The Conitnuity Of Supply In Global Market Finance Essay - Free Essay Example

Sample details Pages: 9 Words: 2671 Downloads: 10 Date added: 2017/06/26 Category Economics Essay Type Research paper Did you like this example? There is a constant pressure on managers to improve the efficiency of their supply chains, allowing material to move quickly and at low cost. The pressure has encouraged a stream of new initiatives and methods, but still there is a growing realization that these new methods also bring unforeseen problems. (Blanchard, 2007) Risks to the supply chain are unforeseen events that might interrupt the smooth flow of materials. Don’t waste time! Our writers will create an original "The Conitnuity Of Supply In Global Market Finance Essay" essay for you Create order When a company delivers materials to its markets, there are always risks that the delivery will be later than promised, the goods will be damaged or lost, the wrong products will be delivered or the wrong amounts, the delivery will go the wrong place. Risk can appear at any point in a supply chain from initial suppliers through to final customers. They can interrupt the supply of materials or the demand for products and they can cause sudden peaks in demand or collapses. (Ram, 2009) They aim of this study is to assess various risks involved in supply multiple markets of the companies and also to suggest what action do the retailers need to take in order to maintain continuity to supply. TYPES OF RISKS Internal risk The internal risks arise from operations within the company such as quality issues, accidents, procurement, foreign exchange rate and risks that arise directly from managers decisions are stock level, late delivery, etc. (Hugos, 2006) Supply chain risk These are the risks which are external but with the supply chain. These risks occur from the interactions between members of supply chain and are mostly risks from suppliers, reliability of materials, lead times, delivery problems and industrial action.(Leeman, 2007) External risk The risks which are external to the company and supply chain and arise from the interactions with its environment such as, natural disasters, delays, inventory, and damages are referred as external risks. (Hugos, 2006) PROCUREMENT Procurement risk refers to the increase of acquisition costs which results in fluctuating exchange rates or price hikes by supplier. It is a very complex activity and indentifies the need for materials and then someone to generate the material, search for suppliers, request for a price and conditions, issue purchase orders and many other activities. It is always an area of high risk typically emerging from disagreements and over interpretation and implementation of contracts. Suppliers delay the processing returns and force to increase price of which leads to transportation costs. (Long, 2003) But the prices increases by the suppliers can be decreased in several ways like, singing long-term contracts, having redundant suppliers and holding inventories. But whereas, the long-term purchasing can also badly damage profits if prices for the contracted goods fall. Contracting with redundant suppliers work, but only if the companies can maintain economies of scale. (Plunkett, 2009) DISRUPTIONS A disruption caused to the goods flows anywhere in the supply chain is unpredictable and rare but often quite damaging. Natural disasters, labour strikes, fires are some of the examples which can halt down the flow of goods. The company can counter disruptions in goods flow by holding inventory, but however holding inventory can become very costly. Holding costs can incur continuously and the inventory must be used only in the rare event of a disruption. For the products which hold high costs or a higher rate of obsolescence, using redundant suppliers is a better strategy.Wal-mart can lower the cost of redundancy by using multiple suppliers for high-volume products and single sourcing for lower volume products. This approach helps the company lower the risk do disruption. (Reynolds, 2003) DELAYS Delay in goods flow can occur when a supplier, with high utilization or any other cause cannot respond to the changes in demand. Some the other causes are poor quality output at suppliers. High levels of inspection during border crossings and changing transportation modes during shipping can cause these delays. However, company can plan for mitigating strategies if the delays are very frequent. The company can avoid these delays by appropriately placing their capacity and inventory reserves. One simple solution can be applied is to maintain the flexibility capacity in existing company. Delays can occur at five points in transport: at the point of collection from a supplier, during actual transport, at transhipment or intermodal depots, during security or customs checks and at the point of delivery to a customer. (Boudreaux, 2008) INVENTORY Excess inventory hurts the financial performances and falling prices hurt many companies. The inventory risks depends on three factors; the value of product, its rate of obsolescence and uncertainty of demand and supply. Holding excess inventory for products with high value or short life cycles can get expensive. However, for low-value commodity products that have low obsolescence rates can complicate matters further. By measuring the level of inventory and analyzing turnover, supply chain systems can improve turnover by reducing the need for safety stocks and the risk of the retailer out of stocks. The inventory items need to be numbered consistently in order to facilitate measurement and tracking. These benefits reduce the overhead required to store high inventory levels. (Sadler, 2007) TRADE BARRIERS In order to protect industries, there are a number of trade barriers generated to raise revenue and to counter the barriers erected by other foreign countries. These barriers create a distortion of relative prices across countries, also the lower individual welfare and individual consumption (Donald, et al., 2007). Some of the barriers to trade are: Tariffs A tariff is nothing but a tax placed on goods which are imported into a country. It is a means of protecting domestic industries and creating revenue. By placing tax on imported goods, a tariff on the price of the goods is raised and it allows certain domestic producers to produce at higher levels. Resources can be diverted away from industries which have a competitive advantage to industries which does not have a competitive advantage of a country. This diversion creates higher prices and lower quality of goods which are produced domestically. Hence, trade-off exists between specific industries and the welfare of the customers (Leeman, 2010). Quotas A quota is policy tool to restrict a trade by limiting the amount of product that can be imported during a given period. Sometimes, quota is referred as a quantitative restriction. These restrictions create high prices on goods and reduce the amount of competition within that industry. A variation of the quota system is a voluntary export restriction. The good which have quota are placed against the goods that the country does not have a competitive advantage, because the country does not have a competitive advantage. Therefore the selling price of the product will be higher than the prices of the products in the other country. This will eventually affect the consumers for paying higher prices for the goods that have restrictions placed on it (Mangan, et al., 2008). Duties Duties are often applied as an ad valorem tax and are based upon the value of the good or the weight of the goods. This kind of tax is imposed by the customs authority on the imported goods. The similarities between tariff and duties are same as it raises the price of the imports and distorts the relative price of the goods and consumption patterns (Branch, 2006). Exchange Rate Controls Many developed or under developed nations be more protective of their economies and want to be self-reliant to encourage the domestic industries. Therefore in attempt to protect the domestic markets, nations often create exchange barriers which reduce the fluctuation of foreign currency and also the ability of a country to buy imports. Customers are forced to purchase the domestic products which create an artificial domestic economy (Li, 2007). There has been a cut-off in the tariff rates across the countries, but still there are a number of other barriers which often take place of the tariff. Some the barriers include licensing, requirements, government, procurement, technical standards, price bands, subsidies and domestic-content rules (Hugos, 2006). DOCUMENTATION A major difference in the domestic and international trade is the evidence of documents needs to transfer cargo. In international trade the documentation is very complex and those preparing it must have in-depth knowledge of the options available in such areas as goods classification. It is very important in the international trade, because the documents involved determine how each shipment is to be handled along with its associated costs. A significant part of the information required in them must be provided by supply chain or logistics managers (Donald, et al., 2007). All the international transfer cargo must have documentation available with the goods at all border points. Documentation can be transmitted electronically to the point, however, it must be physically present before goods can pass through customs. International transactions are complex, and resolving any problems with them can be extremely costly and time consuming. It is important to ensure that full precaut ions are taken when preparing international documents (Branch, 2006). GLOBALISATION Improved communications and allowing of organisations around the world to communicate become global in outlook. Broadening the supplier and customer bases to buy, transport, store, manufacture, sell and distribute products in a single worldwide market encourage global operations. The global operations brings some of the risks to the companies as well starting from natural disasters to risks like war and terrorism and problems with supply chain partners, financial risks and different language and culture. Some of the risks that companies can face with globalization are: (Christopher, 2010) Risks from working in a region that is less familiar and more distant from the companies usual operations. This includes control over remote sites, cultural and language problems economic conditions and changing costs. Risks of moving materials through longer supply chains, which include inherent risks of extended journeys, crossing international borders, meeting different cultures and more stock in transit. Unexpected barriers to trade such as product design limiting demand, different regions demanding different types of products, customer simply not liking products. (Donald, et al., 2007) RESPONDING TO RISKS After assessing the risks of supply to the multiple markets, there some responses suggested to minimize the risk and find out what responses can be made. There is corresponding huge number of responses for the minimization of risk and also different ways to different kind of risks, few of them which are also major responses to the needs of organizations are: REDUCE VARIABLITY Risk emerges from variability, so a valid response is to reduce variability in operations. This has been continuing in quality of management, which says that organization can benefit by making products with perfect quality, and this means reducing variability to a minimum. There has been a change in the variability in recent years. A traditional view specifies an acceptable range for specifications, and performance and is considered if it stays within range. The organizations should clearly aim at minimizing the cost in this loss function, and this means getting the actual performance as close to the target as possible. This reduces variability, hence the risk as well in a process. Most organizations actively do this as part of their quality management function, so risk becomes inextricably limited with product quality (Branch, 2006). REDUCING THE PROBABILITY OF THE RISK Managers need to take actions to reduce the probability of risk. For example a shipment being attacked by pirates is surprisingly high risk for cargo ship operators in some part of the world. A way of avoiding this kind of risk is to find out the other way of routes to avoid the dangerous areas. A firm that is worried by environmental or political factor risks can move to a location where these cause less concern. At basic level, warehouses can reduce the shortages by increasing the stock levels. Delivery firms can reduce the chance of late arrivals by allowing more time for journeys where a firm worried by uncertain demand can improve its forecasting (Jespersen Larsen 2005). There are two ways of reducing the risks: Take actions to reduce the probability that an event will occur for examples, increasing stocks of materials with widely varying demand. Avoiding operations where the risk occurs for examples, finding substitute products that have less variable demand. The ot her ways of reducing risk includes careful choice of location, having good relation with partners, partnerships arrangements for arbitration and negotiation, adequate safety measures, learning from experiences, solving underlying problems, involving everyone in the organization, identifying problem early and host of other methods (Hugos, 2006). IMPROVE PLANNING AND FORECASTS The risk can be reduced by improving forecasts and plans. A common reason for problems in the supply chain is from inaccurate plans and forecasts. The organizations plans on one level of expected demand, but unexpectedly has to perform for another level. The usual way of achieving this is to move to more formal quantitative forecasting methods. Other considerations are that short-term forecasts are in more accurate than longer-terms ones, and aggregate forecasts are more accurate than disaggregated ones. The more accurate forecasts should include an idea of likely variation, and this helps with subsequent planning. The plans can also be improves by design by improved procedures and closer cooperation between the people who design the plans and those who have to execute them. There is often artificial break between these two functions, but better coordination-with integrated planning and execution can reduce many risks (Mangan, et al., 2008). PREVENTING DISRUPTIONS One of the most effective ways to manage supply chain risks is to keep them from happening. The companies can use data and analysis to significantly reduce the likelihood of supply chain disruption. Loss analysis and engineering data have shown that to prevent a fire in the companies factory, a company should regulate the storage, use and disposal of flammable materials, keep mechanical equipment in good working order. (Zsidisin, 2008) The challenge have been extended more because of globalization and variety of independent suppliers, shippers and other vendors over whom the company has no direct control and which, in every instance add a new layer of risk to supply chain. It is possible to identify key products, revenue drivers and core business processes in supply chain management that could disrupt them. Most of the companies rush to revamp their supply chain without giving much thought to measures the future risks. (Chopra and Meindl, 2009) ADJUSTING THE DESIGN OF SUPPLY CHAIN One of the obvious responses to risk is to adjust the designs of the supply chain so that it has less risk. The most important feature of a low risk supply chain is that it has parallel paths. There are several variations on this theme, such as multiple sourcing, alternative transport routes and outsourcing. Another response is to reduce the length of the chain. Despite the company is globalized, there are obvious benefits from having products move through fewer organizations and travelling shorter distances. Specifically, there are fewer things to go wrong and less risk. Low risk supply chains are clearly shorter and wider, and a number of other design features. (Chopra and Meindl, 2009) MITIGATING DAMAGE When a major disruption occurs in supply chain, a quick response can help in minimising the consequences. Successfully accomplishing this requires having two measures in place before the disruption occurs. The business continuity plan and an insurance program with ample and stable capacity that can reimburse a company for operational and financial losses directly attributes to an interruption of business activities. A business continuity plan should be both broad and deep, covering a wide range of contingencies like disaster recovery, the safety of employees, the retrieval of backup business data, emergency communications, the possible relocation of business operations. (Christopher, 2010) INSURANCE Insurance is one of the best ways to mitigate risks, but it is somewhat different from other responses to risk. It does not try to maintain supply chain, but it offers compensation when things go wrong. Most ways of dealing with risk try to avoid its effects of using methods that we can combine under the heading of continuity planning, which tries to maintain normal operations through unexpected circumstances. The insurance discourages other responses to risk as; a company will be recompensed for any disruptions are likely to put less effort into avoiding them (Branch, 2006).