Companies all of the world have created enormous supply chains to meet the ever increasing demand of the public. These supply chains are global and consist of manufacturers from many parts of the world. As we have learned in Chapter 2, Globalization is a big part of the operations strategy for many companies as it is a great way to increase profits and grow your whole company. Improving a supply chain is usually done by locating facilities closer to unique resources which in turn lowers the costs of production and allows for more profits. Steve Culp, the author of the article “Supply Chain Risk a Hidden Liability for Many Companies”, explains that global supply chains have a risk factor involved that companies should pay attention to. This risk factor is what creates the weak link in the chain.
The risk factor is created by the possibility of disastrous events. Whether it be an earthquake, a flood, or a tsunami, the results are devastating. As an example, the article states that the flooding in Thai created shortages in hard drives that lead to millions of dollars worth of losses for electronics manufacturers. Surely this can null any previous savings that are established by outsourcing part of the production process, but at the same time this risk needs to be looked at face value. Companies need to balance the efficiency and low cost that they desire with the risk that they are willing to take. The article gives a couple of suggestions on how to assess this supply chain risk. Out of all of the points, one stands out the most. Companies should integrate risk management into operations planning and management. This would allow risk to flow into key supply chain decisions. If supply chain risk is accounted for, companies could even set some of their profit aside as a way of dealing with the potential loss in the future.
It is all seemingly based on luck. Take two hypothetical companies, Company A and Company B. Company A only focuses on low cost and chooses suppliers based on that factor while Company B chooses suppliers based on cost and risk. If no tragic events happen, Company A will be in the better position in the marketplace and make more profit. However if tragic event halt the production of Company A’s suppliers, Company A could possibly lose millions of dollars which could result in a net loss during the current period. Because of the random factor of these events, I think that many companies will opt to just ignore the risk involved and focus on making as much profit as they can. In my opinion, ignoring this risk would be a big mistake.
What do you think, should companies incorporate supply chain risk into their key decisions on which suppliers to use?