Categories of Risks in Supply Chains and the Common Management Tactics
The blooming demand of goods with very short life cycles, the increased global competition in the market, and the increased customer expectations, become some of the major factors that continuously compel businesses to increase their investments and concentration towards their supply chains. Additionally, supply chains depict a continued growth in the recent past, due to the increased need to satisfy the heightened demand of goods in the global markets. Often, complexities commonly found in integrated supply chains form the major reason as to why their smooth control becomes difficult due to reduced visibility into the process. Consequently, the supply chain faces numerous risks that result in reduced efficiency of the system. Proper management must, therefore, be incorporated into the system to ensure reasonable degrees of efficiency in such risk situations in the process. This paper, therefore, seeks to investigate the major categories of risks involved in the supply chains, and the commonly applied strategies of minimizing them. However, this paper does not only focus mainly on supply chains dealing with agricultural products, but it also lightly focuses on any other supply chain in general. To achieve this, the paper gives relevant examples, as well as, cases of real businesses with the incorporation of relevant theories (Mentzer, 2001, p. 30).
A special focus on the key risks facing supply chains that deal with agricultural products reveal that such chains get to be exposed to manifold risks. In these agricultural supply chains, there exist dissimilar sources of risks for both farmers and the involved firms. The resultant effects of such risks, often, sums up to great influences on the involved costs, dependability of the process, and effectiveness of the production process, processing of the goods, and their marketing (Mentzer, 2001, p. 65). However, even with the presence of such risks, success always gets to be evaluated through the performance of the chain in terms of its timeliness in delivering the agricultural products to the customer. Further, with these numerous risks facing the agricultural supply chain, utmost cooperation must be exercised by producers, agribusiness organizations, and relevant private and public organizations. It would be impossible, therefore, to claim the understanding of agribusiness success and its expected potential, without having an adequate understanding of the participants to predict and approach risks. Any agricultural business organization which fails to pay attention to risks that could possibly catch up with it and the possible measures it could possibly employ to deal with such risks, fails to be a complete system. Having this understanding then, we now focus on the major categories of risks common to the agricultural supply chains.
Weather-related risks form one of the most common risks facing the agricultural supply chains. For instance, extreme weather conditions, such as, very heavy rainfall or very little amounts of rain and a similar behavior for temperatures contain adverse effects on the production and/or growth of agricultural products (Rapid Agricultural Supply Chain Risk Assessment: A Conceptual Framework pg 9). This could be mostly so on a single cycle and/or season respectively. It would then be expected that these risks affect the making of decisions, choice of markets, and yields. Further, this category of risks may also lead to low output, low product quality, and disrupt the transportation of the agricultural products. Weather conditions which might be non-extreme usually get to be linked with particular geographic areas. This means that they would only affect individual participants in the chain and just one community. For farmers, this might imply that their ability to settle their loans decreases due to reduced production and quality of goods. Supply chain logistics may also experience the effects due to disruptions in energy provision, transportation of the goods, as well as, communications. Fundamentally, farmers might be affected by a localized drought but this may not be the case for those in the upper levels of the chain be it buyers or traders. This is because they have options of accessing the products from areas which did not experience drought and/or partake importation of the same from other countries to cater for the low production in their countries.
On the other hand, natural disaster risks contain adverse effects on agricultural supply chains which might last for several seasons and cycles. The most common results associated with these risks include reduced production in the short run and consequent increase in prices. Damaging of property may also be another likely impact which could then cause interference in the smooth transportation of goods, and the flow of information. In the long run, the effect of these risks on productivity may also be experienced. The two types of risks concerning natural conditions may widely affect a very big physical location. This means that their impacts could be felt by numerous individuals in the chain, the outside environment, and service givers, all with intensities varying. In a wider view, logistics of the goods in the chain also get to be affected in a similar magnitude (Chopra, 2012, p. 32). Communications, provision of energy, and transportation could be some of the affected areas in logistics. Those who might feel the effects of natural disaster risks include the outside environment and/or providers of support services.
Another set of risks involves market-related risks. This concerns factors affecting price, accessibility of the goods or services, quality, and availability. Price risks become especially volatile when dealing with national and international markets where the customer’s tastes and demands are ever changing. Uncertainties which might be attributed to price up-heaves directly affect management decision making concerning strategies of maximizing profits (Chan, 2005, p. 44). Quality related risks also come closely with price risks. This is because, determination of quality highly depends on affordable inputs which can be easily accessed, effected accordingly in consideration of production and the following practices. Improvement of quality, therefore, becomes a process in collective responsibility must be undertaken and organization must be properly adhered to which comes with some element of institutional risk. Additionally, financing forms the other aspect of improving quality, however, this is not always the case as funds may not always be available. Borrowing may not be undertaken by producers when they may be uncertain about the premium market as this exposes them to a struggle during repayment. These risks differ constantly and affect a wide range of geographic areas. Managing them involves taking advantage of available opportunities and trying to maximize returns according to the available conditions.
Some of the methods that could be applied to address the risks experienced in the agricultural supply chains include, first, considering the location and formality involved in the process. This would be achieved through employing a management process which can be run at diverse points by diverse players. For instance, personal businesses have a role to play through employing appropriate strategies and making informed decisions (Chopra, 2012, p. 77). For instance, two companies one being an aerospace company dealing with helicopters, and the other being an aviation company dealing with jets, realized that they shared a common supplier for their raw materials. They made a decision to have different suppliers and each one of the companies noticed that they significantly reduced their risk levels (Supply Chain Risk Management: Management A Delicate Balancing Act, pg 5). This example though not in the agricultural field forms a good example of what agribusinesses should also do. They could also interact with participants in the chain by agreeing to distribute the expected risks with them. Similarly, they could seek to involve external participants, such as, banks which could share the risk by providing finances. Fundamentally, one should also think of the formality involved in the process. An organization could opt for public measures in a situation when the private ones fail.
Secondly, efficient consumer response becomes one of the processes which most businesses have adopted. This ensures that the consumer becomes properly exposed and the supply chains could help reduce on costs. Improved management schemes have also been adapted and executed in an effort to enhance logistics, improve the flow of information to various participants in the chain, and promote the management methods used. Other tools that have come up concern the increased measures of ensuring food safety. This has led to improved social answerability, and improved agricultural practices. The execution of such strategies throughout the chain facilitates all the participants get a chance to make certain that quality, as well as, safety becomes properly maintained through a socially tolerable chain. For instance, countries, such as, Thailand not forgetting Brazil, have come up with programs that ensure proper management of quality (Agri-Supply Chain Management journal pg 10). Additionally, they have accepted certain regulations concerning the fast spoiling foods like meat products (IFIP, 2013, p. 213).
Other than the agricultural supply chains, other chains similarly face disruptions in the flow of their products. Such disruptions may occur in an unexpected manner owing to several random events. The disruptions often result in several ripple effects which can be seen to be quite unforeseen as well. Examples of such disruptions could be given as the attacks by terrorist in the U.S. Supply chains got severely affected by this attack, in which the Ford Motor Company spare parts chain of supply suffered a great deal (The Role of RFID Technology in Supply Chain Risk Management). Consequently, the said interference resulted into five of the company’s assembling factories stopping their production for the period which the occurrence took place. On the other hand, a company which dealt with manufacturing of Dell products experienced a heap up of products which had already been completed. This occurred due to closure of America’s airspace from the attack. Another company in Europe gave an approximation of $5 Million loss owing to the attack. This scenario gives a perfect illustration of adverse ripple effects which impacted on businesses in different continents. Consequently, this becomes a good example as to the significance of employing management strategies in the chain of supply to curb or reduce such inconveniencies. To effectively manage such ripple effects and associated interferences, recent discoveries provide Radio Frequency Identification (RFID) as an appropriate strategy of dealing with the problem (Kim, 2005, p. 66). RFID design utilizes radio signals to mark a certain product so as to monitor the product’s movement all by itself. The advantages accrued through this system overwhelm those of using bar codes. It also contains several supply chain advantages which include effective product handling, increased accessibility of products, and enhanced methods of managing them.
Focusing on the reliability theory, we realize that the rising consumer requirements for quality goods results into the increased development of products. Further, this implies that the products become more and more complex which calls for the integration of interdisciplinary strategies. This necessitates the need to be well aware of the consumer’s needs, coming up with appropriate solutions, taking an analysis to gauge whether the identified solutions respond to the given problems, and ensuring that the initial need becomes satisfied (Supply Chain Risk Management: Identification, Evaluation and Mitigation Techniques pg. 30). Through this, the item’s quality, as well as, safety must be accomplished. Taking a deeper view on the dynamic pricing reveals the importance played by pricing on maximizing of profits. Adjustments on the pricing of goods may be done according to the customer’s requirements and prevailing conditions in the selling place. An interesting approach to dynamic pricing involves giving prices to goods depending on the willingness of the customer to pay for them (Emmanouilidis, 2013, 167).
In conclusion, supply chains found in whichever sector become complex due to the large involvement of participants who must be required to work harmoniously to ensure a complete flow. However, it becomes very clear that total control against risks affecting these supply chains cannot be achieved. In this case, this paper managed to discuss a number of risks which might the various supply chains and with a special emphasize on the agricultural supply chains. Some of these include those associated with the weather, others associated with natural calamities, while, others may be linked to market conditions (Mentzer, 2001, p. 90). These commonly affect the supply chains in the agricultural sector, though this has been shown to apply to other sectors as well.
A thorough discussion concerning the strategies which organizations could take up to minimize and manage these risks has also been given. These include collaborative strategies with other participants in the chain. This increases the efforts of spreading risks to ensure that this does not hit so hard on one group or participant in the chain. Additionally, agribusinesses and other organizations must come up with individual strategies to ensure that the safety of the products they offer to consumers is well maintained.
References
CHAN, C.-K., & LEE, H. W. J. (2005). Successful strategies in supply chain management. Hershey, PA, Idea Group Pub. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=121653.
CHOPRA, S., & MEINDL, P. (2012). Supply chain management. Boston [u.a.], Pearson.
IFIP WG5.7 INTERNATIONAL CONFERENCE ON ADVANCES IN PRODUCTION MANAGEMENT SYSTEMS, EMMANOUILIDIS, C., TAISCH, M., & KIRITSIS, D. (2013). Advances in production management systems: competitive manufacturing for innovative products and services : IFIP WG 5.7 International Conference, APMS 2012, Rhodes, Greece, September 24-26, 2012, Revised Selected Papers. Part I Part I. http://dx.doi.org/10.1007/978-3-642-40352-1.
KIM, B. (2005). Supply chain management. Singapore, John Wiley & Sons (Asia).
MENTZER, J. T. (2001). Supply chain management. Thousand Oaks, Calif, Sage Publications.
(2000). Supply chain management review. Highlands Ranch, CO, Reed Business Information.
Links used
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