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Can Interdependence Lower Risk In Supply Chain Management?

September 10, 2013BY AMS Editor

Supply ManagementDistributors should take advantage of interdependence to strengthen their supply chain management and mitigate risk.

A study by the Massachusetts Institute of Technology, highlighted in a recent article on the Supply Management website, found that nearly two-thirds of companies give “marginal attention” to reducing risk. In its survey, MIT also found that 40 percent of companies invest in “advanced risk mitigation processes.”

“Our survey indicates supply chain disruptions have a significant impact on company business and financial performance, and companies that invest in supply chain flexibility are more resilient to disruption than mature companies that don’t,” said David Simchi-Levi, founder of the MIT Forum for Supply Chain Innovation.

There have always been issues with wholesale distribution companies that are reactive in their business processes. The result is often lower customer service levels and erosion of margin resulting from activities such as overstocks and expedited emergency purchases. It is interesting to see that some of the key supply chain drivers over the past three years are also opportunities for management of risk.

MIT’s survey found that companies have been moving toward interdependence recently. Of the 209 companies with global operations that were surveyed, 95 percent reported that dependencies had increased, 94 percent stated changes in extended supply chain networks happen more often and 94 percent indicated that new products are being rolled out more often.

The big takeaway is that products are changing faster and there is a larger dependency on supply chain networks. The increase in interdependence is also a reflection of changes in how companies are built. Many startups are choosing not to invest in warehouses, factories and other items that involve extensive capital up front. Instead, they’re working with contract manufacturers, third-party logistics providers and other virtual service providers.

The bottom line is that the use of supply chain networks can and should be something that distributors take advantage of to manage risk. The fact that more companies are operating in a web of interdependence is good. Having more sources of supply and distribution points should provide greater flexibility in operations without a large investment in capital. While the margins may be lower, so are the risks.

Source: Supply Management, August 2013

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