1.0 Definition of supply chain. 1
2.0 The meaning of supply chain risk. 2
3.0 Classification of supply chain risk factors 2
3.1 Supply chain risk factors usually come from natural environment and social environment 3
3.1.1 Natural environmental factors 3
3.1.2 Social environmental factors 3
3.2 Cranfield School of Management points out six supply chain risk factors. 3
3.2.3 Environmental risk factors 3
3.2.4 Risk factors in the operation process 3
3.2.5 Institutional risk factors 3
3.2.6 Risk prevention measures fail 4
4.0 Issues in the supply chain. 4
4.2 Logistics and distribution failures. 5
4.3 Information loss or distortion. 5
4.6.2 Exchange rate fluctuations 6
4.7 Natural disasters, disease, terrorism and war. 7
5.0 Opportunities in the supply chain. 7
5.1 Establish strategic partnership. 7
5.2 Strengthen incentives for supply chain enterprises. 8
5.3 Strengthen the communication of enterprise information on the supply chain. 8
5.4 Strengthen procurement management. 8
5.5 External risk prevention measures. 8
Supply chain refers to the network chain structure formed by upstream and downstream enterprises that provide products or services to end users in the process of production and circulation. As can be seen from the structure model of supply chain, supply chain is a dynamic network structure system that is constantly developing, which is composed of suppliers around the core enterprise, suppliers’ suppliers and customers, and customers’ customers. Each enterprise is a network node, and there is a close relationship between demand and supply between node enterprises and node enterprises.
Figure1:supply chain
2.0 The meaning of supply chain risk
Figure2:Supply chain risk
According to a supply chain research report released by Deloitte consulting, supply chain risk refers to the uncertain factors or accidents that adversely affect or destroy the supply chain operating environment for one or more supply chain members, make the enterprise or organization fail to achieve the expected target of supply chain management, or even lead to supply chain failure.
Therefore, this study believes that supply chain risk is the uncertain factors and unexpected events that affect and destroy the safe operation of supply chain, resulting in the decrease of supply chain efficiency, the increase of cost, and the disintegration of supply chain network. In order to improve competitiveness, enterprises need to attach great importance to supply chain risk management, which is not only one of the core contents of supply chain management theory system, but also the internal requirement of supply chain management.
3.0 Classification of supply chain risk factors
3.1 Supply chain risk factors usually come from natural environment and social environment
3.1.1 Natural environmental factors
Flood, fire, earthquake, lightning, lightning strike, storm, meteorite fall, snow and ice damage, volcanic eruption, mountain landslide, collapse of external objects, falling of clouds and other irresistible factors.
3.1.2 Social environmental factors
Mainly include risks caused by social environmental factors such as exclusive suppliers, information transmission, logistics distribution, financial status, market fluctuations, partners and profit distribution.
3.2 Cranfield School of Management points out six supply chain risk factors
Including demand risk factors, supply risk factors, operational process risk factors, environmental risk factors, institutional risk factors and failure risk factors of preventive measures.
Generally refer to the risks arising from the logistics, information flow, cash flow and network related to potential or actual sales, which exist in the connection between the core enterprise and the market, especially the risks associated with processes, controls, assets and the independence of the downstream infrastructure of the enterprise and the adjustment of the core enterprise.
Upstream suppliers of the enterprise supply chain, whose suppliers cannot meet the production demand and demand forecast of the enterprise on time and in quantity.
3.2.3 Environmental risk factors
Usually refer to the external risks of the enterprise supply chain, which are uncontrollable events from the perspective of the enterprise itself. Such risks affect the operation of the enterprise supply chain through its suppliers and customers or directly.
3.2.4 Risk factors in the operation process
Usually refers to the risk of terminal failure caused by the process, which is the risk occurred in the operation of the enterprise supply chain.
3.2.5 Institutional risk factors
Refer to regulations, systems and procedures, which may be order quantity, batch size, safety stock policy, etc., plus policies, systems and procedures of asset and transportation management.
3.2.6 Risk prevention measures fail
Lack of risk response mechanism and early warning plan is also the risk of enterprise supply chain management, the risk of enterprise supply chain management to prepare measures is the key to test a set of reasonable risk management plan usually, can be normal to identify the risk of supply chain operation process, and the right measures to deal with.
4.0 Issues in the supply chain
The number of suppliers and the selection criteria of suppliers have significant influence on supply chain operation. Quality suppliers can effectively prevent and control supply chain procurement risk.
Based on enterprise management practices and interviews with enterprises, we have learned that the basic criteria for supplier selection include price, quality and delivery time. If the supplier is not chosen properly, it will have a negative impact on the operation performance of the whole supply chain.
Supplier Failure mainly includes rising purchase price, quality issues, cultural delay in delivery, and Supplier failure.
Purchase prices are up. The purchase price of raw materials and components determines the cost of products to a large extent. In other words, if the price of suppliers goes up, the total cost of supply chain will also go up. Therefore, the purchase price determines the competitiveness of products and the ability to resist market price fluctuations.
Quality of goods purchased. Purchasing is the source of quality, and whether the supplier builds to order or USES alternative products without authorization will significantly affect the guarantee of the final product quality of the supply chain.
Delay in delivery. Due to market changes and proofing orders, procurement of raw materials, the quantity, types and specifications of parts procurement are often modified to meet customer needs, which is a great challenge to the responsiveness of suppliers.
Cultural factors. Globalisation is inevitable, supply chain and supply chain link with suppliers, distributors, logistics service providers and end users, involving many different decision-making and functional departments, supply chain operation process is actually a process of culture network, not only contains a different enterprise culture, and contains a different national culture, from global procurement to sales around the world, are the real cross-cultural management, supply chain have direct stakeholders conflict of different culture, it has a significant influence on the performance of a supply chain performance.
Supply factors. Supply risk mainly in Supply and Demand imbalances between Supply – Demand, related research refers to the file is mainly refers to that supplier can meet the Demand, Supply chain or Supply chain members cannot know correctly or predict the Supply of Supply market, lead to enterprise can’t satisfy the needs of customers, reduce customer satisfaction, even potentially a threat to the customer’s life and safety risk.
4.2 Logistics and distribution failures
Logistics activities are the link of supply chain management, which requires each member of the supply chain to adopt joint plans to realize information sharing and inventory management. However, it is very difficult to do this in the actual operation, which may lead to connection mistakes in the process of raw material supply, raw material transportation, raw material cache, product production, product cache and product sales, etc., thus the supply chain logistics is not smooth, causing risks.
Logistics distribution, its direct stakeholders are upstream suppliers, upstream manufacturers, upstream distributors, logistics service providers. Downstream customers and end customers. Its main contents are ordering, warehousing, transportation, managing inventory products, producing products according to orders and designing products according to orders. All order management steps from customer inquiry, regular delivery quote and selection of delivery method. Warehouse management, loading and unloading cargo receiving and sorting. Receive and inspect the product at the customer, if required to be responsible for installation. Invoice the goods to the consumer. Manage shipping business rules, performance, information, finished goods inventory, asset valuation, transportation, production cycle, import/export requirements. This process involves the organizational, technical, operational and collaborative capabilities of the supply chain.
4.3 Information loss or distortion
From the perspective of cross-border e-commerce, the commodity differential risk of supply chain is explained as follows:
Cross-border electric business platform in order to promote the sale of products, greatly promote products through a network of some features, which aroused consumer’s shopping desire, but frequently, consumers to buy back the description of the goods and businessmen, leading to poor customer shopping experience, thus has affected the development of cross-border e-commerce, thus indirect influence the cross-border operation of the electronic commerce environment of supply chain.
The risk of false marketing in the supply chain under the cross-border e-commerce environment is explained as follows:
Cross-border electric business platform for businessmen in order to obtain the profit maximization, arouse consumers’ purchase desire by means of network marketing, in the consumer through bank or third party payment platform, after the transfer of money or to pay, send consumers is consumer itself does not need or don’t want the product, it is not abide by business ethics and moral loss of resource equality shopping sales behavior, let the consumer buy after false information to the goods don’t need. The existence of this risk harms the interests of consumers, indirectly affects the credit of other node merchants in the hearts of consumers in the cross-border e-commerce platform, and thus indirectly affects the operation of the supply chain in the cross-border e-commerce environment.
The risks caused by policies to the supply chain mainly come from two aspects: first, the government regulation policies bring risks to the supply chain operation. For example, the support and restriction of the industry during the adjustment of industrial structure directly affect the investment of the supply chain. Second, the government’s expected policy of economic development affects the development strategy and operation strategy of supply chain enterprises and increases supply chain risks.
In addition, political instability, government regulation of the industry, and extensive and strict government regulation of product and process quality, environmental and safety standards have become an important risk factor for the supply chain.
Supply chain risks caused by non-standard legal behaviors of nodal enterprises in the process of operation. For example, the global supply chain is faced with international legal differences, the revision and adjustment of laws and regulations in their own countries and other negative impacts on the operation of the supply chain.
Economic risk refers to the possibility that the supply chain may suffer losses in the course of operation due to the uncertainty of the economic outlook, which is specifically reflected in the following aspects:
It is pointed out that the rapid economic growth will easily lead to the shortage of raw material supply and affect the normal production of enterprises, while the economic depression will lead to the increase of overproduction and inventory costs.
4.6.2 Exchange rate fluctuations
Due to the global extension of supply chain, global market procurement becomes inevitable to improve the elasticity of supply chain. However, due to currency depreciation or appreciation of exchange rate volatility has a significant effect on purchase cost, in addition, this study through the enterprise management practice and enterprise interview shows that due to exchange rate changes are difficult to predict, and currency fluctuations affect raw materials import and export, will affect the sales of the products, has a significant influence on the operation of supply chain performance
4.7 Natural disasters, disease, terrorism and war
Natural disasters such as earthquakes, fire risks, floods, storms and other force majeure are risk factors for supply chain failure. At the same time, communicable diseases such as COVID-19 and avian influenza can seriously affect the operation and management of supply chains. Terrorism, such as the 9/11 terrorist attacks in the United States, war, even caused supply chain disruption.
In early 2020, the impact of COVID-19 coronavirus has spread beyond China’s borders. As a result of the rapid increase in confirmed cases, the governments of South Korea, Italy, Iran and other countries have initiated emergency measures such as city closures and enhanced quarantine, which have had a significant impact on factory production and logistics operations in these areas as well as the entire supply chain. In addition, several companies and factories in several countries, including Germany and France, were forced to temporarily close because of the confirmed cases. As the impact has grown, some countries in Asia and Europe have closed or tightened land border checks, which has had a significant impact on road transport. In Italy, for example, most businesses in the northern regions of Lombardy and Veneto have been temporarily closed. The region is home to automobile manufacturing (52.94%), life sciences and health care (29.41%), and chemicals (11.76%), such as MTA, the world’s leading auto parts company. Elsewhere in Italy, companies such as Unilever, a consumer-goods maker, and Giorgio Armani, a luxury-goods maker, have had to reorganise production after staff were diagnosed.
5.0 Opportunities in the supply chain
Risks often coexist with opportunities, which is also the case in supply chain management. Enterprises will create more opportunities if they take preventive measures in advance and have their own risk management system.
5.1 Establish strategic partnership
The supply chain is a system composed of all enterprises, and each nodal enterprise is inseparable from each other. No matter which enterprise is exposed to risks, the rest of the enterprises cannot stay out of trouble, or even the whole supply chain will be broken. Therefore, in order to develop the supply chain in the long run, all nodal enterprises must work together to establish strategic partnership. In fact, this relationship is a similar alliance between businesses. In order to establish and stabilize such a partnership, nodal enterprises in the supply chain need to agree on some constraints in advance, so as to avoid some enterprises focusing only on their own short-term interests at the expense of the overall interests, so as to achieve a better win-win or even multi-win.
5.2 Strengthen incentives for supply chain enterprises
At the nodes of the same supply chain, adverse selection and moral failure will occur, which will have a severe impact on the whole supply chain system. Only by establishing and perfecting effective incentive mechanism can these bad behaviors be avoided. In modern commercial competition, the spirit of contract and honest cooperation are the right way. In the agreed incentive mechanism, responsibilities and powers of different enterprises should be clearly stipulated. Only through open and fair discussion can all enterprises be willing to share risks and strive for the same goal.
5.3 Strengthen the communication of enterprise information on the supply chain
Information risk is the risk that enterprises are most likely to encounter. Nodal enterprises in the supply chain tend to pay more attention to their own interests so as to conceal information. It is almost impossible to achieve complete information sharing and openness and transparency. Due to information risk, can lead to information asymmetry and the “bullwhip effect” (the “bullwhip effect” is the phenomena of high risk in the market marketing, vendors and suppliers is in demand forecast revisions, order quantity decision, price fluctuations, game, inventory shortage responsibility imbalances and deal with the result of the game environment variation, increasing the supplier’s production, supply, inventory management and the instability of marketing), these will create a barrier for collaboration between enterprises. Therefore, these nodal enterprises should establish a variety of information transmission channels to strengthen information exchange, enhance the information transparency of the supply chain, and improve the degree of information sharing.
5.4 Strengthen procurement management
The purchasing link is located at the beginning of the supply chain, and its position is very important for node enterprises
. Once problems occur, they will affect the smooth progress of logistics and transportation, and then affect the efficiency of enterprises and the whole supply chain. Therefore, in order to avoid procurement risk problems, enterprises should strengthen procurement management. First of all, the choice of reliable and stable suppliers is the key, enterprises can develop supplier selection methods from multiple perspectives; Second, the enterprise should improve the procurement system, reasonable arrangement of procurement plan; Finally, the effective supervision of the procurement process is also an important way to strengthen procurement management.
5.5 External risk prevention measures
Environmental risks from outside the supply chain can hardly be estimated and can hardly be avoided. We can only do a good job in risk response to minimize the loss as much as possible. Therefore, it is necessary for enterprises to be prepared for emergencies at ordinary times, formulate various measures to deal with emergencies and make good data backup. In addition, it is also necessary to pay attention to changes in the external environment, make predictions about what may happen, and make preparations in advance.