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Risk Management and the Supply Chain

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Discuss an example of how an unknown-unknown risk proved damaging to a supply chain. You are free to utilize any example and any organization of your choosing. Explain specifically how each of the following might have mitigated this risk.
- Invest in redundancy
- Increase velocity in sensing and responding
- Create an adaptive supply chain community

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Unknown-unknown risks are difficult to predict, while known-unknown risks can be forecasted based on statistical data. Some examples of unknown-unknown risks include unforeseeable events such as natural disasters, hard to predict geopolitical events, environmental problems, and terrorist attacks. Unknown-unknown risks are not only difficult to predict, but they are difficult to control as well. There are three primary strategies that a company can utilize to help to manage supply chain risk, in particular for the unknown-unknowns. First, the company should create capacity and sourcing redundancy. Second, the company should increase velocity in sensing and responding. Third, the company should add flexibility to the supply chain. These three strategies combined help to create a more resilient supply chain, since each method focuses on a different supply chain dimension. In the design stage, the capacity and sourcing redundancy needs to be built in. Accurate and timely information is necessary in the speed in sensing and responding strategy, and a flexible supply chain will require partners that embrace flexibility, are willing to share both the costs and benefits, and work toward the same objectives (Simchi-Levi).

One of the previously mentioned unknown-unknown risks to a supply chain was natural disasters. Natural disasters are difficult to predict and cannot be controlled. One such disaster impacted Japan in 2011 in the form of a massive 8.9 magnitude earthquake and tsunami. Aside from the toll it took on human lives, the country's industrial base was also shaken. The Japanese carmakers were impacted greatly, ...

Solution Summary

Risk management and the supply chains are examined. The increase velocity in sensing and responding is examined.