supply chain risk management - niit technologies...is to have a proper supply chain risk management...
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NIIT Technologies White Paper
Supply Chain Risk ManagementSupply Chain Risk ManagementVinod Pisharoti
CONTENTS
1 An Overview 3
2 Background 3
3 Supply Chain Disruptions 4
3.1 Types of Risks 4
3.2 Risk Management Framework 4
4 Visibility – Uncertainty Exposed 5
4.1 Demand Visibility 5
4.2 Supply Visibility 5
4.2.1 Electronic notification of Shipments 5
4.2.2 End-to-end Visibility on the Supplier Side 6
4.3 Inventory Visibility 6
4.3.1 Tracking in Warehouse 6
4.4 Logistics Visibility 6
4.4.1 Alerts 7
4.4.2 Electronic Tagging 7
4.5 Where your Technology Partner can help? 7
4.5.1 Web Services 7
4.5.2 EDI 7
5 Conclusion 8
TRANSPORTATION
JOURNEYJOURNEY
TRANSPORTATION
TRANSPORTATION
TRANSPORTATION
TRAVEL
TRAVEL
TRAVEL
TRAVEL TRAVELTOUR
GUIDE
GUIDEGUIDE
CARGO
CARGOCARGO
CARGO CARGOLOGISTICS
LOGISTICS
PACKAGING
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1. An Overview some of the processes brings down the risks involved. Sadly,
many companies are not adequately automated to address these
issues. The paper also highlights how information technology can
be adopted in certain areas in supply chain to ensure visibility and
reduce risk occurrence.
2 . Background Supply-chains, today, are becoming highly sophisticated and
vital for the existence of a company. The drive to make supply
chain more efficient has resulted in it becoming vulnerable and
exposed to a range of uncertainties and risks. Risks originate
from various sources including Supply, Demand, Disasters, IT
and Logistics [Figure 1].
Supply chain is at risk when there is a threat of interruption to the
physical or information flow due to unwanted events. If companies
have to track these risks and address them appropriately then it is
imperative to have visibility on the exceptions or unwanted
happenings during the supply chain process. With the
multi-faceted nature of risks and piece meal solutions the first step
is to have a proper supply chain risk management strategy and
apply technology wherever possible to mitigate the risks.
Most companies lack automation and visibility which has resulted
in longer lead times, more than required inventory buffers, supply
imbalance and cost implications to name a few.
Businesses, today, are restructuring themselves to operate
globally. The ever increasing pressure to improve efficiency of
supply chains, demanding customers, competitive pressure and
ability to move material faster at lower cost have given rise to a
stream of new methods and initiatives. Modern supply-chains have
now become superior, with goods and information flow happening
in parallel, to ensure that the products are cost effectively delivered
in right quantities, to the right place, at the right time.
With pressure to deliver value every time, organizations constantly
face uncertainties and risks. Uncertainties occur due to
outsourcing, procurement from multiple suppliers, lack of
integration with suppliers, globalization, demands from customers,
dependency on Information Technology, laws and regulations, and
security. Planning, measuring, controlling and managing this within
the supply-chain network is critical to remain competitive, reduce
the margin of error and maintain the brand image of the company.
Supply chains are vulnerable to various types of risks that mainly
originate from five different sources: Supply, Demand, Disasters,
Information Technology and Logistics. Unstable supply chain
increases the need to control, monitor and evaluate risks to
maintain continuity, remain cost effective and maximize profitability.
Supply Chain Risk Management is an answer to minimize the
impact on profitability. According to an Aberdeen best practice
research report conducted in 2005, supply chain visibility is one of
the most critical areas where companies are investing. Stan Smith,
Risk assessment consultant from Q+E defines Supply Chain Risk
Management as a “Systematic process of managing unwanted
events or unwanted change in the Supply chain”.
This paper introduces the concept of Supply Chain Risk
Management. It identifies various risks and explains the process of
managing these risks. With technology in place, automation of
Figure 1: Source of Risks
Supply
Demand
DisastersIT
LogisticsSourcesof Risks
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Technical Aspects
3.1 Types of RisksAvoiding and reducing risks is a big challenge for all the
enterprises. The risks to supply chains are numerous and
constantly evolving, and emanate from different sources.
Enterprises have identified and documented different types of risks
in the Supply chain.
Reports suggest that most companies are aware of the possible
risks in the supply chain and the impact they have. However,
companies wait for them to happen before acting on them.
Companies should look for a holistic approach to manage the risks
involved, and achieve greater flexibility and control. They should
build a risk management plan to quickly adjust and recover from
the anticipated and unanticipated risks.
3.2 Risk Management FrameworkRoshan Gaonkar and N Viswanadham in their paper ‘A conceptual
and analytical framework for the management of risks in supply
chain’ mention two approaches (preventive and interceptive) to
build resilient supply chains.
The preventive approach reduces the probability of risk occurrence
in the supply chain. The interceptive approach takes immediate
action after the occurrence of an event to minimize the impact.
The Aberdeen Global Supply Chain Bench Mark report states that
79% of the large companies lack supply chain process visibility
which has now become a top concern, and 90% of all enterprises
report that their supply chain technology is inadequate.
3. Supply Chain DisruptionsLet us take a look at some of the supply chain disruptions that
took place in the past.
The above examples highlight that if these problems were identified
on time and managed properly, disasters could have been averted.
Disruption Scenario/Impact
Supply Related A European consumer durable manufacturer that out-sourced production of a component part to China discovered that the first shipment of parts was defective. By the time the further shipments could be stopped, a six-month supply was already on its way. The company had no option but to install them and absorb the expense of warranty repairs.[Global Supply Chain Risk Management, John T. Mentzer]
Demand Related Cisco in 2001 had to announce an inventory write-off of US$2 billion due to decline in orders for their network infrastructure products. All levels of supply network had been heavily buffered because the demand of these products was rising and supply of components was getting affected. [Risk in Supply Chain, Dr Shoumen Datta]
Disaster Related A fire in a factory that produced semi-conductors for mobile phones in March 2000 had a major effect on the supply of their parts. Nokia and Ericsson owned 40% of the market share between them at that time. Both companies were highly exposed to potential shortages of critical components for their products. Nokia responded quickly with alternate actions. Ericsson did not respond until early April, by which time supplies were not available. As a result, Ericsson lost sales of approximately $400m. [Risk in Supply Chain, Dr Shoumen Datta]
IT Related In 1998-99, Hershey Foods spent more than $100 million on a new order management, supply chain planning, and CRM system to transform the company’s IT infrastructure and supply chain. System had critical glitches and was not ready to go live on time. As a result Hershey’s lost revenue due to missed orders. [SCDigest]
Logistics Related The on-line division of a leading toy retailer, Toys R Us advertised and promised delivery by Christmas on any orders placed before 10th Dec. The inventory was in place; however, the company could not pick, pack and ship the bulk orders immediately. Eventually the shipping of the orders was outsourced to another company; leading to huge losses. [SCDigest]
Figure 2: Types of Risks
Types of Risks
DisastersNatural Disasters, Diseases, Political unrest, Political unrest, Terrorism,
Currency fluctuations, Goverment regulations. IT breakdown, Labour strikes
Supply Logistics Demand
• Material non-availability• Supplier bankruptcy• Failure/miscommunication• Partnership breach• Lack of response to change• Poor Quality of materials• Late arrival of materials• Exchange rate fluctuations• Dependency on a single source• Price Increase by supplier• Shortage on arrival
• Storing obsolete goods• Excess Inventory• Holding high value/short life
stocks• Stock pilling• Underutilized capacity• Carrier unavailability• Not meeting delivery schedule• Delay due to accident• Dispatch to wrong destination• Pilferage• Short shipments• Damage to goods in transit
• Lack of demand• Volatile demand• Fraudulent Customers• Changes in requirement• Failure/miscommunication
Information TechnologyInaccurate forecasts, Distorted information, Data protection. IT Infrastructure
breakdown, Failure of integration systems, Failure of IT applications
4.1 Demand Visibility“Forecasting has never been cent percent correct and probably will
never be”. There is no way one can know well in advance what
and how much the customer wants unless he/she shares it.
Years back, supply chain was not complex and technology was
virtually non-existent. At that time, vendors used to forecast based on
“intuition”. Vendors also started forecasting demand based on sales
made in the past; which brought figures closer to actual needs but
were still not precise. This technique is used even today by most
vendors. Today, supply chain management has become a
sophisticated discipline and technology is available for forecasting.
Using proper data collection and forecasting techniques, vendors can
reduce the gap between the forecasted data and the actual data.
To get an insight on demand, an ideal demand visibility solution should
capture demand history, customer orders, point-of-sale data, historical
sales data, market forecasts, any recorded seasonal variations,
information on weather conditions, promotions etc. Combined with
technology, different techniques can be applied to create demand
patterns, forecasts and plans for an effective inventory management
and cost-effective customer service.
4.2 Supply VisibilityAccording to an AMR Research, supplier failure is one of the top
supply chain risk factor. It is important to extract information about
the state of the concerned product and supplier to mitigate the
risk. Electronic Data Interchange (EDI) is one solution but Web
Services is preferred as a viable solution.
Implementing Web services enable organizations to integrate with
suppliers and easily share or access information stored in disparate
systems operating on different platforms. Visibility to supplier
information reduces most of the supply related risks.
4.2.1 Electronic notification of Shipments
Information on shipments or orders obtained through emails, fax or
telephone is entered manually into the system. The process of
entering information is laborious, costly, and error-prone. Suppliers
with EDI capabilities push the information electronically but it does
not necessarily reach on or before time.
Providing visibility in a supply chain is one way of reducing the
probability of risk occurrence and therefore becomes a part of the
preventive approach. Supply chain consultants in various forums
and papers have mentioned the standard processes that need to
be followed in order to proactively manage risks in a supply chain.
They are;
• Identify unexpected events
• Conduct root cause analysis
• Assess and quantify impact of each risk
• Assign probability of risk occurrence
• Build risk mitigation plan
• Assign owners and implement actions
4. Visibility – Uncertainty ExposedRisks can be transferred to a supply chain partner or can be
minimized but cannot be avoided. One way of minimizing the risk
is by having good visibility and control over the Supply chain.
Companies should focus on the following to go a long way in
reducing the risks in the supply chain
• How well connected are you with the Suppliers and other
trading partners?
• What is the current status of the order?
• Do you have specific details (dimensions, weight, type etc) of the item?
• Where exactly is the item at any given time?
• Where is the item getting stored?
• How much of the item is available?
• Is the item being stored in the right environment?
• When is the item going to arrive?
• Are the goods received in full (or is there any shortage)?
• Are the items in the condition it is supposed to be (damaged,
fake etc)?
Right information available at the right time ensures greater
visibility. End-to-end visibility allows companies to respond quickly
to issues that directly and indirectly impact the flow of goods from
source to the consumer.
There are several visibility solutions and technologies that can be
used in a supply chain scenario. Some of them that directly
contribute to operations are:
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RFID tag is attached to every item in the warehouse. Once the tag
is associated, all warehouse movements are tracked by readers.
Information about items movement can be immediately transmitted
to the driver. If the driver delivers the item to the wrong storage bay
or shipping dock, he immediately gets an alert. A real-time locating
system can also track truck’s movement and position.
4.4 Logistics VisibilityAn order needs to be tracked from the time an order is shipped
from the source (warehouse from a supplier or warehouse to a
customer) to the consumer.
Some of the basic questions are;
• Have all the items and quantities been shipped as per the order?
• When will the shipment arrive?
• Has the order been delivered to the customer?
• Has the order reached in-time at the destination in perfect condition?
As long as there is visibility, an ideal logistics visibility solution
should cater to them. A logistics visibility solution should cover the
following;
• Consolidate all shipment relevant information from internal
systems, suppliers, carriers, agents, customs authorities and
other trading partners.
• Provide milestone based shipment status i.e. each time the
shipment changes hands, relevant information - time of arrival,
departure and position - is captured.
• Keep track of the shipment quantity to ensure it matches the
expected order.
• Raise alerts each time there is an exception
• Provide inventory visibility
• Capture details of goods shipped for tracking purposes.
• Provide electronic verification and confirmation of delivery
• Capture supplier and carrier service level details for performance
improvement.
Information in the form of actionable data is extremely important
if one has to quickly react to the supply chain demands.
Visibility solutions display data that needs attention through
alerts, dashboards, reports, handheld devices, and emails. The
solution presents data to the right people at the right time and
in the right method.
An alternate solution is to pull the information directly from the
supplier (on mutual agreement) at regular time intervals irrespective
of the format it has been stored. The information is then translated
to the required format (e.g. XML) before being used. It removes
dependency on the supplier.
4.2.2 End-to-end Visibility on the Supplier Side
Improved visibility is at the top of the supply chain strategy list. To
achieve end-to-end visibility, it is important to leverage the Supplier
portals that provide some level of visibility, and generates Advance
Shipment Notifications and bar code label printing capabilities.
Building interfaces to access critical information and integrating it
to the end-to-end workflow of the supplier brings down a lot of
supply related risks.
4.3 Inventory VisibilityIn a supply chain, it is important to control inventory for countering
risks. Companies in order to ensure availability of the product
without maintaining excessive inventory need an accurate picture
of the stock across distribution centers or warehouses. Customer
commitments can be met only if a company has real-time visibility
of the stock placed as an order, in a store/warehouse or in-transit.
A perfect solution that provides inventory visibility should cover the
following;
• Ability to provide real-time alerts on operations including short
receipts, no-shows or out of stock etc., inside the
warehouse/DC so that decisions can be made
• Ability to capture accurate data of items and stock
• Ability to extract information from within the premises by
consolidating data or integrating it with other systems
• Display relevant information through web portal so that stake
holders can access information and take decisions accordingly.
4.3.1 Tracking in Warehouse
Radio Frequency Identification (RFID) can be used for real-time
location tracking. It pinpoints items to their location.
RFID is emerging as a key technology in applications as varied as
asset tracking, logistics and transportation, surveillance and
security. It reduces warehousing and inventory management costs
through effective asset and pallet tracking, and theft alerts. RFID
does not require a line-of-sight between the transponder and the
reader. It therefore works effectively in dirty environments and
eliminates the need to manually scan each case or pallet's
magnetic cards and bar codes.
collection of operations accessed over the network through
standardized XML messaging. A group of Web services interacting
together defines a Web service application in a Service-Oriented
Architecture (SOA).
eBusiness Solutions from NIIT Technologies
NIIT Technologies service offerings help organizations keep pace
with the rapidly changing dynamics of eBusiness. It provides
end-to-end eBusiness solutions and services that include:
• Web Services solution and SOA consulting services
• Formulating eBusiness strategy, architecture, and process
automation
• Developing new Web-based applications and Web front-ends
integrated to legacy applications
• Integrating the enterprise value chain through Web
• Developing enterprise information portals
• Providing verification and validation services
• Maintaining Web applications.
4.5.2 EDI
Electronic Data Interchange (EDI) is a set of standards for structuring
and electronically exchanging information between and within
businesses, organizations, government entities and other groups.
EDI can be formally defined as 'The transfer of structured data, by
agreed message standards, from one computer system to another
without human intervention'.
Enterprise Integration from NIIT Technologies
NIIT Technologies Enterprise Integration services include integrating
legacy and ERP applications using leading integration platforms
such as MQ-Series, TIBCO, BEA WebLogic, and webMethods. In
addition, NIIT Technologies can also build custom-solutions based
on different standards.
4.4.1 Alerts
Considering the global route that goods travel in the supply chain,
logistics disruptions are bound to take place. Late arrival, shortage,
damage, dispatch to incorrect destinations, pilferage, loss in transit and
untraceable goods in the warehouse happen in a day-to-day supply
chain scenario. This has led to unhappy customers and loss of
credibility. Situations may go out of control not because the companies
do not react, but due to unavailability of information at the right time.
Supply chain event management can solve this problem.
These are systems that discover “Exceptions” in the supply chain when
goods change hands. In other words, it keeps track of the actual
activity deviated from the planned activity. If there is any deviation, alerts
are sent to executives on personal computers, mobile phones, pagers
etc. The alert will trigger managerial action to mitigate the impact of the
disruption as quickly as possible. For example, if a shipment is carried
by an airline to a destination in a different country and for some reason
the airline does not depart at the scheduled time, an alert is sent to the
concerned executive on mobile phone or desktop so that appropriate
action can be taken. In this manner, exceptions to the arrival and
departure of goods can be tracked.
4.4.2 Electronic Tagging
RFID technology can be used to tag a container consisting of
cartons or pallets. This technology helps in tracking assets as they
move through a supply chain. It minimizes the number of containers
lost. Similarly, if a pallet or a consignment was shipped to the wrong
location, alerts are sent to the transport management system, and if
necessary the pallet are re-routed.
4.5 Where your Technology Partner can help?
4.5.1 Web Services
IBM explains Web service as a technology that allows applications
to communicate with each other in a platform independent of the
programming language. It is a software interface that describes a
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3. Supply Chain Digest, “11 Greatest Supply Chain Disasters”
4. Aberdeen Group, “Global Supply Chain Bench Mark
Report”, June 2006
5. InfinityQS International, “Mitigating Supply Chain Risk
using Collaborative Technology, May 2007
6. John T. Mentzer, “Global Supply Chain Risk
Management”, Sep 2004
7. Martin Christopher and Hau L. Lee, “Supply Chain
Confidence”, Nov 2001
8. Prof Alan Harrison and Dr Andrew White, “Intelligent
Distribution and Logistics”
9. Supply Chain Europe, “Risk Management”, Nov 2007
10. Rob Handfield, “Reducing the impact of disruptions to
the supply chain”
11. Roshan Gaonkar and N Viswanadham, “A Conceptual
and Analytical Framework for the Management of Risks in
Supply Chains”,
12. AMR Research, “How Best To Measure Your Supply
Chain Today” by John Hagerty, Lora Cecere, and Joe
Souza
13. Dr Shoumen Palit Austin Datta, “Risk in Global Supply
Chain”
14. Stan Smith – Risk Management Consultant, “Applying
Risk Management to Supply Chain, LA Convention center
lecture, 2005
5. ConclusionConsidering the global nature of trading, competitive market,
volatile customer demands, multiple constraints and
uncertainties that come along with it, it is important to have an
agile and efficient supply chain management system. The
paper described the various risks associated with the supply
chain and recommended a solution to minimize the
occurrence. Information technology has helped reduce these
risks. Visibility through information technology can be used to
minimize risk in a supply chain.
A reduced risk and improved visibility provides;
• Reasonable reduction in inventory
• Lower material handling costs
• Reduced transportation costs
• Improvement in Order cycle time
• Increased fulfillment rates
• Reduced stock outs
• Provides better customer service
References & Readings1. Cap Gemini, Ernst & Young, “The Transition from Tactical
to Adaptive Supply Chains, 2003”
2. Emily (Rong) Liu and Akhil Kumar, “Leveraging
Information Sharing To Increase Supply Chain
Configurability”, 2003 — Twenty-Fourth International
Conference on Information Systems
About the Author
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Write to us at [email protected] www.niit-tech.com
NIIT Technologies is a leading IT solutions organization, servicing customers in North America,
Europe, Asia and Australia. It offers services in Application Development and Maintenance,
Enterprise Solutions including Managed Services and Business Process Outsourcing to
organizations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and
Government sectors. With employees over 8,000 professionals, NIIT Technologies follows global
standards of software development processes.
Over the years the Company has forged extremely rewarding relationships with global majors, a
testimony to mutual commitment and its ability to retain marquee clients, drawing repeat
business from them. NIIT Technologies has been able to scale its interactions with marquee
clients in the BFSI sector, the Travel Transport & Logistics and Manufacturing & Distribution, into
extremely meaningful, multi-year "collaborations.
NIIT Technologies follows global standards of development, which include ISO 9001:2000
Certification, assessment at Level 5 for SEI-CMMi version 1.2 and ISO 27001 information
security management certification. Its data center operations are assessed at the international
ISO 20000 IT management standards.
Vinod Pisharoti heads the Logistics practice in NIIT Technologies. He has over 26 years of
experience in the Information Technology industry providing solutions in the area of Supply
Chain Management.
About NIIT Technologies
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