Risk Management in Purchasing and Supply Chains - Unit 9

Flashcards covering the methods, options, and challenges of predicting and managing risks in purchasing and supply chains based on the Unit 9 lecture notes.

What is considered probably the most important feature of a low-risk supply chain design?

The inclusion of parallel paths, which allow traffic or materials to bypass problems by switching to an alternative route.

In terms of supply chain design, what are the characteristics of low-risk supply chains?

They are typically shorter (fewer organizations and distances) and wider (more parallel paths).

How does the quality management approach relate to risk reduction?

It argues that risk emerges from variability; therefore, minimizing variability to stay as close to a target as possible reduces costs in the loss function and lowers risk.

What specific range does the transcript use as an example for traditional acceptable lead time?

A lead time between $43$ and $53$ hours.

According to the transcript, what are the three types of stocks held to buffer against specific risks?

1. Raw materials (supplier risks), 2. Work in progress (operations risks), and 3. Finished goods (fluctuating demand risks).

Distinguish between 'working stock' and 'safety stock' as defined by Waters (2003a).

Working stock is the essential amount needed for normal operations, while safety stock is an additional allowance used only when risky events actually occur.

What common mistake do companies make when calculating safety stock levels?

Relating safety stock to average demand rather than relating it to the actual amount of risk.

What is the operational equivalent of holding safety stock for unpredictable events?

Adding spare capacity, such as extra warehouse storage or additional vehicles.

What does 'agility' refer to in a supply chain context?

The flexibility of an organization to adapt quickly to changing conditions, such as using agile operations to meet high demand instead of holding stock.

What are some standard methods used to increase supply chain agility?

Postponement, standardization, concurrent operations, cross-trained employees, and alternative suppliers.

Which types of forecasts are noted as being inherently more accurate?

Short-term forecasts are more accurate than long-term ones, and aggregate forecasts are more accurate than disaggregated ones.

What is the primary benefit of collaboration between trading partners regarding risk?

It increases visibility within the supply chain, allowing members to see what is happening throughout the chain and reducing uncertainty.

What are some formal methods mentioned for reducing risk through collaboration?

Sharing information, joint forecasts, Vendor-managed inventory (VMI), and Collaborative planning, forecasting and replenishment (CPFR).

Define 'vendor rating' and its purpose.

A general term for evaluating how well a potential supplier matches a customer's requirements to choose the option with the least risk.

In the context of operation types, what risk is associated with 'Make to stock'?

The risk of unused stock.

What is 'Finish to order' and how does it reduce risk?

It is the basis of postponement where stocks of common modules or semi-finished goods are kept; it reduces risk by increasing flexibility to supply a wide range of products.

What are the risks and mitigation strategies for 'Design to order' operations?

Risks include variable demand and high costs; they are reduced by shorter lead times, using common designs, and collaboration with customers.

What is a significant downside of outsourcing components (the 'buy' decision)?

Increased reliance on suppliers and a loss of control, which inevitably raises the level of risk.

Why might binding contracts fail to protect a company during a material shortage?

Suppliers often automatically divert materials to their largest or most profitable customers, even if they have binding agreements with others.

What is the main difference between insurance and 'continuity planning'?

Continuity planning tries to maintain normal operations through unexpected circumstances, while insurance only offers compensation after things go wrong.

What are the two stages of choosing the best risk response?

Stage 1: Creating a shortlist from a long list of responses. Stage 2: Considering the shortlist to choose the best option.

What happened to Ford and Chrysler following the US government's reaction to the terrorist attacks on the World Trade Center?

Chrysler had intermittent plant closures and Ford reduced production by $13$ per cent in the fourth quarter of $2001$ due to government-imposed border delays.