SUPPLY REQUIREMENT MANAGEMENT ( Drivers of risk in supply requirement (…
SUPPLY REQUIREMENT MANAGEMENT
Key issues in supply chain
Globalization of manufacturing operations
With the globalization of manufacturing operations, having a global procurement network that can support and react to the supply chain needs is important.
According to many chief procurement officers, selecting a strategic supplier that provides manufacturing locations with consistent global quality and a reliable local needs.
Safety and quality products
The pressure on manufacturers to produce high-quality products that are safe is an increasing challenge.
The number of product recall cases is growing each day. It can damage a company's reputation and is expensive to its bottom line.
Shorter lead time,less inventory and better throughput
With shorter product life cycles and changing market demands, companies are forced to embark on a lean journey.
It is important to note that the supply strategies in a lean environment support the operations strategy.
Supplier base consolidation
It eliminates supply base variances and overheads, especially in the supply chain. The challenge is to find a supplier with solutions and experience in supplier-based consolidation processes.
Access to latest technology
Access to the latest technology in various fields by having the right expert has proven to be a great support in new product development.
Drivers of risk in supply requirement
Supply risk is the upstream equivalent of demand risk, it relates to potential or actual disturbances to the flow of product or information emanating within the network, upstream of the focal company. Therefore, it is risk associated with a company's suppliers, or supplier's suppliers being unable to deliver the materials the company needs to effectively meet its production requirements/demand forecasts
Demand risk relates to potential or actual disturbances to flow of product, information, and cash, emanating from within the network, between the focal company and the market. This demand risk can be a failure on either the high or low side to accurately accommodate the level of demand.
Environmental risk is the risk associated with external and, from the company's perspective, uncontrollable events. Examples would include port and depot blockades, closure of an entire industrial area due to fire or chemical spillage, events such as earthquake, cyclone, volcanic or terrorist activity.
Processes are the sequences of value-adding and managerial activities undertaken by the company. Process risk relates to disruptions to these processes.
Controls are the assumptions, rules, systems and procedures that govern how an organization exerts control over the processes. In terms of the supply chain they may be order quantities, batch sizes, safety stock policies etc. Control risk is therefore the risk arising from the application or misapplication of these rules.
Mitigation and contigency
Mitigation is a hedge against risk built into the operations themselves and, therefore, the lack of mitigating tactics is a risk in itself.
Contingency is the existence of a prepared plan and the identification of resources that can be mobilised in the event of a risk being identified.
The classic mitigations in supply chain management are:
● Dual sourcing
● Distribution and logistics alternatives
● Back up arrangements
Bullwhip effect in logistics
:star: The bullwhip effect is a distribution channel phenomenon in which forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain.
Bullwhip effect is considered bad in logistics because these irregular orders in the lower part of the supply chain develop to be more distinct higher up in the supply chain. This variance can interrupt the smoothness of the supply chain process as each link in the supply chain will over or underestimate the product demand resulting in exaggerated fluctuations.
There are many factors that causes bullwhip effect.
Between each supply chain link with ordering larger or smaller amounts of a product than is needed due to an over or under reaction to the supply chain beforehand.
Lack of communication
Between each link in the supply chain makes it difficult for processes to run smoothly. Managers can perceive a product demand quite differently within different links of the supply chain and therefore order different quantities.
Free return policies
Customers may intentionally overstate demands due to shortages and then cancel when the supply becomes adequate again, without return forfeit retailers will continue to exaggerate their needs and cancel orders; resulting in excess material.
Companies may not immediately place an order with their supplier; often accumulating the demand first. Companies may order weekly or even monthly. This creates variability in the demand as there may for instance be a surge in demand at some stage followed by no demand after.
Special discounts and other cost changes can upset regular buying patterns; buyers want to take advantage on discounts offered during a short time period, this can cause uneven production and distorted demand information.
Relying on past demand information to estimate current demand information of a product does not take into account any fluctuations that may occur in demand over a period of time.