Managing Risks in the Supply Chain

Transcription

1 Managing Risks in the Supply Chain Muhammed Kürşad Özlen International Burch University Dzihad Zlatar International Burch University Dzenana Džakmić International Burch University Abstract Managing risks in the supply chain is of growing importance, as the vulnerability of supply chains increases. The main objective of this research is to identify and test the potential sources of risks in the supply chain. Therefore, survey data were collected from 201 workers from various companies in Sarajevo. The survey data is analysed descriptively. The results identified that employees in companies are aware of potential sources of the risks. The findings also confirm the importance of supply chain risk management for the agility and successfulness of the company. The research identifies and rates the possible risks supply chain management over a sample of workforce in Sarajevo area. It identifies some of the problems that the workforce recognizes and also provides a better understanding on the general attitude of the employees towards their companies Keywords: Supply chain management, risk, survey, risk factors, risk management. Introduction The importance of managing the risk in supply chains cannot be overstated. This is a fundamental part of doing business that must be addressed appropriately for the company to be successful. Risks are just a part of doing business and by having a procedure in place to deal with them does make a difference on their impact. There are many research s conducted in term of risk management, however there is lack of research on supply chain risk management that is why this topic is accepted as very interesting and important for this study. The main objective of our research is to introduce supply chain risk management issue to the companies in Sarajevo. Another objective is to find out what the common sources of supply chain risk in these companies are, and whether they are aware of these risks. Last objective is to identify how the management of these risks can contribute to the efficiency of the 56

2 companies. In order to descriptively evaluate these objectives, a questionnaire is developed by the help of reviewed literature. This research is expected to contribute to the research about supply chain risk management. After summarizing the existing literature; the variables that we considered as the most important sources of risk are identified. The survey listed the main sources of risks and workers perception about them in the company. At the beginning, the existing literature related to this topic is provided. Ten different resources on this issue which we found particularly interesting are summarised. In the third section, the data and methodology used in this research are presented. The results are reported and discussed. Finally, the work is concluded by making overall conclusion. Literature Review Supply chain management directs the flow of materials from initial suppliers to the final customers. However, there are many influencing factors of this flow and disrupt the planned movement of materials. These factors are supply chain risks which can have many negative effects by causing delays, preventing deliveries, damaging goods or somehow influencing different operations in organizations. That is the reason why it is important to investigate this topic and find out the ways of managing risks in the supply chain. This section includes the existing literature on supply chain vulnerability and risk management. Christopher (2005) evaluated risk perspectives under three headings and risk types under five sub-headings: 1) firm s internal risk: a) Process risk and b) Control risk; 2) firm s internal risk: c) Supply risk and d) Demand risk, and 3) the supply chain s external risk: e) Environmental risks. Hessami and Savoji (2011) categorize risks according to the environmental, financial, strategic, informative and communicative technology, technology and equipment, human resources and supply chain risks priorities. They claimed that due to governmental policies and regulations, the most influential and important risk is the environmental risk. Water (2007) distinguished two kinds of risk: internal and external. Internal risks include: late deliveries, excess stock, poor forecasts, financial risks, minor accidents, human error, and faults in information technology systems. External risks are originated from outside the supply chain such as earthquakes, hurricanes, industrial action, wars, price rises, shortage of raw materials, crime, financial irregularities. McCormack et al (2008) suggested three phases in supply chain risk management. First phase is the identification of the risk by enlisting the relevant supply chain risks. Second phase is the assessment of the risk by listing serious risks that can be visualized in a risk portfolio with the dimension probability of occurrence and negative impact. Third phase is the mitigation of the risk by decreasing the likelihood or its impact of occurrence. 57

3 Snyder and Shan (2006) mainly focused on supply and demand risk. In both cases, the problem boils down to having too little supply to meet demand and it may be irrelevant whether the mismatch occurs because of too much demand or too little supply. They claimed that much of the conventional wisdom about Demand Uncertainty (DU) is exactly wrong for Supply Uncertainty (SU). So, they suggested researching on supply chains under SU to identify their behaviour and to develop strategies for managing risk in supply. Tang (2005) asserted that the gap between theory and practice is one of the main problems in supply chain risk management. According to Tang, many firms implemented various initiatives such as outsourced manufacturing and product variety. Tang suggested these initiatives as effective in a stable environment; but they can enhance supply chains by making them more vulnerable to various types of disruptions caused by environmental uncertainties. Kilgore (2004) said that when a firm takes a traditional, cost minimization approach in its supply chain strategy, it often increases its risk of failure or increases its overall cost. Kilgore suggested that firms should develop a risk-adjusted supply chain strategy and furthermore continued that firms should apply an analytical risk mitigation approach by combining risk management and cost minimization into one continuous process. Juttner, Peck and Christopher (2003) reported risk mitigation strategies as: (1) Avoidance, (2) Control, (3) Cooperation and (4) Flexibility. Affriadi (2011) by employing FMEA (Failure Mode and Effect Analysis) methodology as a risk management framework in order to identify and assess supply chain risks, categorize them according to their level, and explore risk mitigation strategies. Failure Modes and Effects Analysis (FMEA) is useful to analyze potential problems earlier in their development cycle in order to take actions to defeat the problems, thus enhancing reliability through design. D&B Special report (2011) suggested that businesses will have to modify their risk mitigation strategies related to supply chain risk. It suggests that procurement managers should generate better models beyond the traditional supplier-centric focus by including all possible supply chain risks including environmental impacts. The report continues that firms should extend the responsibility of managing supply chain risks and these risks should be considered across the company. As seen above in the literature review, authors mainly focused on classifying types of supply chain risk. The main division was made on internal and external risk, with various sub-divisions. Authors provided different ways of managing risks in the supply chain. Now, this research will try to investigate the following variables including internal factors, external factors, assets and technologies, human resources, information technology and communications and financial resources. These variables are found to be appropriate for the survey questionnaire. The included variables, their sub-items and the referenced studies for those items are given in Table

4 Table 1 Variable and Sub-items Data and Methodology This research has developed a questionnaire including 47 questions under six sections. The target population is determined to be located in Sarajevo/BiH, as a representative of larger population. For the questions, a 7-point Likert scale is employed with values ranging from 1 to 7 (strongly disagree to strongly agree). The questionnaires are distributed mainly by , because it is the easiest and most approachable way to contact employees within firms. One part is distributed personally mainly to the workers with lower positions in the firms. After collecting the data, it is entered to an excel spread sheet and prepared for descriptive analyses. 200 surveys are sent by and 59

5 146 are successfully completed and returned with a response rate of 73%. The remaining 55 surveys are completed by hand. Therefore, totally 201 surveys are collected. Results Demographics Demographic section of the survey includes respondents information about their department, age, gender and education levels. The questionnaires are tried to be distributed to different departments so that we can have representative sample. However among the respondents, the most of them are from marketing, promotion and IT department. The least number of participants we had from customer service. The other departments are almost equally presented in the survey. Most of the participants are observed to have undergraduate education. It is important to say that around 60 (nearly 30 per cent) of the participants have master degrees. Only small number of participants are holding PHD, while almost 50 respondents pick other for question about the education level (This may include high school, business school or Bologna 1 st grade). Males (108) and females (93) are almost represented equally according to the survey results. The age of respondents are accumulated generally between 31 and 40 (118/201). Internal Strength The results revealed that the companies in Sarajevo have medium level of internal strength regarding efficiency, effectiveness, strategic goals, competitive advantage of the firm (Table 1). Table 1 Descriptive Results for Internal Strength Items Mean Std. Deviation 1 My company's strategic goals are clear and familiar to all employees My company is always following its chosen strategic objectives My company possesses some kind of competitive advantage on the market My company conducts its business/service with acceptable level of effectiveness My company conducts its business/service with acceptable level of efficiency My company adheres to long term as well as short term goals

6 7 My company is well known among customers and competitors My company is well respected among customers and competitors External Environment Second group of questions in the survey is about the external environment of the company (Table 2). According to the results, the respondents seem to agree that there is a competition in Bosnian market. They also think that the legislative laws are prohibitive in Bosnia. The companies generally are working more than one single supplier. Furthermore, the participants in the survey believe that the company has a steady and loyal chain of suppliers. They seem not to have enough protection from external threats. From this analysis we can see that companies are aware of external risks and their surroundings, and that they believe that they have positive business relations with other supply chain members. Table 2 Descriptive Results for External Environment Items Mean Std. Deviation 1 My company has a steady chain of suppliers My company has a loyal chain of suppliers My company is not overly dependent on single suppliers My company is well positioned compared to its competitors My company operates in a very competitive environment My company is hindered by legislative procedures in my country My company is affected by foreseeable trade barriers My company could be severely affected by negative speculations Assets and Technologies The next group of questions consists of statements regarding assets and technologies (Table 3). The respondents believe that their companies have sufficient fixed capital to support its operations and their brand name guarantees the level of output. They slightly claim that their companies do not have large expenditures from rent, lease and other expenses. Moreover, the respondents are slightly comfortable with their assets and technological levels. Table 3 Descriptive Results for Assets and Technologies Items Mean Std. Deviation 1 My company has sufficient fixed capital to support its operations My company does not have large expenditures from rent, lease and other capital borrowing expenses My company production/service capabilities is sufficient to answer the desired demand in the market My company's assets are used to its optimal capacity My company has sufficient storage capacity

7 6 My company follows current technological trends in the industry My company's processes can be adapted to the future technological changes My company's brand name guarantees the level of quality of our output Human Resources Another important variable is human resources, which are one of the sources of the risk for the company (Table 4). The respondents are happy with the respectful treatments of their company. They accept their managers as capable and educated. They are not happy with their training programs necessary for their personal development and for new staff. They are almost neutral for the remaining statements such as adequate compensation for performed activities, the inspirational atmosphere within the company and promotion & career support activities. Table 4 Descriptive Results for Human Resources Items Mean Std. Deviation 1 My company treats its employees with dignity My company adequately compensates for the performed activities My company's management is capable and educated My company has extensive training programs My company has sufficient training programs for its new employees My company inspires loyalty amongst its employees, which are reluctant to leave My company's main criteria for management staff are managerial skills My company has a clear promotion and advancement criteria Information and Communication Technology Fifth group of question in our survey is about information and communication technology (Table 5). The participants slightly think that their company has a qualified and sophisticated information system in order to enhance their secure transactions and communication through their supply chains. Furthermore, it is also observed that the companies are not sufficiently following the developments in Information technology. The employed technology is slightly enough to support the innovativeness and customer service they provide. Table 5 Descriptive Results for External Strength Items Mean Std. 62

8 Deviation 1 My company has information systems in order to improve supply chain activities My company information system provides security for all supply chain activities My company information system enables communication among the chain members My company follows the technological improvements in order to enhance its processes and supply chain activities My company information system improves the company innovativeness in its processes and supply chain activities My company has developed systems and units in order to give response to the needs of customers My company information system has sophisticated components My company information system can provide statistical analyses and generate necessary reports Financial Situation Last group of questions was about financial situation of the companies (Table 6). The respondents are not considering that their companies are in a large dept. But, they cannot comfortably disagree on this statement. They agreed that their companies achieved positive income last year. The agreement level regarding the fluidity and flexibility tends to be more negative which is normal given the current state of the market is still in recovery from financial crisis, mostly in the employment area. For the remaining questions, the respondents feel neutral that their operations are dependent on the currency market, they have enough bank arrangements and support, they are insured to industry standards, and they have flexible payment policies for their suppliers. Table 6 Descriptive Results for Financial Situation Items Mean Std. Deviation 1 My company is under a large debt My company's operations in the last year had positive income My company's operations are not dependent on the currency market My company is insured to industry standards My company has flexible payment policies towards suppliers My company has sufficient fluidity in order not to suffer unexpected demand drops in the market My company has adequate bank arrangements and support Discussion 63

9 In this paper, it is aimed to identify the issues related to the risk in supply chain management by conducting a survey on the companies and firms in Sarajevo. The survey included six variables: internal strength, external environment, assets and technologies, information and communication technologies, human resources and financial situation. The literature review has identified that there are many sources of risk, but the main division is on internal and external risk, which included sub-divisions. While in most of the works there is just general division of sources of risks, with few subdivisions, this work provide wider perception on this topic. Now it is possible to look at this issue from different perspectives, and many factors that may not be so dangerous but that can easily lead to the risk. The results showed the degree of agreements of the respondents from Bosnian firms on the considered factors. According to the responses, we can assume that the companies are observed to be internally strong just above average. So, for possible risks Bosnian firms are in a great danger in order to overcome the difficulties. Furthermore, they are identified to be aware of the external competition while the external environment is not supportive such as governmental laws, etc. Moreover, the results for human resources related questions discovered that the respondents are happy with the behaviour of their organisations towards them. But, they report that the programs are weak in that they cannot provide enough support for their personal and work related development. The research also identified that the firms are not externally strong enough and they have only average amount of assets and technologies in order to run their business. Finally, they seemed to be just saving their current activities in terms of financial performance. Conclusion This research assumes to be useful for the regulatory bodies, firms, and internal and external investors in Bosnia and Herzegovina. It represents the overall perception of workers regarding the sources of the risks and vulnerability of their companies by asking broad range of questions and therefore avoiding bias on the variables including internal strength, external environment, assets and technologies, information and communication technologies, human resources and financial situation. When conducting the questionnaire the initial expectations were that most of the examples would tend to gravitate toward the negative scale reflecting the overall state of the economy and aura of pessimism that follows it. To our surprise, answers not only turned to be largely positive, but the negative answers are related to limitations that prevent further advancement (such as training and technology). This shows that, at least the workforce that is involved in the economy has a sufficient desire to work and contribute, which contradicts out initial point of view. Such positive views (originated from the environment itself) would be a breath of fresh air in an economic environment polluted by pessimism and speculation. 64

10 The benefits for research are further proof of the effectiveness of the methodology used. By focusing on important variables but segmenting the questions that summarize the quality of the variable we were able to avoid bias on the research in whole. If the individuals in question would be approached and asked to give a general opinion of the economy in a whole that opinion would likely to be negative. The research showed however that the majority of the questioned individuals have a generally favourable opinion on their company. The limitation of this research can be the number of responses despite achieving 201 filled surveys. The research is not focused on some specific industry. The government can benefit from this research because it provides some statistics about the companies in Sarajevo, and the overall satisfaction of workers of the companies. Government can use this information to find out the most possible common risks in companies in Sarajevo so that they can develop strategies in order to help the companies in case of risk. Companies can benefit from this research because they can compare their situation with the results of this study and take necessary actions. They can work together with the other companies to find the possible solutions for managing these risks. This study suggests Bosnian companies to improve the support of external environment through some agreements with the other companies and governmental powers, to increase their internal strength, financial performance and their assets and technologies, and to train the staff. Managers can benefit from this research with a few quite precisely defined facts. While the general sample is satisfied with the treatment of the firm, the branding, even the compensation for their efforts seems high, there are serious gaps in the training and technological advancement of employees. By improving these aspects they can expect to improve efficiency of the processes. As a conclusion, the findings are not promising hope for Bosnian firms in case of a possible risk. References Affriadi A.R. (2011). Implementation of risk management framework in supply chain: A tale from a biofuel company in Indonesia, Manchester Business School working paper, No. 614 Christopher, M. (2005). Managing risk in the supply chain. In Logistics and Supply Chain Management (3rd ed., pp ). Harlow: Prentice Hall. D&B Special Report (2011). Mitigating Supply Chain Risks This paper was jointly written by: D&B Country Risk Services and D&B Supply Management Solutions Hessam Z,.Savoji A (2011). Risk Management in Supply Chain Management. International Journal of Economics and Management Sciences, 1(3), Juttner U, H. P. and Cristopher, M. (2003). Supply Chain Risk Management: outlining an agenda for future research. International Journal of Logistics: Research and applications, 6(4). Kilgore J. M (2004). Mitigating Supply Chain Risks. 89th Annual International Supply Management Conference. 65

11 McCormack, Wilkerson, Marrow, Davey, Shah, Yee (2008). Managing Risk in Your Organization with the SCOR methodology by the supply chain council risk research team. Snyder, L. V, Shen Z.M. (2006). Managing Disruptions to supply chains Tang, C. S. (2005). Perspectives in Supply Chain Risk Management: A Review Water, D. (2007). Supply Chain Risk Management vulnerability and resilience in logistics. Kogan Page Limited Appendix The Survey Questionnaire Please answer all questions For each numeric question, circle the number that best reflects your opinion of the factor judged 1=strongly disagree, 2=disagree, 3=slightly disagree, 4=neither, 5=slightly agree, 6=agree, 7=strongly agree Circle only one number for each scale Demographics a Your department/unit: b Your current position/role in dept/unit: c How long have you been in current position/role?: d Your highest education level: Doctorate Master Undergraduate Other e Gender: Male Female f Age: Internal Factors Disagree Agree a My company's strategic goals are clear and familiar to all employees b My company is always following its chosen strategic objectives c My company possesses some kind of competitive advantage on the market d My company conducts its business/service with acceptable level of effectiveness e My company conducts its business/service with acceptable level of efficiency f My company adheres to long term as well as short term goals g My company is well known among customers and competitors h My company is well respected among customers and competitors 66

12 External Factors Disagree Agree a My company has a steady chain of suppliers b My company has a loyal chain of suppliers c My company is not overly dependent on single suppliers d My company is well positioned compared to its competitors e My company operates in a very competitive environment f My company is hindered by legislative procedures in my country g My company is affected by foreseeable trade barriers h My company could be severely affected by negative speculations Assets and technologies Disagree Agree a My company has sufficient fixed capital to support its operations b My company does not have large expenditures from rent, lease and other capital borrowing expenses c My company production/service capabilities is sufficient to answer the desired demand in the market d My company's assets are used to its optimal capacity e My company has sufficient storage capacity f My company follows current technological trends in the industry g My company's processes can be adapted to the future technological changes h My company's brand name guarantees the level of quality of our output Human Resources Disagree Agree a My company treats its employees with dignity b My company adequately compensates for the performed activities c My company's management is capable and educated d My company has extensive training programs e My company has sufficient training programs for its new employees f My company inspires loyalty amongst its employees, which are reluctant to leave g My company's main criteria for management staff are managerial skills. 67

13 h My company has a clear promotion and advancement criteria Information and communication technology Disagree Agree a My company has information systems in order to improve supply chain activities b My company information system provides security for all supply chain activities c My company information system enables communication among the chain members d My company follows the technological improvements in order to enhance its processes and supply chain activities e My company information system improves the company innovativeness in its processes and supply chain activities f My company has developed systems and units in order to give response to the needs of customers g My company information system has sophisticated components h My company information system can provide statistical analyses and generate necessary reports Financial Resources Disagree Agree a My company is under a large debt b My company's operations in the last year had positive income c My company's operations are not dependant on the currency market. d My company is insured to industry standards e My company has flexible payment policies towards suppliers f My company has sufficient fluidity in order not to suffer unexpected demand drops in the market g My company has adequate bank arrangments and support 68