a measure for uncertainty can never be given with certainty, even for a dice you never know if it is a perfect one. The strategies also show this lack of discussion, there are some strategies concerned with reducing the actual supply side risk (like information gathering) and there are strategies which mainly deal with reducing the perceived risk of the buyer (like having a structured process to support the decision maker).
As a third critique I am missing some more categorization of the strategies as well, several strategies could be aggregated under the topic “if there is more risk, you have to invest more time for analysis” and “usage of trust to reduce risk”.

Reference:

Mitchell, V. (1995). Organizational Risk Perception and Reduction: A Literature Review British Journal of Management, 6 (2), 115-133 DOI: 10.1111/j.1467-8551.1995.tb00089.x

Rate This:

Tags:

Supply Chain Integration as major Value Driver

Daniel Dumke — Mon, 11 Oct 2010 08:27:00 +0000

“Arcs of integration” is a concept developed by Frohlich and Westrook (2001) which describes the degree of integration of suppliers and customers within a Supply Chain.

Arcs of Supply Chain Integration (Frohlich and Westrook, 2001)

Methodology

This concept was developed within the scope of an international study on supply chain strategies. In this survey the authors used the mail survey research method to collect over responses form over 700 companies from all over the world (Asia/Pacific: 26%, Europe: 50%, North America: 14%, South America: 10%). Data was gathered not only on the supply chain integration of each respondent (eg. shared access to planning systems, shared production planning, knowledge of inventory levels), but also on performance parameters on each company (eg. market share, profitability, return on investment).

Strategies

There are two major tactics for supply chain integration:

coordination and integration of the forward physical flow of deliveries between suppliers, manufacturers and customers
backward coordination of information technologies and the low of data from the customer to the suppliers

The authors distilled five different strategies from the answers from the survey:

Inward-facing
for companies without much up- or downstream integration
Periphery-facing
only little integration in both directions (compared with other companies from the sample)
Supplier-facing
higher integration on the supply side, low integration on the customer side
Customer-facing
vis-versa to 3
Outward-facing
strong integration on the supply and customer side

Results

The results show that those companies applying an outward-facing strategy clearly recorded greater rates of performance compared to all other strategies.

Comparison of different Strategies for Supply Chain Integration (Frohlich and Westrook, 2001)

The authors draw the following conclusions from the data:

The outward-facing supply chain strategy is associated with the largest rates of significant performance improvements.
Manufacturers may be seriously jeopardizing performance by continuing to follow the inward-facing strategy.
Results for the supplier- and customer-facing strategies suggested that focusing on only the inbound or the outbound sides of the supply chain gained little more for manufacturers than adopting the periphery- or inward-facing strategies.
Over 40% of the sample was in the periphery-facing group. This suggests that periphery-facing may be the supply chain’s natural “equilibrium point” in terms of integration.

Conclusion

I can really recommend this article as a read and the first article I know which shows the connection between the degree of supply chain integration and performance levels.

Reference:

Frohlich, M., & Westbrook, R. (2001). Arcs of integration: an international study of supply chain strategies Journal of Operations Management, 19 (2), 185-200 DOI: 10.1016/S0272-6963(00)00055-3

Rate This:

Tags:

supply chain management

survey

Internal

Process oriented Risk Management of Product Risks (Dissertation)

Daniel Dumke — Tue, 14 Sep 2010 23:36:00 +0000

This is the second contribution to my series on doctoral dissertations on Supply Chain Risk Management. An immense effort and dedication is spent on these works only to find the results hidden in the libraries. So the goal is raise interest in their research.

Author / Topic

This dissertation was written by Jörn Dahmen 2009 as his doctoral thesis at the RWTH, Aachen (one of the most renowned Technical Universities in Germany). It was published by Shaker, Aachen and can be ordered here from amazon.deor your local library. The title can be translated as:

Process oriented Risk Management of Product Risks

Summary

The dissertation is a short read with 140 pages. The goal of this dissertation is to create a framework for the management of product risks. Product risks combine the risks associated with the product. Nowadays the risks associated with the product-customer relationship are usually highly regulated by law (product liability), so increasing product complexity can lead to higher product risks.

The framework is straight forward and consists of three elements:

Risk management elements
containing the risk policy, analysis, measures and monitoring
Drill down view
The aforementioned risk management process has to be repeatedly executed for different levels of detail in the company.
Execution
The measures have the be elaborated in teams and executed to be effective.

The author then tests his framework at three different companies (automobile, turbine and cable car producer) and provides evidence that his framework is effective in managing product risks.

Conclusion

Jörn Dahmen delivers a well structured work on product risks and its management. The focus the dissertation sheds light on an often neglected risk. The case studies were interesting and supported the study very well. Caveat: I was missing some really new aspects on the differences of managing product risks.

Reference:

Dahmen, Jörn (2002). Prozeßorientiertes Risikomanagement zur Handhabung von Produktrisiken Shaker, Aachen, Dissertation

Rate This:

Tags:

Identifying important Activities within the SCOR Processes

Daniel Dumke — Mon, 16 Aug 2010 10:07:00 +0000

The Supply Chain Operations Reference (SCOR) model has been developed by the Supply Chain Council to provide a best-practice framework for supply chain management practices and processes with the goal to increase performance.

SCOR

The SCOR model consists of five major process categories: Plan, Source, Make, Deliver and Return

Starting from that best practice processes are defined up to level three.

Supply Chain Operations Reference Model (SCOR, SCC 2000)

Research Question

In 2004 Lockamy and McCormack published an exploratory study on the question

What are the most important supply chain management planning practices in the Plan, Source, Make, Deliver decision area that relate to supply chain performance?

Results

From literature and the questionnaires nine general practices are derived, that might influence performance.

Planning processes
Collaboration
Teaming
Process measures
Process credibility
Process integration
IT support
Process documentation
Process ownership

Using factor analysis the authors find that “Planning processes” and “Collaboration” is especially important for supply chain performance within all SCOR process categories. The aggregated results are shown in the following table.

Results Lockamy and McCormack (2004)

Reference:

Lockamy, A. III, & McCormack, K. (2004). Linking SCOR planning practices to supply chain performance: An exploratory study International Journal of Operations & Production Management, 24 (12), 1192-1218 DOI: 10.1108/01443570410569010

Rate This:

Tags:

supply chain management

Internal

Effects of S-OX on Supply Chain Professionals

Daniel Dumke — Fri, 23 Apr 2010 15:25:27 +0000

The benefit of the Sarbanes-Oxley-Act of 2002 have been widely discussed. Most people have either a negative or a ambivalent view of the resulting compliance activities.
Usually S-OX is seen in the domain of the accounting and finance departments. Effects on other corporate functions are often neglected.
The article by Kros and Nadler (2010) analyzes why and how supply chain professionals and supply chain activities might be affected by S-OX.

Elements of S-OX

The purpose of the Sarbanes-Oxley-Act is “to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes”

The major part of S-OX activities usually focus on the correct publishing of the financial statement (accuracy and presentation), but section 401 also includes off-balance sheet activities.
The article of Kros and Nadler (2010) mentions the following activities which are relevant for the supply chain manager.

vendor managed inventory agreements
long term and short term purchase agreements
long term and short term purchase agreements
outsourcing agreements
inventory accuracy

Compliance activities are directly induced by section 404, requiring the “Management of Internal Controls” and indirectly by section 802, which contains the criminal penalties for executives for non-compliance.

Research

The research was conducted using a survey of supply chain professionals.
The respondents had as average more than 10 years work experience. The industries were widespread, with the major industries being manufacturing (41%) and construction and healthcare (each 11 %).

Results and implication

The majority of respondents were familiar with S-OX. Publicly held firms had a greater level of familiarity than privately held companies.

Furthermore, stronger S-OX compliance led to more positive effects on off-balance sheet activities such as vendor managed inventories, short-term purchasing agreements, long-term purchasing agreements, and outsourcing agreements

Lastly, supply chain managers who spent more than 15% of their time to ensure S-OX compliance showed a more negative perceptions of S-OX.

So can a company learn from these results:

More focus on achieving S-OX compliance can have other positive effects on off-balance sheet activities as well. (eg. better information flows)
It is important to keep the time spend on S-OX activities per person as low as possible, either by reducing the manpower needed as a whole (eg. by automation of control activities) or by distributing the tasks among more employees.

Conclusion

Other studies like Stengel et al. (2010) show that ensuring S-OX compliance can help achieving other goals as well. This seems to be founded in the heavily structured approach to document and test every relevant control found.

Overall the study leaves some open issues. For example, prior to the main survey a pilot survey was started (100 participants, using email). A overwhelming response rate of over 30% was achieved here! The response rate of the whole sample was only about 10% and I am missing a explanation for this gap.

Reference:

Kros, John F., & Nadler, S. Scott (2010). The Impact of Sarbanes-Oxley on Off-Balance Sheet Supply Chain Activities Journal of Business Logistics, 31 (1), 63-77

Stengel et al. IKS – Interne Kontrollsysteme nach der 8. EU-Richtlinie. Zeitschrift für Recht und Rechnungswesen (2010) vol. 22 (86) pp. 86-92

Rate This:

Tags:

compliance

sox

Internal

Job dissatisfaction and supply chain risk

Daniel Dumke — Thu, 11 Mar 2010 20:05:00 +0000

Jiang et al. (2009) wrote about job dissatisfaction of workers at suppliers in developing countries.

Goal & Methodology

The goal of the study was to analyze risk in a global supply chain, especially originating from labor dissatisfaction and turnover. The results were obtained using a survey of workers in the Chinese Pearl River Delta region. The methodology is presented precisely and comprehensively.

Risks & Mitigation

Three major risks are resulting from high turnover and job dissatisfaction: 1) A cost risk emerges directly from turnover costs and indirectly due to rising wages. 2) Job dissatisfaction can lead to operational risks (eg. low quality, not meeting schedules) 3) There can also be reputational risk, if low production costs are achieved by low standards for health, safety and welfare issues.

Risk mitigation measures in this case must be different to those in other markets, since labor markets behave quite differently to other input markets.

Labor quitting or turnover is a more social or collective decision making process

Therefore it is influenced by many factors at once.

h5. Study design & Results

Six factors which influence the quitting decision have been identified.

Correlation between influencing factors and the decision to quit the job
Factor	Correlation	Description
HR management at the supplier	positive	Up to now there is only little effort by chinese manufacturers to improve the HRM, since labor turnover is seen as costless or at least less expensive than investing in HRM.
Production- & operations management	positive	Job satisfaction declines rapidly with POM practices-related problems.
Attitude towards the relationship with the buyers	positive	The relationship with the buyers has influence on many aspects of the work environment within a supplier and therefore influences the job satisfaction of the workers.
Working conditions	no correlation
Compensation issues	weak correlation	Interestingly the correlation for compensation issues is only weak, probably since the expectations of the workers in this respect are usually quite low.
Opinion of industry	no correlation

h5. Implications

To lower the induced risks the results imply that suppliers should improve POM and HRM issues, thereby improving job satisfaction. The study also shows that buyers might be able to lower these risks directly by adjusting their behavior within the relationship to the supplier and indirectly by influencing the supplier to improve POM and HRM issues (see also the article about Supplier Responsibility at Apple Inc.).

h5. Summary

The article presents the methods used very completely, even the limitations are nearly complete so I only can list them: Survey was only conducted in a single country, there was no separation of successful and unsuccessful factories and neither the management of the supplier nor the buyers were included.

The magnitude of the resulting risk was never made clear. Especially in manufacturing jobs with only low requirements on the skills of the workers the risk of loosing an employee might prove to be only minimal since he/she can be replaced without major training cost. Particularly in a study on the manufacturing industry in developing countries this topic should have been addressed.
Do not hesitate to leave your comments below.

Reference:

Jiang, B., Baker, R., & Frazier, G. (2009). An analysis of job dissatisfaction and turnover to reduce global supply chain risk: Evidence from China Journal of Operations Management, 27 (2), 169-184 DOI: 10.1016/j.jom.2007.09.002

Rate This:

Tags:

risk

Internal

Supply Chain Compliance for Risk Mitigation

Daniel Dumke — Wed, 24 Feb 2010 14:33:00 +0000

Supply Chain Compliance

Apple Inc. recently published their Supplier Responsibility Report (PDF) for 2009.

In this report Apple elaborates what measures they are taking to ensure a broad set of goals at the inbound side of their supply chain. They especially address possible problems at their asian suppliers.The Supplier Code of Conduct contains the following topics:

Labor and Human Rights (eg. fair treatment, working hours, wages)
Health and Savety (eg. emergeny prevention, ergonomics)
Environmental Impact (eg. wastewater management, hazardous substance management)
Ethics (eg. whistleblowing, protection of intellectual property)

Instead of just including the code within supplier contracts, Apple also monitors compliance through audits, and promotes training of the suppliers employees.

Risk Mitigation

Outsourcing is one possibility for a single company to mitigate some supply chain risks by moving the risks to the suppliers. The financial impact of some risks usually will be covered in the contract by the means of penalty payments for non-performance. Apple is making use of this measure for a long time already. The slogan “Designed in California Assembled in China” is printed on each Apple product.

But outsourcing cannot reduce all SC related risks to zero, since many still affect the company. In the following I would like to point out three measures from the Supplier Responsibility Report and their implications for supply chain risk:

Child labor, insufficient waste management,… not only pose an ethical problem, which must not be neglected, but of course also has implications for the public opinion about Apple and its products possibly annihilating the current campaigns for hazardous substance reductions.

Monitoring the suppliers management system can give early warnings for mismanagement at the supplier, possibly affecting the timeliness of deliveries.

Training of the suppliers employees might increase productivity, job satisfaction, therefore reducing quality issues.

Doing a cost benefit analysis on these topics would be myopic, since it neglects the ethical implications of the measures. On the cost side alone measures like training of the suppliers employees or the ban on child labor seem to be quite cheap.

Conclusion

From a research point of view it is important to integrate these efforts into a holistic SCRM approach. This also shows that supply chain (risk) management and ethical / sustainable behavior cannot be viewed separately in a global supply chain. The interactions between risks / opportunities on the one hand and ethical and sustainable behavior on the other are so complex, that both have to be included in the same model to make the best decision possible.

Rate This:

Tags:

relationship management

risk

supplier

Internal