Today’s Guest Post comes from Andreas Wieland, Assistant Professor of Supply Chain Management at Copenhagen Business School.
Managing risks in a global supply chain can be a difficult task. But there are substantial differences between 2 systems: the company and the supply chain. In a company, it might be relatively easy to get an overview about all the risks that might occur. But a supply chain consists of hundreds, sometimes 1,000s of companies. For example, if 30,000 parts are needed to build a car – many of them coming from different suppliers and suppliers’ suppliers – it should become obvious that the scalability of traditional risk management tools becomes quickly limited.
Identifying and assessing all types of risks from all suppliers, their suppliers, and all raw materials suppliers is simply impossible! Plus, doing this is also not always reasonable: many of the supply chain disruptions that happened in recent years were, in fact, caused by risks that had not appeared on risk category lists. Could we really imagine that a Tsunami in Japan would cause a nuclear accident? The harmful thing for Japanese car manufacturers was not that it was an earthquake that had happened. It was that many of their redundant suppliers were located in the same region. Worse, even the non-Japanese plants of these companies were affected, as they had failed to make the supply chains of different regions independent.
It’s not just the design of a supply chain that can help a company become more robust. It’s also the product design. Avoiding materials that can only be supplied from certain regions, such as rare-earth materials, or suppliers of non-standardized parts, can help ward off certain types of risk. Modular product design can help to at least semi-finish a product and to add missing modules at a later stage when they become available again. Such systemic solutions help companies cope with risk in the supply chain without paying too much attention on the exact causes of risk.