Omera Khan

Managing Global Sourcing Risk

Daniel Dumke — Mon, 23 Jan 2012 17:34:15 +0000

Probably most companies source at least some parts for their products from global sources. This could be the steel from Australia, electronics from Taiwan or cloth from India. The reasons for international sourcing usually include cost and quality, which might be superior compared to local sources.

On the other hand longer shipment ways and less direct access and control may also increase the risks of quality failures, delays or even disruptions.

So at the moment a lot of companies struggle to find the right balance between increased risks and reduced cost in international sourcing. This study gives an inside view into fifteen companies and how they handle risks related to global sourcing, and therefore this overview is a good example for current practices in the field of supply chain risk mitigation.

Method

The authors still see a gap in the knowledge about how other companies analyze their sourcing related risks and how these risks are mitigated by them.

Therefore they use a multiple case study approach with 15 cases / companies within seven industries. In each company several information sources were tapped, including expert interviews.

Afterwards the authors compared the individual results in a cross case analysis.

Sourcing globally

But first the authors start with a literature analysis to analyze the reasons and risks of global sourcing.

Figure 1 shows their results regarding the advantages and risks of sourcing globally.

Figure 1: Sourcing Globally: Advantages and Risks (Christopher et al., 2011; click to zoom)

From this the authors extract a risk classification for global sourcing risks (figure 2).

Figure 2: Sourcing Globally: Risk Classification (Christopher et al., 2011; click to zoom)

Risks in global sourcing

Building on this literature review the authors conduct their case study. The cross-case analysis reveals risks in the following industries:

retail,

fashion retail and wholesale,

consumer electronics,

oil/gas,

mechanical and electrical equipment,

fast moving consumer goods (food and drink), and

aerospace.

The risks are shown in figure 3.

Figure 3: Risk Overview (Sourcing Globally) (Christopher et al., 2011; click to zoom)

Strategies for risk mitigation

The identified risks are handled very differently by each of the companies. Figure 4 shows the different approaches to identify and manage the risks.

Figure 4: Risk Management Strategies and Tools (Christopher et al., 2011; click to zoom)

Overall the authors find:

The study proposes four generic strategies for managing global sourcing risk: network re-engineering, collaboration, agility and a risk management culture. Evidence of each of these strategics was found in the case studies although no single company was applying all of them.

The study also shows that even though many managers were aware of the risks their companies were exposed to, risk management strategies were not implemented in a systematic and holistic manner.

Conclusion

It is not possible to generalize these results for any company, due to the specific exploratory nature of the method used. But I find the findings quite interesting and I think they could be used as a foundation to build your own mix of mitigation strategies.

Reference:

Christopher, M., Mena, C., Khan, O., & Yurt, O. (2011). Approaches to managing global sourcing risk Supply Chain Management: An International Journal, 16 (2), 67-81 DOI: 10.1108/13598541111115338

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Leading by Design

Daniel Dumke — Mon, 06 Dec 2010 15:26:00 +0000

Is there consensus about the role of product design as the leading function in the supply chain? Not yet! This article introduces the topic of integrating decisions in product and supply chain design and gives a short glimpse on the “how to implement” part.

Case study

During the last weeks I conducted the following case study on the impact of product design on supply chains using literature and expert interviews, looking for an answer to the basic question: What are the advantages of integrating product design into your supply chain decisions?

European retailer for furniture

Supply chain management starts with the product design. They are using this integration to reduce cost but also carbon emissions. One example, the packaging they use is designed for the specific transportation requirements so that efficiency is raised.
Marks & Spencer, UK
Are using their product design as an integrated part of its overall risk management. Apparel design is also leading procurement decisions (see reference for more information).
Big European food company
Product design is lead my marketing function. Supply chain design is guided by those decisions.

Research

In the literature Khan et al. 2008 also take the view that product design and supply chain design should be integrated more to improve overall results. They first state that product design is usually neglected in corporate risk management. To minimize risks the authors recommend to establish “design led procurement” and “design-led risk management” to improve agility, relationships with suppliers, while on the other hand avoiding over dependence.

How To

Fixson (2005) introduces a framework for an integrated decision making of product, process and supply chain decisions. Decisions taken within those three domains depend on six different product characteristics:

Product modularity
Component complexity
Loosely coupled interfaces
Number of components
Product platforms
Component commonality

Product Characteristics Impacting (constraining and enabling) Design Decisions in Product, Process, and Supply Chain Domain (Fixson, 2005)

He argues that the more interfaces exist between product components the higher the complexity not only in the production processes but also within the supply chain design. This framework however can be used as,

a guideline to focus on design decisions critical for the product and company under consideration; [… it can help to] explore the advantages and limitations of various operational strategies for given product architectures [… and] to improve a company’s strategy planning capabilities over time.

Conclusion

From systems theory it should be obvious that integrating decision making should lead to better results than decisions in separate functions. But the mentioned examples are only a skewed sample to emphasize the point: Yes, it makes sense to integrate product development. But the implementation has to be thoroughly planned.

Reference:

Khan, O., Christopher, M., & Burnes, B. (2008). The impact of product design on supply chain risk: a case study International Journal of Physical Distribution & Logistics Management, 38 (5), 412-432 DOI: 10.1108/09600030810882834

Fixson, S. (2005). Product architecture assessment: a tool to link product, process, and supply chain design decisions Journal of Operations Management, 23 (3-4), 345-369 DOI: 10.1016/j.jom.2004.08.006

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Research agenda for SCRM

Daniel Dumke — Fri, 14 May 2010 15:20:00 +0000

Even though supply chain risk has been analyzed in the literature for some time (eg. the Newsvendor / Newsboy problem, with the only uncertainty being demand). Nevertheless there are still many gaps (or opportunities) within this field.

In 2007 Khan and Burnes created a research agenda for the future and most of the topics covered still can be viewed as open.

Major Issues

The authors identify two major shortcomings of the current literature.

1) Locate itself within the wider literature on the theory of risk and the practice of risk management

2) Establish robust and well-grounded models of supply chain risk management, which incorporate risk management tools and techniques from other disciplines of research

Risk

Research on risk has its roots in the first applications of probabilities with gambling in the 17th century, in the 1960th the focus within the supply chain field was on risk and purchasing. Khan and Burnes identified the following components of risk from literature:

Definition
risk is defined by a future outcome and its probability
Chance and Risk
Many authors emphasize the negative side of risk
Risk and Uncertainty
Risk as something measurable, uncertainty lacks the quantifiability either of the outcome, the probability or both
Subjective or Objective
Can all risks be quantified or are there qualitative risks as well?
Managing Risk
defining the risk management process as the making and implementing of decisions concerning risks based on risk estimation and risk evaluation

Disruptions

The negative effects of supply chain disruptions are already supported by several studies. Disruptions lead to declining stock prices, negative effects on the organization as a whole and loss of reputation, to name a few. Furthermore it seams, that the economic, political and social developments over the past decade have increased the risk of SC disruptions, since the chains are getting longer and more complex. On the other hand customer expectations for quality, price and response times are increasing.

Integration of the supply chain activities therefore plays a more important role.

Reference:

Khan, O., & Burnes, B. (2007). Risk and supply chain management: creating a research agenda The International Journal of Logistics Management, 18 (2), 197-216 DOI: 10.1108/09574090710816931

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