By understanding the variety and interconnectedness of supply-chain risks, managers can tailor balanced, effective risk-reduction strategies. The authors show how smart companies use “stress testing” to identify parts of the supply chain that might break in the event of a natural disaster, terrorist strike or other upheaval. They then explain a variety of ways that supply-chain partners can collaboratively prepare for and effectively manage risk.
Distorted information from one end of a supply chain to the other can lead to tremendous inefficiencies: excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation, and missed production schedules. What happens when a supply chain is plagued with a bullwhip effect that distorts its demand information as it is transmitted up the chain? How do exaggerated order swings occur? What can companies do to mitigate them?
An organization’s ability to recover from disruption quickly can be improved by building redundancy and flexibility into its supply chain. While investing in redundancy represents a pure cost increase, investing in flexibility yields many additional benefits for day-to-day operations.