As firms seek to improve and strengthen their supply chains to be more effective and efficient, their actions may also result in more vulnerability towards risks and disruptions. Therefore, supply chain risk management (SCRM) has become critical.
A recent study conducted at the University of Pretoria explored SCRM in the South African third- party logistics (3PL) industry. The study looked at the primary sources that lead to disruptions and vulnerabilities and current tools or methods used by supply chain practitioners to mitigate supply chain risks.
The study found that supply chains tend to be more vulnerable to external disruptions. Disruptions primarily originate from external sources, especially from either the supplier or customer side of the supply chain, with the dominant source being disruptions stemming from the customer’s segment of the supply chain, followed by supplier-related disruptions and least mentioned being disruptions originating internally within organisations.
The four main causes of supply chain vulnerabilities include crime and security, information technology communication (ITC), political and economic, and socio-economic. Crime and security include theft, hijacking, fraud and/or corruption, and terrorist activities that influence an organisation’s supply chain. Information technology communication was identified as being of great concern, with cyber attacks having a massive impact on the ability to serve end-customers. Political instability, economic instability and change in legislation often result in serious vulnerability to supply chain operations. Other sources of vulnerability include socio-economic factors such as labour unrest, infrastructure for transportation, accidents on the road or internal to the organisation.
Forces that are beyond the control of the firm, such as natural disasters and pandemics, have increased in frequency over the past few years, making supply chains more vulnerable with less control.
The study identified four primary approaches that may be employed in mitigating the mentioned supply chain disruptions. These four approaches are collaborative planning, forecasting and replenishment (CPFR); long-term relationships; information systems; and internal business processes.
The findings of the study show that 3PLs mostly use CPFR and internally generated processes to mitigate supply chain risks. Communication and transparency with clients are the two primary drivers to the implementation of CPFR. Further, acquiring and maintaining healthy long-term relationships with clients was also highlighted. Moreover, the findings of the study show that it is essential to implement sound information systems. Finally, the major internal business processes to mitigate risks used by 3PLs are business continuity plans (BCP) and standard operating procedures (SOP).
The results show that the high cost that is incurred by implementing a comprehensive SCRM strategy and the unwillingness of supply chain partners to buy into SCRM makes it difficult to implement. Client firms and parties within the supply chain are not receptive towards implementing SCRM strategies because most of the responsibilities are transferred to the 3PL.
Managers in the 3PL logistics industry should not underestimate the significance of SCRM and must realise the positive impact that this strategic process could have on the 3PL and client’s supply chain. Being able to better identify and assess possible supply chain disruptions could result in mitigating methods that will minimise the impact of these disruptions on the supply chain and protect the organisation against vulnerabilities.
Supply chain vulnerabilities, such as socio- economic factors, political and economic concerns, cyber attacks and infrastructure for transportation are some of the leading supply chain risks that practitioners should consider in their operations. Managers can create guidelines to identify, assess and mitigate potential sources of disruptions and vulnerabilities. It is recommended that supply chain practitioners adopt a proactive intent towards SCRM. By being proactive in identifying possible risks, it could help to predict supply chain risks before they occur. Furthermore, supply chain practitioners should realise the significance of information flow to identify, assess as well as mitigate supply chain risks.
Written by Wesley Niemann, Supply Chain Management Educator, Researcher & Consultant at University of Pretoria
This article has been re-published on behalf of Logistics News – visit www.logisticsnews,co.za for more content