Article Summary : Supply Chain Risk

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Article Summary Supply chain risk comes from what you do not understand and underestimate. When you have foresight of what could happen you are able to develop plans to mitigate the effects. What Simchi-Levi, Schmidt and Wei have outlined is a way to have improved foresight. What they have stated is that most supply chains presume that the greatest risk is from whom they spend the most money. The mathematical model that they have developed indicates that this is not always true. Using a mathematical model that they developed they proved the functionality while analyzing Ford’s supply chain. They demonstrated that the suppliers with large spend were not the ones that put Ford at jeopardy but the smaller supplier who provides one O-ring for example. The model calculates each suppliers Time to Recovery (TTR) for any supply chain incident, it does not matter the severity. Using these values it treats each supplier as a node and removes one at a time for the duration of this TTR. This creates a Risk Exposure Index (REI) and ranks every supplier. This method can pick from any number of Performance Impacts (PI) from lost units, revenue, and profit margin. The REI help prioritize where the supply chain needs improvement so that all aspects are robust. This process can be started with the suppliers completing a simple survey. Most businesses are good at managing suppliers with high risk and low risk, this method helps them identify suppliers that they thought where
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