Supply Chain Risk Management

The Process of Procurement

The process of obtaining the goods or services relevant to the company is known as procurement (Wayne, 2018). Under this quality standards are developed along with negotiating price, inventory control, purchasing goods, financing these purchases, and disposing of the waste products in an environmentally safe manner. Procurement is a process that stops only when the firm acquires all the goods it intended to. If the cost of obtaining is less than selling price, profit will be earned. After the authorization is granted and budget approved, the supplier provides the desired good or services, along with vouchers and bill to receive payment for it.

Risk Management in Supply Chain

Commonly referred to as Supply Chain Risk Management (SCRM), are the efforts made by the organization to help in identification, detection, monitoring and deflecting threats to the supply chain flow and profitability (Cucchiella & Gastaldi, 2006). There are numerous threats to supply chain including cost volatility, supplier financial issues, material shortages, and failures due to human-made or natural disasters, political risks including corruption, stability within the country. Market risk involves competition, product life-cycle, whereas risk with sourcing involves supplier competition, switching costs amongst other factors. A firm can utilize multiple sourcing, third-party intermediaries, currency hedging to handle the threats.

Supply Chain Uncertainty

Supply chain uncertainty is any factor that can cause a slowdown or stoppage in the routine business transactions (Simangunsong, Hendry, & Stevenson, 2013). It arises because of interruptions in transportation and production along with the quality of the product. This leads to storage of the product in the market and the related increase in cost. The significant sources of uncertainty are fluctuations in demand, exchange rate, price variations, and economic factors. Reducing the supply chain uncertainty permits the firm to decrease the required safety inventory to maintain the product availability to satisfy the demand for that good in the market.

References

Cucchiella, F., & Gastaldi, M. (2006). Risk management in supply chain: a real option approach. Journal of Manufacturing Technology Management, 17(6), 700-720.

Simangunsong, E., Hendry, L., & Stevenson, M. (2013). Supply-chain uncertainty: a review and theoretical foundation for future research. International Journal of Production Research, 50(16), 4493–4523.

Wayne, J. (2018, April 13). What Is the Difference in Supply Chain Vs.? Procurement Vs. Sourcing? Retrieved from yourbusiness.azcentral.com: https://yourbusiness.azcentral.com/difference-supply-chain-vs-procurement-vs-sourcing-20772.html