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Supply chain management solutions for IBM deliver supply chain planning and implementation capabilities across the expected enterprise enabling companies to predict, control and react to demand and supply instability within the supply chain. Managing how and where you fulfil orders, how much inventory you should store where and the planning and implementation of shipments to meet customer orders. The following general risks are provided to help give IBM the ability to understand manage and direct the supply chain throughout Europe in order to avoid supply chain risks.
There are many factors that can affect the supply chain which may result from a number of unexpected variations in capacity constraints, breakdowns, problems with quality or even natural disasters at the suppliers end. Any failure in any aspect of the supply chain potentially causes disruptions for all partnering companies upstream and downstream of the point of disruption.
Although there are many risks in business there are three specific risks that can be associated with the supply chain. These include supply, operational and demand risks.
Supply risks refer to the course of movement of goods or materials from the supplier to the end firm and include the reliability of suppliers. Also to be included are considerations such as single versus multiple sourcing and centralised versus decentralised sourcing.
Operational risks refer to the company's internal ability to produce goods and services, eventually affecting the profitability of the company. This may result from a breakdown in the manufacturing or processing capabilities of the company due to a change in technology.
Demand risks refer to the movement of goods or materials from the company to the customers, and include the risk of obsolescence, stock outs and over-inventory (Diabat, Govindan, & Panicker, 2012).
Supply Chain Performance
Relationships between large companies and customers are conservatively considered to be a hindrance to supplier company performance. A casual link between customer base structure and the supplier's performance implies that changes in customer base concentration are associated with changes in performance. To help increase performance, companies are adapting supply chain management to improve competitiveness. Supply chain management can be characterised as a viewpoint based upon the belief that each member of the supply chain, directly or indirectly can affect the performance of all the other supply chain members, as well as ultimately, overall supply chain performance. The effective use of this philosophy requires that functional and supply chain partnered activities are associated with company strategy and are harmonious with organisational structure, processes, culture, incentives and people. In addition chain-wide use of supply chain management practices consistent with the above judgment is needed to increase maximum performance and benefits to all its members.
In order to realise the potential benefits of supply chain performance, it is required that companies such as IBM make primary changes to their business focus. Such changes in focus include an emphasis on cross functional and cross enterprise integration, the effective management of the flow of physical goods through suppliers, manufacturers, distributors and retailers for increased value to end customers and the ability to gain and manage reliable demand information (Lockamy & Mc Cormack 2010).
As in manufacturing context, there is a high degree of uncertainty within the service of a HR supply chain, with the difference being that stock cannot be held to cushion uncertainty. Uncertainty and risk may show itself in terms of unknown demands from stakeholders or changes in the business environment or labour market.
Risk therefore in this context is the standard deviation of expected returns and can appear at both systematic and unsystematic levels.
Systematic and Unsystematic Risk
From a Human Resources perspective systematic risk is natural in the activity being undertaken, e.g. labour market fluctuations affecting the recruitment process whereas unsystematic risk is variable and is abnormal to the particular company, e.g. levels of employee morale or a disruptive labour dispute (Farndale, Paauwe, & Boselie, 2010).
Within any company it is important to manage all departments within the structure according to the complexity of the tasks being carried out. Monitoring is most commonly carried out based on both output and behaviour. When monitoring outputs it is important to focus on aspects such as delivery times, order accuracy and product quality. Behaviour monitoring focuses on the processes that are expected to lead to the outcomes, such as auditing and complying with the company's code of conduct and standards (Heide, Wathne, & Rokkan, 2007).
The Supply Chain Network Structure
The supply chain network structure consists of logistics and manufacturing activities starting with raw material sourcing and ending with the distribution of finished goods to market. The performance of a supply chain of goods critically depends on the network structure from the initial suppliers to the end consumers. The below diagram represents IBM as the focal company in black while the white boxes to the left represent IBM`s suppliers and the white boxes on the right represent IBM`s customers.
(Lambert & Cooper, 2000)
Supply chain disruption
Throughout global supply chain operations companies are vulnerable to supply disruptions which eventually may result in inventory shortage and the loss of customers. (Refer to section Destructive Risk- John)
Along with risk environmental uncertainty may influence the partnership between suppliers and customers. Environmental uncertainty refers to the degree in which companies relate to issues such as competitors actions, technology, consumer tastes and preferences and is characterised by the absence of pattern, unpredictability and unexpected change. Such unexpected changes require that companies expand their capabilities to understand and adapt to environmental changes. Companies need to recalibrate their strategies and use different rules of engagement as the changes in uncertain environments are often frequent and rapid.
Supply chain risk and environmental uncertainty can result in significant disruptions along the supply chain, severely impacting a company's ability to continue operations, accurately fulfil customer orders in a timely manner and provide essential services to end customers (Mahesh, Debmalya, & Ajai, 2011).
The nature of supply chain networks is that they are a complicated network structure and each specific relationship within that structure has a unique context. A company within a business environment is not only a linear sequence but also a network structure that must be respected to obtain future dealings. The network structure covers both the dyadic level which deals with single supplier and buyer relationships and the network level which deals with the net, upstream and downstream levels. Networking is the relationship between suppliers and end customers which can be damaged if not respected and can lead to a breakdown in the supply chain.
Network position is a characteristic of exchange relationships in a network and a result of the process of establishing, maintaining, and developing exchange relationships. The exchange relationships and the process define a firm's position, which represents both a restriction and an opportunity. The greater a companies position the more controlling, collaborating and allying activities it co-ordinates with other network members. The focal firm occupies a better network position relative to the downstream (customers) which constitutes an advantage and allows it to gain trustworthy information from the downstream. Therefore it is impeccable for all members of a firm to be aware of its position within a network and use it to their advantage avoiding risk of losing suppliers, vendors or customers (Cheng-Wen, Chiang, & Pai, 2012).
Operational and Quality risks
Company's seeking a competitive advantage should monitor how they produce and deliver products to their customers and most importantly how they can effectively respond to customers requirements to ensure customers are getting qualified products as expected. As a result quality formations through member co-operation within whole supply chains become crucial to customer satisfaction and in some cases even their safety. Quality co-ordination and quality assurance have become the fundamental requests of supply chain management as serious quality issues generate blame from customers consequently damaging the company's reputation. Therefore a strategic level of organised retrospect on supply chain quality co-ordination will need to be instructive and constructive.
Quality co-ordination and assurance in supply chain management is never an outdated topic as globalisation has brought an age of global supply chain competition. Suppliers, retailers and customers are all involved in supply chain quality measurement activities. Together with the mindset of continuous supply chain quality improvement, strategic planning, tactical employment and operational tools can reduce the negative quality issues and provide pleasing supply chain quality to all parties (Zhang, Wang, Wang, Wang, & Tan, 2011).
For consistent on time delivery there must be adequate communication between suppliers and customers. This relies on all members of the supply chain performing to the best of their ability producing quality products. Communication at tier two levels is essential for sharing information, such as changes in stock to give the retailers time to place accurate orders.
There is always a risk of problems occurring in a supply chain taking into account the manufacturing, transportation and holding activities involved in the production and movement of goods or products. Frequent monitoring and maintenance of machines, plant, vehicles and premises not only help ensure quality standards but is essential for the smooth running of the supply chain.
Third party vendors must ensure quality standards and work within the company's code of conduct.
As the importance of risk management is ever growing in supply chain management another aspect, vendor selection must be analysed. Vendor evaluation is a very important operational decision as a selection must be made on a vendor, with respect to their company size and the quantities that must be obtained from them.