In this article, I draw attention to the risk that is inherently associated with the practical management of supply chains, discussing one of its elements – the so-called operational risk.
Globalization makes supply chains increasingly complex. Until the late 1980s, the emphasis was on the production and sale of products for markets protected by separate laws. The creation of a common market was a stimulus for the centralization and rationalization of production networks, “forced” an increase in the level of standardization, while simultaneously helping to achieve benefits resulting from the application of economies of scale. Production activity evolved from focusing on technology applied “within four walls” towards a concentration on supply chains. The direction of these changes was primarily related to the policy of introducing new products to the market, prompting enterprises to go beyond their own limitations and pay attention to better coordination and integration of all activities within the so-called value chain. This is an important and difficult task to implement, as the number of partners involved in delivering products to the end customer is growing (each enterprise makes its individual contribution to the value of the product offered to the final recipient). Parts of this very complex “puzzle” are being organized within the framework of so-called supply chain management. At the same time, with the emergence of this concept, the supply chain began to be perceived very broadly [3], [4].
The foundation of every supply chain currently consists of:
a) processes involving activities that increase added value, such as logistics, new product development, knowledge management,
b) organizational structures – when analyzing the nature of relationships occurring in enterprises with a diversified structure (e.g., vertically integrated or network-based),
c) technologies enabling the execution of tasks, including both process and information technologies.
A characteristic feature of modern enterprises is the pursuit of increased flexibility in responding to market needs. Opening up to the customer and the complexity of services provided leads to an increase in efficiency and effectiveness, but it also increases the dependence of firms on global financial, operational, and trade infrastructure.
In this context, the challenge for modern supply chains is to find a “golden mean” between product availability, cost levels, and proper asset management (company property) in a situation where the risks inherently associated with this activity are known (Fig. 1).
At the root of the risk that arises then are phenomena such as: the lack of matching supply to demand (as the main cause of operational risk) and the occurrence of various disruptions, which may result either from intentional actions (e.g., terrorist attacks) or from random factors (natural disasters, natural catastrophes), not to mention currency risk, risk resulting from variable legal regulations, and risk associated with the quality of information exchanged between enterprises. The fundamental problem in supply chain management is the effective coordination of supply and demand. In many industries, innovative technologies have accelerated the cycle in which new products, processes, and new structures are introduced. Paradoxically, this increases the risk of a mismatch between supply and demand (differentiated organizational levels of enterprises in the supply chain). However, the key issue of supply chain management remains avoiding the “bullwhip effect” phenomenon, in which delayed or distorted information leads to an increase in demand volatility along the supply chain, and subsequently to incurring unnecessary costs associated with shortages, missed deadlines, insufficient use of storage capacity, etc. So-called lean supply chains significantly increase this risk. The implementation of highly efficient IT systems (Web-enabled ERP Systems) and efforts made to reduce total supply chain costs lead to a reduction in inventory levels. Although there is a reduction in inventory holding costs, enterprises may feel the negative consequences of “slimming down” in a situation where they are unable to respond to changing market needs. It can be assumed that with the increasing pace of change in industry, globalization, shortened product life cycles, system overload, and the development of new markets, the efficiency of managing a “lean” supply chain becomes less important than its ability to satisfy variable demand (flexibility).
The article comes from the magazine “Logistyka” No. 1/2006.