Risks in Supply Chains for Small and Medium Sized Companies

Daniel Dumke — Sat, 19 Jun 2010 14:23:00 +0000

Large Cooperations often employ staff for supply chain planning and sometimes additional staff for supply chain risk management.

Small / medium enterprises usually have more limited resources and therefore have to focus more. For this reason M.N. Faisal developed a prioritization of supply chain risks.

Basis

The prioritization is based on a literature review (for the basic population) and expert opinion. The expert opinion is extracted by using a fuzzy AHP (Analytical Hierarchy Process). The basic procedure is for each expert to evaluate / compare pairs of risks on a 0 to 9 scale. This method is adjusted to include the fuzzy character of most decision processes.

Results

Faisal adapts the standard supply chain components (product-, financial-, information-flow) to categorize the risks. He also adds a relational category.

Enclosed you find the top three risks in each category:

Physical Flow

Poor Quality
supplier does not meet quality standards
Capacity Inflexibility
facilities provide only limited flexibility
Transportation
in case of outsourced transportation

Financial Flow

Untimely payments
Currency flucuations
Lack of hedging
eg. in case of bankruptcy of a supplier

Relational aspects

Reputational risk
Lack of trust and opportunism risk
Legal risks
risk from litigation by stakeholders

Informational flow

Information security
Forecast risk
IT outsourcing risk

Reference:

Faisal, M.N. Prioritization of Risks in Supply Chains. Managing Supply Chain Risk and Vulnerability pp. 41-66

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analytical hierarchy process

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risk ranking

AMR announces Supply Chain Ranking 2010

Daniel Dumke — Fri, 04 Jun 2010 16:49:00 +0000

Gartner just announced the 2010 Supply Chain ranking conducted by AMR Research.
The ranking consists of the 25 companies with the best-ranked Supply Chains.

Ranking

This years Top 5 (extract):

Apple
Procter & Gamble
Cisco Systems
Wal-Mart Stores
Dell

Methodology

The following factors are included in the ranking and make up the overall score.

Peer Opinion / 154 voters (25%)
AMR Research Opinion / 27 voters (25%)
3-yr weighted ROA (25%)
Inventory Turns (15%)
3-yr weighted Revenue Growth (10%)

So there are three factor categories: subjective expert opinion, one supply chain number (inventory turns) and two primarily financial figures.

Methodology / Conclusion

There exists research supporting a correlation between supply chain performance and financial performance of a company, but up to now I have not found papers suggesting that the opposite is true as well. So I doubt that Revenue Growth and Weighted ROA are good indicators to appreciate supply chain performance.

Inventory turns on the other hand is probably very depend on the industry and product in focus and should be used with care.

The last factor is the expert opinion which contributes to the overall ranking. The expert ranking is split into the Peer Opinion and the AMR Research ranking. It is noteworthy, that the weights of both opinions are the same, even though there are five times more Peer Opinion experts than AMR experts indicating, that the AMR experts should be five times as knowledgeable than the other supply chain professionals.

From a business point of view the ranking show companies which have performed above average for a sustained period of time and their example could be used as a blueprint for Supply Chain Design.

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supply chain management

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