Due to several developments such as an increased dynamic business environment and the need for lean processes, manufacturing companies are forced to intensively deal with risk issues in their supply chains. Accordingly, supply chain risk management has become an important field of operations management. Catastrophes such as 9/11 in 2001 (USA), the tsunami in 2004 (Japan) and hurricane Katrina in 2005 (USA) have all raised awareness about supply chain risks. Furthermore, common occurrences such as quality problems with suppliers highlight the relevance of supply chain risk management, since one part with a quality defect can stop an entire assembly line. In particular, the automotive industry is well known for improving underlying processes by lean principles and for complex supply networks according to their demanding business environment.

In order to remain competitive, many companies in the automotive industry foster the streamlining of their supply chains by implementing concepts such as Just-in-Time and Just-in-Sequence. The automotive industry supply base is characterised by many small and medium-sized suppliers, which represent one of the main drivers of the economy. The development of a lean supply chain leads to low inventories but results in a high vulnerability due to the fact that problems can hardly be compensated for. Another trend bolstering the importance of supply chain risk management is dealing with complex supplier networks.

Especially in the automotive industry, concepts such as outsourcing or offshoring result in more business relationships conducted in international contexts. Therefore, additional dependencies are created raising the complexity of the underlying network. The complexity of a network typically leads to higher vulnerability. International business relationships due to globalization imply transportation, cultural or exchange rate risks that require companies to deal with supply chain risk management. Even small and medium-sized enterprises (SMEs) are confronted with these developments and their respective consequences, and should therefore be aware of supply chain risks and instruments to cope with these risks.

Supply chain experts at UPS Capital, who specialize in risk mitigation, divide supply chain vulnerabilities into two categories of risk. There are day-to-day risks provoked by the normal challenges of doing business:

Customer demand changes

Unexpected transit delays

Problems at suppliers, which delay critically needed components

Theft, a much larger problem than most realize

Production problems

Warehouse shortages that cause serious delays in customer shipments.

Cyber security

As stated earlier, there are the disruptions when “all hell breaks loose.” These usually cannot be predicted including pandemics such as Covid-19, tsunamis and terrorism. However, it is expected that companies prepare with risk management strategies to mitigate and minimize the impact of such risks.

QUESTIONS

(a) Describe your strategies to mitigate such risks as described in the case study (15 marks)

(b) Describe the commitments you will need from your company’s top management in order to support your strategies (10 marks)