In understanding supply chain factors affecting safety stock calculations in the US, it is paramount to appreciate what supply chain is. Supply chain refers to a “network of facilities and distribution options that procures and transforms materials into intermediate and finished products, and distributes of them to customers” (Ganeshan, Ram & Harrison as cited in Hugos, 2003). Supply chain is a system-based approach that manages the activities needed to coordinate the flow of materials and products from production to delivery to serve the ultimate customers (Hugos, 2003). However, this mundane duty of supply chain often has conflicting needs within the business partly by being an integral component of the company’s total cost of ownership (TCO) (Weiner, 2014). For example, the need for creating and maintaining high customer services calls for maintaining high levels of inventory. Conversely, the requirement for efficient operations demands reduction and or total elimination of inventory levels.
In a globalized economy, efficient supply chain management has facilitated the outsourcing of manufacturing to and sourcing of parts of goods from distant regions around the globe to reap the benefits of lower sourcing and production costs. Nevertheless, even the most efficient supply chain is at risk from many actual and potential issues that could disrupt the chain. (Sgro, n.d.).
Brady (n.d.) argues that supply chain factors in the US has risen drastically and is only expected to grow as the chains continue to become more global, complex and collaborative. Given the criticality of the supply chain, a number of factors affect the supply chain stocks of several companies in the USA. These factors include commodity price volatility, transportation and labor costs and outdated distribution networks among other factors.
Stecke and Kumar reinforce Brady’s arguments that global frequency and severity of man-made and natural supply chain risks is increasing (2006). For example, in the US, frequent events such as changes in government regulations, catastrophes and mad cow disease in parts of Europe in 2001 have severe consequences even for companies geographically far from the incidences. Despite these challenges, supply chain management in the US remains firmly devoted to increasing efficiency and urgency, which has greatly been amplified by the businesses desire to remain competitively viable in today’s markets. This focus on efficiency has affected the companies’ TCO by influencing delivery, which is one of the four QSDP components of TCO (Menard, 2010). Increased speed and efficiency in supply chain delivery has in turn resulted in supply chains more prone and vulnerable to disruptions. Rosoff and von Winterfeldt as quoted in Stecke and Kumar (2006) assert that security measures have been increased to reduce incidences of terrorist attacks and eliminate disruptions in supply chain in the US following the 9/11 incident. However, Stecke and Kumar note that security cannot eliminate the possibility of a terrorist attack and that supply chain in totality requires absolute risk mitigation and management.
In the light of the several supply chain risk factors in the US, one asks how they can be mitigated. Different factors have wide varying consequences in terms of both complexity and severity for a supply chain. These factors affect a business by disrupting one or all of its core components such as communication, labor and equipment either in partiality or totality. These mitigating factors according to Stecke and Kumar include proactive measures; warning strategies, coping mechanisms and business survival techniques.
Proactive measures are decisions, actions and plans tailored towards reducing the vulnerability and probability of supply chain risk factors before they could occur. In the US, locating facilities in safe locations can be seen as a proactive mitigating measure. For example, the frequency and severity of earthquakes and hurricanes vary across geographical regions in the country and choosing locations that are less susceptible to these catastrophes is warranted.
Warning systems plays a crucial role in mitigating risks by providing businesses valuable time and information to align its capabilities with the impending risk factor. For example, an early hurricane warning system provides adequate preparation time, which helps in reducing loss of life and damage to property.
As part of mitigating risks in supply chain, coping strategies provide options to upset losses in supply chains by gains from available alternatives. This strategy is made possible by the built flexibility and redundancy in business operations. For example, having multiple business facilities in different countries or various parts of the country reduces the likelihood of having simultaneous disruptions at the various locations.
Survival strategies offer survival options for s business after the occurrence of a disruption in its supply chain. This strategy is two-phase implementation mechanism – an immediate response stage aimed at saving lives and property and a recovery response aimed at re-organizing resources to resume supply operations. For example, implementing the company’s safety emergency procedures for life and property.
References
Brady, Joe. (n.d.). Why Mitigating Supply Chain Risk Is a Critical Factor in Business Performance. Supply Chain Edge White Paper. 1-10. Retrieved October 19, from http://www.supplychainedge.com/insights/why-mitigating-supply-chain-risk-is-a-critical-factor-in-business-performance/
Hugos, M. H. (2003). Essentials of supply chain management. Retrieved October 19, 2014, from http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470893710.html
Menard, R. (2010). Total Cost of Ownership (TCO); The Single Most Important Principle in Supply Chain Management. Retrieved October 18, 2014, from http://purchasingnegotiationtraining.com/purchasing/total-cost-of-ownership-tco-the-single-most-important-principle-in-supply-chain-management/
Sgro, Gianfranco (n.d.). Mitigating risk in the global supply chain. (n.d.). Retrieved October 18, 2014, from http://www.cevalogistics.com/enIN/whatweoffer/ConsultingSolutionsDesign/Documents/mitigating%20risk%20in%20the%20sc%20edited.pdf
Stecke, K., & Kumar, S. (2006). Sources of Supply Chain Disruptions, Factors that Breed Vulnerability, and Mitigating Strategies. 1-37. Retrieved October 19, from http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB8QFjAA&url=http%3A%2F%2Fwww.researchgate.net%2Fpublication%2F228656718_Sources_of_supply_chain_disruptions_factors_that_breed_vulnerability_and_mitigating_strategies%2Flinks%2F0deec521ed9514de12000000&ei=3EtDVOqFO4qwPOiOgKAI&usg=AFQjCNFceB2mqvNH0SylVJxPoigaMlsqlg&sig2=UoBE1jFFSzKt2AO010Aubw&bvm=bv.77648437,d.ZWU
Weiner, T. (2014). The Importance of Total Cost of Ownership (TCO). Retrieved October 18, 2014, from http://www.cmtc.com/blog/bid/156131/The-Importance-of-Total-Cost-of-Ownership-TCO
