[Stretegic Risk Management]

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Contents

Aim3

Objectives3

What Is Risk?6

Types of Risks in Global Supply Chains7

A Risk Management Process Model11

Step 1: Identifying and Profiling Risks12

Step 3: Managing Risks and Risk Management Strategies15

Avoidance16

Postponement16

Speculation17

Hedging17

Control18

Transferring or Sharing Risk19

Security20

Step 4: Supply Chain Risk Management Strategy Implementation21

Step 5: Mitigating Supply Chain Risks23

Conclusions24

Introduction

Research Question

“In an increasingly dynamic environment, strategic management of risk has become a critical competency for organisations. From the perspective of an Operations Manager, present a case to the board of directors for adoption of a formal risk management process.”

Aim

To present a case to the board of directors for adopting a formal risk management process.

Objectives

Develop an understanding of risk management and its process

To gain an in-depth knowledge of the significance of adopting a formal risk management process

To evaluate the benefits and limitations of adopting a formal risk management process

Develop recommendations, for the board of directors, supporting the importance of implementing a formal risk management process

Literature Review

“On paper it looks like a great return on investment without the risk issue. With the risk, who knows?” said a former senior vice president for global outsourcing and supply chain management operations of a leading manufacturing firm. This chapter addresses the concerns reflected in this quote, which are shared by many supply chain managers todayunderstanding and managing the risks of global supply chain operations.

With the recent wave of outsourcing, managing risk in the supply chain has come to the forefront. Most firms are under extreme pressure to reduce cost. In addition to competitive pressure, boards of directors, shareholders, and other stakeholders are sending a clear message to management to become increasingly efficient and competitive. Today, off shoring (sourcing from across borders) and international marketing (i.e., marketing products abroad through exporting, licensing, franchising, joint ventures, or wholly owned subsidiaries) are seen more than ever as prime strategies. The pressures are so intense to leverage the opportunities of off shoring and international marketing that the management of risk is often pushed into the background.

For example, wage rates in China are roughly $100.00 per month for people working intensely for 60 to 70 hours per week. This is an overwhelming motivation to offshore to leverage this incredible pool of labor. The human resources available in Asia are being leveraged at a rapid pace. There is incredible activity in China and throughout Asia. It is estimated that by the year 2007, the Chinese middle-class market would be larger than the entire U.S. market. Other low-wage markets with  a burgeoning middle class, such as Latin America and Eastern Europe, are also seeing great activity.

Ironically, within middle line management, there is a reluctance to enthusiasti cally embrace these global initiatives. There is an intuitive feeling that one is losing control, and taking on risks that are not fully understood. Also, there is the sentiment that global initiatives conflict with other proven concepts like the Lean and Six Sigma tools that have been sweeping the industry and are based on reducing average cycle times and variability.

In a nutshell, the dilemma faced by management is how to balance all these factors, ...