Supply Chain Risk Management

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_________________________ EXECUTIVE SUMMARY A growing number of hi-tech supply chain managers are being tasked to manage risks to their supply chains in their increasingly competitive and innovative environments. This study proposes risk mitigation methodologies relevant to the hi-tech industry. The proposed risk methodologies are based on analysis of the supply-chain characteristics inherent to the hi-tech industry, vulnerabilities in the upstream and downstream hi-tech supply chain and successful steps taken by hi-tech firms in response to supply chain disruptions. ____________________________________________________________

_________________________ 1. INTRODUCTION 1.1. Definition of Supply Chain Risk Management Supply chain risk management is the systematic identification, assessment, and quantification of potential supply chain disruptions with the objective to control exposure to risk or reduce its negative impact on supply chain performance (Supply chain council Risk SIG, 2009). Potential disruptions can either occur within the supply chain (e.g. insufficient quality, unreliable suppliers, machine break-down, uncertain demand etc.) or outside the supply chain (e.g. flooding, terrorism, labor strikes, natural disasters, large variability in demand etc.). Management of risk includes the development of continuous strategies designed to control, mitigate, reduce, or eliminate risk.

1.2. Hi-Tech Industry Supply Chain Characteristics The high tech industry has the most complex supply chain structure of any industry sector. Despite their supply chain complexity, Hi-tech companies consistently make up more than half of AMR’s Top 25 Supply Chain List (See Appendix 1). There are several risk sources within the high-tech industry supply chain that make it interesting to explore:


Supply Chain Risk in the Hi-Tech Industry

1.2.1. Globalization/ Supply Chain Complexity High-tech industry supply chains span the globe and often include multitude of suppliers, manufacturers, logistics companies, and other participants. Supply base globalization on the one hand, and product/channel diversification on the other, mean that supply chains are now more complex than ever. The increasing reliance on Asia as the major supply-chain partner with respect to procurement, manufacturing and distribution is making most high-tech companies aware of the supply-chain disruptions possible. High-tech supply chain has evolved from an internally-owned function with a small number of players to a widely dispersed, largely outsourced function, with dozens or even hundreds of participants across the globe. Communication and visibility across this broad community have become the biggest manufacturing challenges for today’s high-tech OEMs. Their inter-dependence stems from the fact that high-tech products are usually part of a larger technology picture and, as a result, must be designed to work with other products and systems from other manufacturers. These unique characteristics mean that delays, overstocks, undersupply or problems with engineering changes affect not only a company’s customers and revenues, but its entire ecosystem of partners, developers and channel suppliers. 1.2.2. Short Product Life-Cycle: Hi-Tech industry by the very nature of being an innovation driven industry has a reducing product life cycle. The reduction in product life-cycle puts increasing demand on manufacturing and distribution of technology products. In view of Moore’s law, the whole cycle of chip design, manufacturing and supply has come down to 9-12 month cycle, which poses increasing supply-chain risks. 1.2.3. Obsolescence: Due to the increased innovation and customers’ fast-changing preferences (such as mobility, greater storage, and more memory), high tech industry products face increasing obsolescence. Product variety is also high, ranging from “build-to-stock,” fast-moving consumer...
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