Customer Focus on Risk Management in the Supply Chain - Research Paper Example

 Introduction Maintaining good relationship with other firms, assuring conditions for a safe and fast delivery of products to the customers is a strategy that supports the resiliency of business. The question that must always be in the mind of the marketer is, “Will the customer come back?” One significant strategy in meeting the needs and wants of customers is introducing an approach to supply chain that aims back at the customer. Satisfying their needs and wants is always a challenge to marketers. Knowing the customers’ needs have become a foundation for which a company is founded. Customer focus is important to supply chain. The customer wants to be understood, and the customer can interpret this by answering what he/she wants of the product. The information can be inputted back to the customer for enhancement of the product. If it is service-oriented, the company has to modify the service. Supply chain has to be continually improved in order to attain customer satisfaction and loyalty while customer focus can reflect satisfaction and loyalty. Acquiring more profits, which is one of the major goals of business, seems to be problematic and one of the difficult objectives to achieve. There are more and more products manufactured everyday but there are fewer customers to buy these products. Firms have to find their segments and customers because they have more products to sell. There is a surplus of products but lesser customers. Organizations around the world compete to gain more customers, and one way of gaining more customers is to win their trust, answer and meet their needs and wants, and make sure they come back. It is not enough that they buy the company’s products – it is important that they come back. This is loyalty. Supply chain is vital to attaining customer satisfaction. When a product is being purchased, it must reach the hands of the customer quickly, with ease and comfort of delivery, and must have the desired quality that the customer asks for. As satisfaction is attained, customer loyalty can be targeted. But this does not mean it automatically leads to loyalty. Before loyalty can be attained, customer closeness is crucial, meaning, some activities have to be geared towards contacting the customer in order to acquire more data and information about the product, and how the customer reacts to the product, including suggestion for improvement. Risks are multiplying Risks are multiplying day by day, costing a lot for firms. In a survey of executives, they concluded that supply chain risk must be a part of strategic moves of organizations. Problems in supply chain have caused what executives call “margin erosion” while consumer demand cannot be immediately met and that supply chain problems have impacted the very “heart” of the business. (Deloitte, 2013) The increasing complexity of business, the involvement of many stakeholders in business and the impact of globalization, along with the information revolution are some of the factors that add to difficulties in creating solutions to problems. Finch (as cited in Ritchie & Brindley, 2007, p. 1399) indicated that the firms’ experience with risk has increased with globalization and inter-organizational networking, and that their relations with small-medium-enterprises (SMEs) provided more risks in the supply chain. (Ritchie & Rindley, 2007, p. 1399) Risk results from the level of uncertainty and the impact of an event (Sinha as cited in Pujawan & Geraldin, 2009, p. 953). Risks associated with management, like decision making, succession planning, skill acquisition and retention are influenced by organizational policies and procedures. Larger companies relegate their functions to specialist companies while SMEs conduct their own recruitment without delegating such function to a department. The result would be not having relevant skills for the company. Shortage of IS skills is a problem for smaller companies. In a study, there is a relation between skills shortage, the level of formal IS training and the implementation of IS within companies. Lower perceived requirement for IS can be seen in smaller companies. (Finch, 2004, p. 189) Researchers have devised a more appropriate approach in reviewing risk and performance appraisal, by creating a string of representative measures to manage risks and business performance. For example, Zsidisin et al. (as cited in Ritchie & Brindley, 2007, p. 1399) proposed “proactive supply management tools, particularly those that focus on addressing supplier quality issues, improving supplier performance and preventing supply interruptions.” This suggestion is somewhat linked with promoting relationship with supplier, including effective partnering in the midst of limited quantitative methods in providing solutions. (Ritchie & Brindley, 2007, p. 1399) Supply Chain There are local and global supply chains. The subject of global supply chains is the focus of this essay. Global supply chain is riskier than the local one because it involves many firms connected globally. These links are not permanent since many of them are weak, easily disrupted, sometimes prone to bankruptcy, economic downturn, natural disasters, and much more. Global supply chains are links to competitive advantage. Many of these firms resort to cheap labor and raw materials, access to financing, wider markets, or some political arrangements induced by host governments (AlHashim; Kogut & Kulatilaka as cited in Manuj & Mentzer, 2008, p. 192). Global chain managers should be able to determine the degree of complexity in the global supply chains they are in, and the capacity of their respective organizations to cope this complexity by adopting inter-organizational learning. In this time of globalization and global terrorism, complexities have not only grown but have multiplied many times. Outsourcing and off-shoring are a trend but they are also disrupted by “demanding customers, geographical dispersion of supply chain, access to markets in emerging economies, and anticipated events such as terrorist acts and natural disasters” (Manuj & Mentzer, 2008, p. 217). Supply Chain Management Supply chain management is defined as “the management of material, information and finance through a network of organizations (i.e. suppliers, manufacturers, logistics providers, wholesales/distributors and retailers) that aims to produce and deliver products or services for the customers” (Blos, Wee, & Watanabe, 2009, p. 247). On the other hand, the definition of risk has evolved this time with the many complexities firms are facing. Risk has been associated with unpredictability, matters involving decisions and possible loss. Sitkin and Pablo (as cited in Ritchie & Brindley, 2007, p. 1399) have this definition of risk: it is “the extent to which there is uncertainty about whether potentially significant and/or disappointing outcomes of decisions will be realized.” There are three parts of risk: “magnitude of loss, the chance of loss and the potential exposure of loss” (MacCrimon & Wehrung as cited in Ritchie & Brindley, 2007, p. 1399). Zsidisin et al. (as cited in Ritchie & Brindley, 2007, p. 1399) define risk as that which exists “when there is a relatively high likelihood that a detrimental event can occur and that event has a significant associated impact or cost.” Decisions and other activities made to improve operational performance and to lessen the effects of risk may create an effect on the firm’s performance. Bernstein (as cited in Khan & Burnes, 2007, p. 199) maintains that risk is a matter of choice, i.e. “the actions we dare to take, which depend on how free we are to make choices, are what the story of risk is all about”. When a customer chooses to have a long-term partnership with a supplier, it results into significant benefits. But when one of the partners defaults from the agreement or resorts into vested interests to the detriment of the other, the result can also be significant. Those are risks that must be avoided but cannot be avoided sometimes. As we have said, it’s a matter of choice. Managing Risks in the Supply Chain Supply chain risk management is a source of competitive advantage and helps reduce vulnerability in a supply chain. Supply chain is important in the midst of the growing trends in outsourcing and offshore manufacturing (Lin & Zhou, 2010, p. 162). Effects of globalization forced firms to be interdependent with each other, narrowing the margin or eventually eroding the “margin”. The margin refers to the competition. An example of risk in supply chain is demonstrated by the recalls made by Toyota over the defects of the breaks of Toyota Prius. This fault, attributed to supply chain, cost millions of dollars to Toyota. Risks are associated with unacceptable products delivered from upstream. (Tummala & Schoenherr, 2011, p. 474) Assessment and management of risks has been the subject of many studies because it has become phenomenal. Because of this, Tummala et al. (as cited in Tummala & Schoenherr, 2011) proposed and developed a structured Risk Management Process consisting of five phases, namely: risk identification, risk measurement, risk assessment, risk evaluation, and risk control and monitoring. This has been a successful attempt to identify potential risk factors and to predict their occurrence. Along with this mechanism, the possible impact can be identified and assessed and possible strategies can be developed. (Tummala & Schoenherr, 2011, p. 475) The relationship of customer and supplier is influenced by many factors. Risk of transaction costs increases depending on the level of uncertainty in the relationship. If the customer is very much dependent on a particular supplier, i.e. “the greater the cost of switching to another supplier, the less certain the customer is that the supplier will not act opportunistically to raise prices, unless other factors, such as contractual arrangements, prevent this” (Khan & Burnes, 2007, p. 198). This was Williamson’s (as cited in Khan & Burnes, 2007) idea of risk which is about the general definition of risk. Moore (as cited in Khan & Burnes, p. 199) argues that there are two types of risk: risk as a future outcome (e.g. a supplier raising prices) and risk as a probability that a particular outcome may occur. If the relationship is not so much regulated, there is greater probability of opportunistic behavior. Postponement In terms of market risk, postponement serves to reduce it. What is postponement? This is a principle of risk management wherein the processing of a product is postponed in such areas as commitment, passage of title, branding, or final assembly. The purpose is to attain timing. The product is preserved in an undifferentiated state as long as possible, allow it to “wait” while changes or shifts in markets occur. In the process of postponement, transportation costs can be saved because products are held in abeyance at the factory warehouse until they are needed in the distribution center. There is reduction in the transport of goods between distribution centers. Another benefit is that while still being held back, or while the product is being held in abeyance, a step in the process is eliminated. This is because a product passes through four stages – from manufacturer to distributor to retailer and finally to customer. The movement requires money, manpower and more activities. Postponing one aspect of the distribution can save costs. Saving unnecessary cost in the supply chain is attained. A firm can postpone changes in a product’s features, including location of inventories, before the product is offered for sale in the market, to reduce risks of introducing the wrong product to the market. (Stadtler & Kilger, 2008, p. 25) Conclusion Communication is vital in a relationship. But even if there is communication, risk factors are increasing the reason why managers and marketers are increasingly not comfortable on their seats. As they say, actions speak louder than words. CEOs have to unite, though they cannot. The claws of globalization are ready to make their every move falter. Risks – no matter how strong – must be dealt with through a strong relationship between customer and supplier, and through a strong willpower to succeed despite the odds. Managers must be able to digest in their minds (and in their work) the advantages and disadvantages of the strategies they apply to minimize risk. They have to make sure of their move and constantly examine of their efficacy because it involves their business survival. Managers should also understand the risk management strategies, for example postponement, supply chain management, and related strategies like security, avoidance, hedging, and so forth. References Blos, M., Wee, H., & Watanabe, K. (2009). Supply chain risk management (SCRM): A case study on the automotive and electronic industries in Brazil. Supply Chain Management: An International Journal, 14(4), 247-252. doi: 10.1108/13598540910970072 Deloitte: Executives see growing supply chain risks, costlier disruptions. (2013). Retrieved 27 July 2013 from http://deloitte.wsj.com/cfo/2013/02/27/executives-see-growing-supply-chain-risks-costlier-disruptions/ Finch, P. (2004). Supply chain risk management. Supply Chain Management, 9(2), 183-196. doi: 10.1108/13598540410527079 Khan, O. & Burnes, B. (2007). Risk and supply chain management: Creating a research agenda. The International Journal of Logistics Management, 18(2), 197-216. doi: 10.1108/09574090710816931 Lin, Y. & Zhou, L. (2010). The impacts of product design changes on supply chain risk: A case study. International Journal of Physical Distribution & Logistics Management, 41(2), 162-186. doi: 10.1108/09600031111118549 Manuj, I. & Mentzer, J. (2008). Global supply chain risk management strategies. International Journal of Physical Distribution & Logistics Management, 38(3), 192-223. doi: 10.1108/09600030810866986 Pujawan, I. N. & Geraldin, L. (2009). House of risk: A model for proactive supply chain risk management. Business Process Management Journal, 15(6), 953-967. doi: 10.1108/14637150911003801 Ritchie, B. & Brindley, C. (2007). An emergent framework for supply chain risk management performance measurement. Journal of the Operational Research Society, 58(2), 1398-1411. Retrieved 27 July 2013 from http://search.proquest.com.proxymu.wrlc.org/abicomplete/docview/231378433/fulltextPDF/13F8398FCFF61E5302E/1?accountid=28975 Stadtler, H. & Kilger, C. (2008). Supply chain management and advanced planning: concepts models software. Germany: Springer. Tummala, R. & Schoenherr, T. (2011). Assessing and managing risks using the supply chain risk management process (SCRMP). Supply Chain Management: An International Journal, 16(6), 474-483. doi: 10.1108/13598541111171165 Read More