Risk Pooling in Supply Chain Management
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1) What is involved in risk pooling?
2) How vital is it to supply chain management?
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Solution Summary
* Risk pooling explained; goals and why it is an important concept in SCM
* Strategies of risk pooling
* Importance of risk pooling in SCM
* 572 words
* three non-APA references
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According to Donglei Du, "Risk Pooling involves using centralized inventory instead of decentralized inventory to take advantage of the fact that if demand is higher than average at some retailers, it is likely to be lower than average at others. This reduction in variability directly leads to a decrease of the safety stock, and eventually leads to reduction in average inventory."
The main goal of risk pooling is to reduce overall inventory and operating costs but maintain or improve good customer service level. The major challenge in supply chain management (SCM) is how to match supply with the uncertainty of demand. Risk pooling is an answer to this challenge because it uses aggregation to reduce the demand uncertainty.
Risk pooling is considered as the most important theory or concept in SCM because it helps in making better supply chain decisions. Originally, risk pooling was a statistical concept that helps provide information on ...
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