RISK MANAGEMENT PROGRAM

Risk Management Program

Abstract

Supply chain risk management (SCRM) is of growing importance, as the vulnerability of supply chains increases. The main thrust of this article is to describe how Ericsson, after a fire at a sub-supplier, with a huge impact on Ericsson, has implemented a new organization, and new processes and tools for SCRM. The approach described tries to analyze, assess and manage risk sources along the supply chain, partly by working close with suppliers but also by placing formal requirements on them. This explorative study also indicates that insurance companies might be a driving force for improved SCRM, as they now start to understand the vulnerability of modern supply chains. The article concludes with a discussion of risk related to traditional logistics concepts (time, cost, quality, agility and leanness) by arguing that supply chain risks should also be put into the trade-off analysis when evaluating new logistics solutions - not with the purpose to minimize risks, however, but to find the efficient level of risk and prevention.

Risk Management Program

Introduction

Background

In industry, especially those industries moving towards longer supply chains (e.g. due to outsourcing) and facing increasingly uncertain demand as well as supply, the issue of risk handling and risk sharing along the supply chain is an important topic. The leaner and more integrated supply chains get, the more likely uncertainties, dynamics and accidents in one link affect the other links in the chain. Hence, the supply chain vulnerability (Svensson, 2000; Christopher et al., 2002) increases, and it will increase even more if companies, by outsourcing, have become dependent on other organizations. A number of current business trends that increase the vulnerability to risks in supply chains are:

increased use of outsourcing of manufacturing and R&D to suppliers;

globalization of supply chains;

reduction of supplier base;

more intertwined and integrated processes between companies;

reduced buffers, e.g. inventory and lead time;

increased demand for on-time deliveries in shorter time windows, and shorter lead times;

shorter product life cycles and compressed time-to-market;

fast and heavy ramp-up of demand early in product life cycles; and

capacity limitation of key components.

Purpose

This article aims to extend current SCRM knowledge by describing and sharing insights of a company's new organization, processes and tools focused on SCRM. The company is Ericsson, a leading telecom company seriously affected by a fire at a sub-supplier some years ago, an accident which has been widely reported (e.g. The Wall Street Journal, 2001).

Methodology

Since only limited empirical research on how companies deal with supply chain risk management has been found, an explorative approach has been chosen. Examples of earlier case studies in the area are those of Zsidisin (2001), Zsidisin and Ellram (1999) and Zsidisin et al. (2000), but they have focused more on purchasing and “supply” than a “supply-chain approach”, consisting of the idea to work with risks along multiple companies in a chain. In our study, a single case is used, which is an appropriate way of establishing the field at the early stages of an emerging topic (Eisenhardt, 1989). To capture and examine contemporary events, the case ...