Risk Management and the Supply Chain - Research Paper Example

According to the research findings, it can, therefore, be said that improbability in an occurrence of unknown-unknown risk is considered a damaging factor to supply chain of organizations. For instance, these occurrences are attributed various natural disasters, which include earthquakes and hurricanes. A significant aspect of unknown risk is consequences that cannot be predetermined; through they have adverse effects on the supply chain of an organization. For example, the earthquake is a type of unknown risk, which occurred in Japan on March 11, 2010, leading to the devastation of infrastructures that supported supply chain in the country.

In this case, this unknown risk interrupted the power systems and destroyed infrastructures by dumping debris on roads, which interfered with the transport system. Seemingly, this earthquake led to a significant interruption of a supply chain, which is associated with numerous Japanese companies. Evidently, there were interruptions caused by this disaster such as halting production in companies operating from the north and east of Japan; in fact, they were forced to evacuate. Therefore, these firms were subjected to this unknown risk of consequences such as closing the plant due to shock caused by the earthquake were not anticipated.

On the companies affected by this disaster was Renesas, which is a manufacturer of microcontrollers, whereby they were subjected to this unknown risk that led to the closure of six facilities. Damages resulting from this disaster have a negative impact on other components that support supply chains such as ports, railway lines, and roads. Therefore, goods are neither transported to local nor international markets. For instance, an occurrence of the earth in Japan led to an interference of operations in various organizations that are market-based such as Sony, whose supply chain was significantly affected.

Apparently, the impact of this earthquake was also transmitted to the global market since other countries experience a reduction of the automotive parts and electronics that are offered by Japanese marketers to international markets. How to Mitigate the Risk Unknown risk is mitigated by investing in capacity and sourcing redundancy in order to develop resiliency in a supply chain. In this case, the effectiveness of supply chain offers a way of mitigating risk, which is caused by occurrences such as earthquakes.

Nevertheless, increasing the effectiveness of the supply chain requires a scrutinizing analysis of trade-offs involved. Investing in redundancy can allow a company to increase its flexibility in terms of supply chain, whereby it is integrated with dual sourcing and redundant manufacturing capacity, which can be based on offshore countries. Therefore, increasing flexibility can facilitate decreasing cost of transporting products from one location to another. Investing in redundancy can assist a company in solving the problems associated by supply chain such as interruptions of the transport system caused by earthquakes.

Alternatively, this risk can be mitigated through an increase of velocity in sensing and responding to the earthquake disasters and this requires a company to have the capacity to respond to these unexpected problems in a timely and adequate manner.