Minimising Risk using Supply Chain Management

A supply chain is a system which needs a certain amount of control and management. Like any other system, it is prone to outside disturbance that can cause numerous effects to its system. One example of disturbance in the supply chain is the Forrester effect. Forrester effect is the distortion caused by demands from the retailer that causes fluctuation of inventory from the distributors, warehouses up to the factory. Other such distortion that can bring impact to the supply chain is the failure of any parties to deliver its good to other partners in a specific time period that causes major disruption to the overall supply chain process.

In mitigating this disruption, Supply Chain Management allows certain risk to be shared or delegated among its partners. Activities that carry the highest risk can be done by either the buyer itself or outsource to several reliable partners. The activities that hold the lowest risk can be outsource to new partners as to gauge the supplier’s performance before migrating them into a higher level. The strategy of managing this risk should be handled effectively by all partners in the supply chain. Identifying capability of internal and also external processes must be done with thorough risk analysis and mitigation strategy.

As an example of risk allocation at work was the Toyota case that occurred on 3rd February 1997. One of Toyota’s suppliers, Aisin Seki at that time suffered a devastating fire that caused its production to end abruptly. Aisin Seki is the only sole supplier of Brake Master Cylinder to Toyota in Japan. The fire in Aisin Seki causes the imminent collapse of Toyota Supply Chain. Following the incident, around 20 other Toyota suppliers immediately went on a collaborative mode to compensate the missing components. By 7th February 1997, Toyota managed to start back its assembly line and production presume back as normal.