Nokia, now a global leader in technology connecting people and things, demonstrates its new virtual reality camera, Ozo, at a tech event. The company improves its supply chain by promoting the flow of information with suppliers and customers, and developing collaborative relationships with suppliers.<\/p>\n
Nokia Corp, a Finnish company, was founded in 1865 as a paper mill. Nokia did not start manufacturing phones until 1982. By making this strategic decision, Nokia became a global leader in telecommunications by 1998. Industry experts have been fascinated by Nokia\u2019s ability to manage and adapt its supply chain over almost 150 years. Since 1995, Nokia\u2019s supply chain management approach has been to create the most efficient supplier network in order to offer the best solutions and meet customer expectations. The pillars for the company\u2019s success include:<\/p>\n
creating value-based partnerships with suppliers backed by factual information<\/p>\n
leadership<\/p>\n
flexibility<\/p>\n
trust<\/p>\n
A research paper published in the\u00a0International Journal of Physical Distribution & Logistics Management\u00a0explained that Nokia improves its supply chain by promoting the flow of information with suppliers and customers, developing collaborative relationships with suppliers, designing for postponement, building inventory buffers by maintaining a stockpile of inexpensive but key components, having a dependable logistics system or partnership, and drawing up contingency plans and developing crisis management teams. Today, Nokia is a global leader in technologies that connect people and things.<\/p>\n
What Do You Think?<\/p>\n
How do supply chains relate to your personal life? Explain and provide examples.<\/p>\n
In\u00a0Chapter 6, we focused on the structure and design of supply chains. In this chapter, we address the day-to-day issues that supply chain managers must deal with to ensure that supply chains accomplish their purpose in creating and delivering goods to customers.\u00a0Supply chain management (SCM)\u00a0is the management of all activities that facilitate the fulfillment of a customer order for a manufactured good to achieve customer satisfaction at reasonable cost.\u00a0To stay competitive, \u201cretailers need to know where things are at all times so they can redirect shipments, rebalance inventories and respond to new demands on the fly.\u201d<\/p>\n
As the opening discussion about Nokia suggests, effective supply chain management is critical to a company\u2019s success and its ability to meet customer needs. A report from AMR Research, Inc. suggests that companies that excel in supply chain operations also perform better in other financial measures of success. As one executive at AMR Research stated, \u201cvalue chain performance translates into productivity and market-share leadership. \u2026 [S]upply chain leadership means more than just low costs and efficiency\u2014it requires a superior ability to shape and respond to shifts in demand with innovative products and services.\u201d<\/p>\n
12-1Managing Supply Chains<\/p>\n
Managing a supply chain requires numerous operational activities, including working closely with suppliers, purchasing, transportation, inventory management, managing risks that may disrupt the supply chain, measuring supply chain performance, and ensuring sustainability.<\/p>\n
An important component of supply chain management is called logistics.\u00a0Logistics\u00a0is the management of transportation activities and the flow of materials within a supply chain to ensure adequate customer service at reasonable cost.\u00a0The logistics function is responsible for selecting transportation carriers; managing company-owned fleets of vehicles, distribution centers, and warehouses; controlling efficient interplant movement of materials and goods within the supply chain; and ensuring that goods are delivered to customers. Logistics play a key role both externally and internally. Externally, the logistics function is critical to satisfy customers\u2019 needs and expectations. Internally, it leads to efficiency in supply chain performance, enabling the company to operate with lower inventory levels and costs, and improve customer service. Because many supply chains are global, most logistic managers must also deal with complex regulations, trade laws, tariffs, and multiple modes of transportation.<\/p>\n
Supply Chains to Admire<\/p>\n
Supply Chain Insights (www.supplychaininsights.com) provides professional advice for supply chain leaders on practices and technologies that make the biggest difference to corporate performance. The company developed the Supply Chains to Admire (TM) research methodology to better understand supply chain excellence. Some organizations that have been recognized for outstanding supply chain performance that have better operating margins and return on invested capital include Nike, Whole Foods, Estee Lauder, General Mills, Audi, Intel, and Samsung. Their website contains numerous videos that illustrate and explain how supply chain leadership is practiced in these companies and the results that they have achieved.<\/p>\n
While purchasing has traditionally been an independent function, purchasing and logistics are often consolidated, and managers of these functions may have the title of global sourcing manager or specialist, distribution manager, commodity manager, virtual sourcing manager, transportation manager, or vice president of logistics.<\/p>\n
12-1aThe SCOR Model<\/p>\n
The Supply Chain Operations Reference (SCOR) model\u00a0is a framework for understanding the scope of supply chain management (SCM) that is based on five basic functions involved in managing a supply chain: plan, source, make, deliver, and return\u00a0(see the box on\u00a0the SCOR model), which are the key processes that create value to customers.\u00a0These processes include many of the OM functions that we have already discussed, such as measurement, strategy, forecasting, capacity management, and inventory management, and those in subsequent chapters, such as scheduling and quality management. The unique characteristic of SCOR is that, whereas managers typically focus on activities within the span of their purchasing, manufacturing, and distribution processes, SCOR requires a clear understanding of the interactions among all parts of the system. For example, supply chain managers must use forecasting and information technology to better match production levels with demand and reduce costs; tightly integrate design, development, production, delivery, and marketing; and provide more customization to meet increasingly demanding customers. The SCOR framework can also help managers identify important performance metrics to manage and monitor their processes.<\/p>\n
The SCOR Model<\/p>\n
The Supply Chain Operations Reference (SCOR) model is a framework for understanding the scope of supply chain management (SCM) that is based on five basic functions involved in managing a supply chain: plan, source, make, deliver, and return.<\/p>\n
Plan\u2014Developing a strategy that balances resources with requirements and establishes and communicates plans for the entire supply chain. This includes management policies and aligning the supply chain plan with financial plans.<\/p>\n
Source\u2014Procuring goods and services to meet planned or actual demand. This includes identifying and selecting suppliers, scheduling deliveries, authorizing payments, and managing inventory.<\/p>\n
Make\u2014Transforming goods and services to a finished state to meet demand. This includes production scheduling, managing work-in-process, manufacturing, testing, packaging, and product release.<\/p>\n
Deliver\u2014Managing orders, transportation, and distribution to provide the goods and services. This entails all order management activities from processing customer orders to routing shipments, managing goods at distribution centers, and invoicing the customer.<\/p>\n
Return\u2014Processing customer returns; providing maintenance, repair, and overhaul; and dealing with excess goods. This includes return authorization, receiving, verification, disposition, and replacement or credit.<\/p>\n
A supply chain is an integrated system of processes that requires much coordination and collaboration among its various players. Every company is part of a long chain (in fact, many long chains) of customers and suppliers. Each company is a customer to its suppliers and a supplier to its customers, so it does not make sense to think of a company as only one or the other. This promotes a systems perspective of supply chains rather than viewing organizations as disconnected from other elements of the supply chain.\u00a0Exhibit 12.1\u00a0illustrates how the SCOR model may be used in a chain of customer-supplier relationships. Each major player (the company, its suppliers, its customers, suppliers\u2019 suppliers, and customers\u2019 customers) would typically manage its own supply chain using the SCOR framework\u2014in essence, chaining these functions within a broader supply chain.<\/p>\n
12-1bSourcing and Purchasing<\/p>\n
Suppliers are vital to supply chains, because they provide the materials and components needed for production to ultimately meet customer demand. If these are not delivered on time, in the proper quantity, and with the right level of quality, the entire supply chain could break down. For manufacturing, one of the first questions that supply chain managers must ask is where to obtain (\u201csource\u201d) raw materials, manufactured components, and\u00a0subassemblies. For services, sourcing options might include employment agencies, equipment maintenance and repair companies, information systems providers, third-party logistic firms, engineering services, health care services, and retirement providers.<\/p>\n
The best companies link sourcing decisions to their business strategy, use business analytics tools, and focus on the \u201ctotal cost of ownership,\u201d not simply the cost of purchasing. In today\u2019s business environment, as we noted in\u00a0Chapter 1, sourcing decisions are global; companies rely on goods and services obtained from many different countries and regions, and manufacturing operations are often distributed across the globe. Global sourcing seeks to balance various economic factors such as purchasing costs, transportation costs, taxes, and tariffs with delivery performance and quality requirements.<\/p>\n
Purchasing (procurement)\u00a0is the function responsible for acquiring raw materials, component parts, tools, services, and other items required from external suppliers.\u00a0Purchasing can have a significant impact on total supply chain costs. For example, at Gillette, each division used to purchase supplies such as cardboard, aluminum, steel, and plastic independently. In fact, no one knew exactly how much the company spent on supplies worldwide. By coordinating division purchasing, the company saved hundreds of millions of dollars.<\/p>\n
Because materials are one of the largest sources of cash outlay in any manufacturing firm, their acquisition requires careful management. For goods-producing firms, the purchasing department acts as an interface between suppliers and the production function. For service firms such as hotels, education, airlines, and health care, purchasing buys the goods necessary to perform their services. In addition, purchasing must buy services from organizations like temporary employment agencies, insurance and financial firms, laundry and landscape businesses, security companies, information technology corporations, and external education and training providers.<\/p>\n
The principal goal of purchasing is to support its key internal customers. Thus, purchasing must do much more than simply buy according to the quoted line-item purchase prices. Purchasing must ensure quality, delivery performance, low cost, and technical support. Moreover, purchasing must continually seek new suppliers and products, and be able to evaluate their strategic, market, and economic potential to the company\u00a0.<\/p>\n
The responsibilities of a purchasing department include learning the material needs of the organization, aggregating orders, selecting qualified suppliers and negotiating price and contracts, selecting transportation modes and mix, ensuring delivery, expediting, authorizing payments, and monitoring cost, quality, and delivery performance \u201cby supplier\u201d worldwide. Accordingly, purchasing agents must maintain good relations and communications with other internal departments, such as accounting and finance, where budgets are prepared; product design and engineering, where material specifications are set; production, where timely delivery is essential; and the legal department, where contracts are reviewed. Likewise, purchasing must maintain good relationships with external suppliers, third-party logistic providers, and all types of transportation services.<\/p>\n
12-1cManaging Supplier Relationships<\/p>\n
Three principles for working with suppliers are:<\/p>\n
Recognizing their strategic importance in accomplishing business objectives such as minimizing the total cost of ownership.<\/p>\n
Developing a win-win relationship through long-term partnerships rather than as adversaries.<\/p>\n
Establishing trust through openness and honesty, and therefore, leading to mutual advantages.<\/p>\n
Dell, for instance, creates strong partnerships with global suppliers responsible for delivering thousands of parts. Keyboards are sourced in Mexico, soundcards in France, and power supplies, disk drives, and chips in Asia. The selection of suppliers is based on cost, quality, speed of service, and flexibility; and performance is tracked using a supplier \u201creport card.\u201d Boeing, which spent $36 billion on 17,525 suppliers in 52 countries in one year, created a forum in which it meets with supplier representatives every other month, with a goal of improving the supplier performance measurement process and its tools.<\/p>\n
When close relationships are developed, the total number of suppliers can be reduced, because there is no need for competition among suppliers for the same products. With larger contracts, suppliers benefit from economies of scale and customers benefit from volume discounts. Suppliers\u2019 involvement in early product design stages often allow customers to find out about new materials, parts, and technologies before their competitors. Moreover, with long-term contracts, suppliers are more willing to invest in process and system improvements. Many customers even provide assistance in making such improvements. In return, they receive better products and service.<\/p>\n
12-1dSupply and Value Chain Integration<\/p>\n
Supply chain integration\u00a0is the process of coordinating the physical flow of materials to ensure that the right parts are available at various stages of the supply chain, such as manufacturing and assembly plants.\u00a0Some firms, such as Walmart, manage supply chain integration themselves. Others make use of third-party \u201csystem integrators\u201d such as Exel (www.exel.com) to manage the process. Exel manages supply chain activities across industries and geographic regions to reduce costs, accelerate product movement, and allow manufacturers and retailers to focus on their core business. Exel is able to deliver services and solutions such as consulting, e-commerce, transport, global freight, warehousing, home delivery, labeling, and co-packing, on a local, regional, or global basis.<\/p>\n
From a broader perspective, drawing upon the value chain concepts in\u00a0Chapter 1, we may define\u00a0value chain integration\u00a0as the process of managing information, physical goods, and services to ensure their availability at the right place, at the right time, at the right cost, at the right quantity, and with the highest attention to quality.\u00a0For goods-producing firms, it requires consolidating information\u00a0systems among suppliers, factories, distributors, and customers; managing the supply chain and scheduling factories; and studying new ways to use technology. Value chain integration includes improving internal processes for the client, as well as external processes that tie together suppliers, manufacturers, distributors, and customers. Other benefits are lower total value chain costs to the client, reduced inventory obsolescence, better global communication among all parties, access to new technologies, and better customer service.<\/p>\n
Value chain integration in services\u2014where value is in the form of low prices, convenience, and access to special, time-sensitive deals and travel packages\u2014takes many forms. For example, third-party integrators for the leisure and travel industry value chains include Orbitz, Expedia, Priceline, and Travelocity. They manage information to make these value chains more efficient and create value for their customers. Many financial services use information networks provided by third-party information technology integrators such as AT&T, Sprint, IBM, and Verizon to coordinate their value chains. Hospitals also use third-party integrators for both their information and physical goods, such as managing patient billing and hospital inventories.<\/p>\n
Electronic data interchange and Internet links streamline information flow between global customers and suppliers and increase the velocity of supply chains. Many firms now use cloud-based software for managing inventories in supply chains and synchronizing marketing and supply chain functions. Trucking companies track their trucks via global positioning system (GPS) technology as they move across the country, and many use in-vehicle navigational systems.<\/p>\n
Firms such as MetLife, Marriott Hotels, General Electric, FedEx, Dow Chemical, Enterprise Rent-A-Car, and Bank of America have exploited technology effectively in their supply chain management activities. In many situations, electronic transaction capability allows all parts of the supply chain to immediately know and react to changes in demand and supply. This requires tighter integration of many components of the supply chain. In some cases, technology provides the capability to eliminate parts of the traditional supply chain structure and streamline operations.<\/p>\n
12-2Logistics<\/p>\n
Logistics managers have the following three primary responsibilities:<\/p>\n
Purchasing transportation services.<\/p>\n
Selecting appropriate modes of shipment and mix of specific carriers.<\/p>\n
Contracting with suppliers for domestic and global transportation services.<\/p>\n
Negotiating transportation rates, and shipping, insurance, and liability contracts.<\/p>\n
Managing international trade agreements, custom laws, and import\/export fees.<\/p>\n
Using business analytics to evaluate different shipping options.<\/p>\n
Managing the transportation of materials and goods through the supply chain.<\/p>\n
Tracing shipments in transit and expedite them when necessary.<\/p>\n
Coordinating shipments with airports, rail yards, and seaport docks.<\/p>\n
Issuing and auditing freight bills.<\/p>\n
Managing inventories.<\/p>\n
Managing the flow of goods through warehouses, and sometimes, shipping directly to retail stores and customers.<\/p>\n
Filing claims for damaged goods.<\/p>\n
12-2aTransportation<\/p>\n
The selection of transportation services is a complex decision, as varied services are available\u2014rail, trucks, air, water, and pipeline. Each has advantages and disadvantages depending on the volume, size, and weight of the items being transported. Transportation costs can add up to 10 percent to the total cost of the product as it moves through the supply chain.<\/p>\n
Transportation costs can add up to 10 percent to the total cost of the product as it moves through the supply chain.<\/p>\n
Rail\u00a0transport provides a good balance between costs, delivery speed, tonnage capacity, and environmental sustainability. A typical train can carry 10,000 tons of freight. It is best over long hauls, in bad weather, and is somewhat immune to vehicle traffic congestion. Rail transit is generally slow and is used primarily for shipping large volumes of relatively low-value items over long distances. However, rail cars often encounter long delays and are less dependable than other forms of transportation. In addition, routes are inflexible and do not offer door-to-door service.<\/p>\n
Trucks\u00a0are the most flexible of all transportation modes with the capability for door-to-door pickup and delivery. Perishable goods such as fruit and flowers can be quickly moved to the buyer. Transportation costs are higher than rail, and it is used most often for short distances and smaller shipments. Weight and size constraints limit the capability of trucks for carrying certain loads, but their scheduled service is more dependable than that of rail. Weather, traffic congestion, and driver errors can limit this transportation mode. Full-truckload (FTL) and less-than-full truckload (LTL) shipments are critical to making a profit on a load. A\u00a0backhaul\u00a0is when a truck delivers its load and also carries freight on the return journey. Without backhaul business, the capacity utilization of the truck is low and non-revenue producing.<\/p>\n
International shipping relies on air and water.\u00a0Air shipments\u00a0have the highest transportation cost, are very fast for long distances, but are limited in how much weight they can carry. A 747 airplane designed to only carry freight can carry up to 100 metric tons. Airfreight is most often used to transport high-value items such as flowers, heart valves, seafood, electronics, and smaller manufactured parts. Routes are limit and must be supplemented with other modes of transportation to get products to customers.<\/p>\n
Ships and barges\u00a0are generally limited to transporting large quantities of bulky items\u2014historically, raw\u00a0materials such as coal and iron, but recently, items such as furniture and other manufactured products from overseas. For example, a 40-foot container can hold up to 1,600 bicycles, 3,000 flat-packed furniture kits, 130,000 T-shirts, or 15,000 small automobile parts. Today we are seeing \u201cmegaships\u201d\u2014tankers and freight carriers that can hold millions of gallons of oil or over 7,000 shipping containers; the CMA CGM Benjamin Franklin can carry 18,000 20-foot containers. The cost to ship one T-shirt from Asia to the United States using the Benjamin Franklin is about 2 cents.<\/p>\n
Weather can disrupt maritime shipments, and this mode requires high initial investment. They are slow, but inexpensive from a unit cost basis. Like air, they require other modes of transportation to get to customer locations.<\/p>\n
Pipelines\u00a0carry water, petroleum, natural gas, and sometimes a slurry of minerals or commodities. Pipelines have limited use and accessibility and are used primarily for such products as oil and natural gas. Initial investment costs are high, but once in operation the cost to transport per mile is very low. Preventive maintenance adds to the cost of operations, while packaging costs are zero. An important goal of managing a pipeline is not harming the environment (i.e., environmental sustainability).<\/p>\n
Domestically, most consumer items are shipped via rail, trucks, and air. The critical factors in selecting a transportation mode are<\/p>\n
speed,<\/p>\n
accessibility,<\/p>\n
cost, and<\/p>\n
capability.<\/p>\n
Supply chain managers often combine these modes of transportation (called\u00a0intermodal transportation) in a global supply chain such as transporting by ship and container to a seaport, loading the containers onto a train for transport to a large, \u201cbreak bulk\u201d warehouse, and delivering to individual retail stores by truck.<\/p>\n
12-2bInventory Management<\/p>\n
Inventories support the supply chain by providing materials and goods where and when they are needed\u2014at every stage of the supply chain\u2014for production and to customers. Inventories provide buffers between production operations to help keep machines and operations running. Inventories also protect against disruptions in supply and sudden, unpredictable, surges in demand. Careful management of inventory is critical to supply chain time-based performance in order to respond effectively to customers.<\/p>\n
Many companies rely on suppliers to help manage inventory in a supply chain.\u00a0Vendor-managed inventory (VMI)\u00a0is where the vendor (supplier) monitors and manages inventory for the customer.\u00a0VMI essentially outsources the inventory management function in supply chains to suppliers. For example, a supplier such as a consumer goods manufacturer might manage the inventory for a grocery store. VMI allows the vendor to view inventory needs from the customer\u2019s perspective and use this information to optimize its own production operations, better control inventory and capacity, and reduce total supply chain costs. VMI also allows vendors to make production decisions using downstream customer demand data. One disadvantage of VMI is that it does not account for substitutable\u00a0products from competing manufacturers and often results in higher customer inventories than necessary.<\/p>\n
The performance of a supply chain often suffers from a phenomenon known as the\u00a0bullwhip effect, in which inventories exhibit wild swings up and down. This has been observed across most industries and increases cost and reduces service to customers. The bullwhip effect results from order amplification in the supply chain.\u00a0Order amplification\u00a0is a phenomenon that occurs when each member of a supply chain \u201corders up\u201d to buffer its own inventory.\u00a0In the case of a distributor, this might mean ordering extra finished goods; for a manufacturer, this might mean ordering extra raw materials or parts. Order amplification can be seen in\u00a0Exhibit 12.2, which shows orders as compared to sales for an HP inkjet printer. The amplitude of sales over time is smaller than the variation in the order quantity. In this case, the distributor is ordering extra quantities as a hedge against the uncertainty in delivery or other factors such as sudden surges in demand.<\/p>\n
Many firms are taking steps to counteract this bullwhip phenomenon by modifying the supply chain infrastructure and operational processes. For example, instead of ordering based on observed fluctuations in demand at the next stage of the supply chain (which are amplified from other stages downstream), all members of the supply chain should use the same demand data from the point of the supply chain closest to the customer. Modern technology such as point-of-sale data collection, electronic data interchange, and RFID chips can help provide such data. Other strategies include using smaller order sizes, stabilizing price fluctuations, and sharing information on sales, capacity, and inventory data among the members of the supply chain.<\/p>\n
Order Amplification at Procter & Gamble<\/p>\n
Procter & Gamble (P&G) observed that frequent promotions sent costs spiraling. At one point, the company made 55 daily price changes on some 80 brands, which necessitated rework on every third order. Often, special packaging and handling were required. Ordering peaked during the promotions as distributors stockpiled huge quantities of goods (known as forward buying), which resulted in excessive overtime in the factories followed by periods of underutilization. Factories ran at 55 to 60 percent of rated efficiency with huge swings in output. These fluctuations strained the distribution system as well, loading up warehouses during slow periods and overworking the transportation systems at peak times.<\/p>\n
P&G stabilized its pricing resulting in much smoother demand rates. Retailers automatically order products as they sell them; when 100 cases of Cheer detergent leave a retailer\u2019s warehouse, an order is placed for 100 more. Both P&G and retailers saved money. Plant efficiency rates increased to over 80 percent across the company; at the same time, North American inventories dropped 10 percent.<\/p>\n
Order amplification increases as one moves back up the supply chain away from the retail customer. For example, small increases in demand by customers will cause distribution\u00a0centers to increase their inventory. This leads to more frequent or larger orders to be placed with manufacturing. Manufacturing, in turn, will increase its purchasing of materials and components from suppliers. Because of lead times in ordering and delivery between each element of the supply chain, by the time the increased supply reaches the distribution center, customer demand may have leveled off or even dropped, resulting in an oversupply. This will trigger a reduction in orders back through the supply chain, resulting in undersupply later in time. Essentially, the time lags associated with information and material flow cause a mismatch between the actual customer demand and the supply chain\u2019s ability to satisfy that demand as each component of the supply chain seeks to manage its operations from its own perspective. This results in large oscillations of inventory in the supply chain network and characterizes the bullwhip effect.<\/p>\n
12-3Risk Management in Supply Chains<\/p>\n
Companies face a multitude of risks in managing supply chains. Risks in domestic supply chains are often minimal; however, risks in global supply chains are much greater. These include production problems with suppliers that result in material shortages, labor strikes, unexpected transportation delays, delays from customs inspection or port operations, political instability in foreign countries, natural disasters, and even terrorism. Good supply chain managers must anticipate and mitigate these risks to ensure that the supply chain will be able to create and deliver its goods and services worldwide. Should they occur, they must take action to deal with the consequences and get the supply chain up and running again. For example, cybersecurity intrusions can greatly disrupt global supply chains. Supply chain managers must have backup plans, and multiple avenues of communication to keep supply chains operating effectively.<\/p>\n
Japanese Earthquake Disrupts Global Supply Chains<\/p>\n
On March 11, 2011, a devastating earthquake and tsunami in Japan caused ripples among global supply chains, particularly in the automotive industry. As Japan is an important source for automotive parts, graphic chips, and other high-tech components, the disaster caused General Motors to shut down a Louisiana factory that makes pickup trucks. North American Toyota plants experienced shortages of 150 critical parts and reduced operations to 30 percent of normal capacity. Companies scrambled to find suppliers in other countries such as China, Taiwan, and South Korea. As one consultant noted, \u201cIt\u2019s not just the assembly plant that needs to run; it\u2019s not just the direct supplier. I\u2019ve got to understand the steel plant; I\u2019ve got to understand every piece at a second tier, a third tier and a fourth tier below that. We\u2019ve never had to do that before.\u201d Subsequently, Toyota announced that it was working to create a robust supply chain that would recover within two weeks in the event of a similar disaster.<\/p>\n
The consequences of supply chain disruptions can be significant. One research study analyzed more than 800 supply chain disruptions that took place between 1989 and 2000. Firms that experienced major supply chain disruptions saw a 93 percent decrease in sales, 33 to 40 percent lower shareholder returns, 13.5 percent higher share price volatility, 107 percent decline in operating income, and 114 percent ROA decline over a three-year period.<\/p>\n
Firms that experienced major supply chain disruptions saw a 93 percent decrease in sales, 33 to 40 percent lower shareholder returns, 13.5 percent higher share price volatility, 107 percent decline in operating income, and 114 percent ROA decline over a three-year period.<\/p>\n
Risk management\u00a0involves identifying risks that can occur, assessing the likelihood that they will occur, determining the impact on the firm and its customers, and identifying steps to mitigate the risks.\u00a0Examples of short- and long-term risks that supply chains may face, and ways by which they can be mitigated, are summarized in\u00a0Exhibits 12.3\u00a0and\u00a012.4. Tactical risks are those that influence the day-to-day management of operations, while strategic risks can impact the design of the entire supply chain. Low- and mid-level managers, as well as front-line employees, can often address tactical risks. However, strategic risks must be addressed by top-level managers. Many of the ways to mitigate risks in\u00a0Exhibits 12.2\u00a0and\u00a012.3\u00a0are simply good OM practices, and are addressed throughout this book. Together, these methods of operations and supply chain management define a toolkit to improve performance and mitigate supply chain risks.<\/p>\n","protected":false},"excerpt":{"rendered":"
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