Risk Management Midterm

• the system and network behind getting a product from its initial materials to the final customer.

  supply chain
• It includes all the steps involved—sourcing raw materials, manufacturing parts and products, managing inventory, transporting goods, and distributing

  them to the end user.

  supply chain
• Each step is interdependent, meaning delays or issues in one area can affect the whole chain.
• a crucial aspect of operations management that involves identifying, assessing, and mitigating risks associated with a company’s supply chain.

  Supply chain risk management (SCRM)
• The goal of SCRM is

  to ensure the smooth functioning and reliability of the supply chain, thereby reducing the likelihood of disruptions that could negatively impact business operations and profitability.
• KEY COMPONENTS OF SUPPLY CHAIN RISK MANAGEMENT:

  Risk Identification

  Risk Assessment

  Risk Mitigation Strategies

  Monitoring and Reviewing
• This involves recognizing potential risks that could affect the supply chain. These risks could be operational (like manufacturing delays), strategic (like changes in market demand), or external (like natural disasters or political instability).

  Risk Identification
• Once risks are identified, they must be evaluated in terms of their likelihood of occurrence and their potential impact on the supply chain. This assessment helps in prioritizing which risks require immediate attention and resources.

  Risk Assessment
• Based on the assessment, strategies are developed to manage, reduce, or eliminate risks. This could involve diversifying suppliers, increasing inventory levels, investing in robust IT systems, or developing contingency plans.

  Risk Mitigation Strategies
• The supply chain environment is dynamic, so continuous monitoring of risk factors is necessary. This component ensures that new risks are detected early and that mitigation strategies remain effective under changing conditions.

  Monitoring and Reviewing
• Are common practices within supply chain management, where a company delegates part of its business processes or functions to external organizations.

  These practices are often pursued to leverage external expertise, reduce costs, or focus on core competencies.

  Strategic Partnerships and Outsourcing
• involve a relationship between two or more companies where they agree to share resources to achieve a common goal. These partnerships can take various forms, such as joint ventures, licensing agreements, or simply contractual agreements to work together on specific projects.

  STRATEGIC PARTNERSHIPS
• Risks Associated with Strategic Partnerships

  Misaligned Objectives

  Dependency

  Cultural and Communication Barriers

  Intellectual Property Risks

  Legal and Compliance Issues
• Partners may have different goals, priorities, or business practices, which can lead to conflicts and inefficiencies in the partnership.

  Misaligned Objectives
• Relying heavily on a partner for critical aspects of the business can be risky if the partner faces financial difficulties, changes their business strategy, or becomes unable to fulfill their obligations.

  Dependency
• When partners are from different regions or backgrounds, miscommunications and cultural misunderstandings can adversely affect the

  relationship.

  Cultural and Communication Barriers
• Sharing sensitive information and intellectual property with partners can lead to potential leaks or misuse, especially if the partnership ends.

  Intellectual Property Risks
• Navigating the regulatory environments of different countries can be complex, and non-compliance can lead to legal penalties and reputational damage.

  Legal and Compliance Issues
• involves contracting out business processes or production tasks to third-party vendors, either domestically or internationally. This can include manufacturing components, assembly, or even entire business functions like IT services and customer support.

  OUTSOURCING
• Risks Associated with Outsourcing

  Loss of Control

  Quality Issues

  Security Risks

  Supply Chain Complexity

  Hidden Costs
• Outsourcing business functions can lead to reduced control over the processes, quality of work, and timeliness of deliveries, which can affect the final product or service quality.

  Loss of Control
• Differences in quality standards between the hiring company and the outsourced provider can result in products or services that do not meet the expected criteria, potentially damaging the company’s reputation.

  Quality Issues
• Outsourcing often involves sharing sensitive data with third-party providers,

  which increases the risk of data breaches and information theft.

  Security Risks
• Adding more links to the supply chain through outsourcing can introduce delays, increase the risk of disruptions, and complicate logistics and coordination.

  Supply Chain Complexity
• While outsourcing is often pursued for cost reduction, it can sometimes lead to

  hidden costs such as management overhead, training, and integration costs, offsetting the expected savings.

  Hidden Costs
• SCOPE OF OUTSOURCING CONTRACTS, key elements that such an

  agreement should typically cover:

  Scope and Duration of the Arrangement

  Services to be Supplied and Restrictions on Sub-Contracting

  Pricing, Fee Structure, Service Levels, and Performance Requirements
• Clearly defines what services will be outsourced, specifying tasks, responsibilities, and expected outcomes.

  Scope
• Establishes the length of the contract, including start and end dates, and any conditions for extension.

  Duration
• Details the specific services to be provided by the outsourcing partner.

  Services
• Sets out any limitations or requirements for subcontracting tasks to other parties, often including the need for approval from the primary contracting organization.

  Sub-Contracting
• Describes the financial arrangements such as fixed fees, variable costs based on service levels, or performance-based payments.

  Pricing and Fee Structure
• Specifies the performance standards and benchmarks that the service provider must meet.

  Service Levels
• Outlines the metrics and KPIs (Key Performance Indicators) to assess service effectiveness and efficiency.

  Performance Requirements
• These components are crucial for protecting the interests of both the outsourcing organization and the service provider. They ensure clarity and

  fairness, minimize risks, and provide mechanisms to handle potential problems effectively. By meticulously defining these elements, companies

  can establish a strong foundation for successful outsourcing relationships.
• ADVANTAGES OF OUTSOURCING


  Cost Reduction

  Access to Expertise

  Improved Service Quality

  Risk Management
• Outsourcing can significantly reduce costs associated with hiring, training, and maintaining employees. By outsourcing non-core activities, companies can save on wages, benefits, and operational costs such as office space and equipment. This is particularly effective for functions like IT support, human resources, and customer service.

  Cost Reduction
• Outsourcing gives businesses access to expert skills and technologies without the need to invest heavily in hiring and training. For example, a small firm can outsource IT services to a provider with specialized skills in cybersecurity or cloud computing that it might not have internally.

  Access to Expertise
• Outsourcing companies often have specific expertise and can perform tasks better than the company itself can. By leveraging specialized capabilities of outsourcing firms, companies can improve the quality of their services and products, which can lead to higher customer satisfaction and loyalty.

  Improved Service Quality
• Outsourcing can help spread risk. By having certain functions managed by external specialists, companies can reduce the impact of failures in non-core areas on their main operations. For example, outsourcing hazardous chemical processes can reduce health and safety risks.

  Risk Management
• a process involving risk analysis, strategy and risk control to identify and

  reduce risks that may occur in daily business operations.

  OPERATIONAL RISK MANAGEMENT