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Supply chain risk management

Supply chain management is always subject to a certain degree of risk, as in such a complex structure one often encounters events and phenomena that bear the hallmarks of randomness, which cannot be fully predicted due to the unknown causes of their emergence. Procedures that allow for appropriate responses in crisis situations are most needed when they are lacking. This applies to all links and processes carried out in the supply chain, regardless of the industry or the specific nature of the company’s operations.

This confirms the need for research and studies in the field of risk management. The article aims to show the essence of the relationship between risk management and supply chain management, and to present the groups of risks occurring in processes carried out within the supply chain, as well as the method of quantifying threats based on process mapping and the construction of risk maps. P. Drucker wrote: it is no coincidence that “risk” in Arabic originally meant “earning one’s daily bread”; every businessman earns his daily bread by taking risks. Since business activity is economic in nature, it aims to bring about change. Business always saws off the branch it is sitting on, always consciously makes risk even riskier or creates new risk (…) although we know nothing about the future, we do know that its risk grows in geometric progression the longer the period for which we try to predict or determine it in advance. Enterprises strive for continuous development, becoming increasingly dynamic and complex. These aspirations evoke associations with that branch, because the more developed, dynamic, and complex the structure, the greater the risk of the decisions made within it and the more difficult it is to manage that risk. Until recently, issues related to risk management could be read about mainly in publications in the fields of insurance, banking, or finance. Currently, it is increasingly becoming a subject of consideration also in the areas of management, economics, logistics, or marketing. The concept of risk management is defined as a decision-making process that supports the achievement of a planned economic, social, or political goal at an optimal cost, using procedures that enable the complete elimination or reduction to an acceptable level of all risks threatening its achievement.

Risk management should be planned and purposeful, meaning that actions in this direction should not be taken more or less sporadically, but systematically and in the long term. This process also requires the integration of ventures carried out within a comprehensive supply chain management system. From the point of view of supply chain management, the primary task of minimizing risk is to include risk levels in the configuration of the supply chain and to increase trust and available information in relationships between partners. A supply chain is the integrated management of flows of goods and information, a physical network, or a network of interconnected organizations and supply chain links that include all kinds of activities and logistical operations enabling the flow of products, services, and information from the original supplier to the final customer.

By supply chain risk, we therefore understand the probability of adopting an inappropriate strategy, making wrong decisions, or having a sub-optimal configuration of the logistics system, etc., resulting, for example, from the number of links in the supply chain, access to large transport hubs, or the number and type of distribution channels. The vulnerability of a supply chain to risk is its sensitivity to threats occurring within the organizations that form it, as well as between them. Sources implying risk are:
• processes occurring in the supply chain
• suppliers – breach of contract, unsatisfactory quality of components, lack of timeliness of deliveries, etc.
• customers – changes in requirements regarding the level of service
• service providers – for example, errors by consulting firms, unfavorable contracts with logistics operators, low level of services
• competitors (industry, competitive group).
In summary, the supply chain risk management process can be characterized as: the identification and control of risk in the links forming the supply chain and the risks of the internal processes carried out within it related to the flow of goods/services and information through the integrated actions of the enterprises forming the supply chain.

The article comes from the magazine “Logistyka” 1/2007.

L2007-1s18.pdf