Managing Risks of Supply-Chain Disruptions: Dual ... - CiteSeerX

market share from its competitor.7.1.2 Find a trade-off between recent practices such as Lean Manufacturingor JIT and Risk ManagementAs mentioned previously, one of the main reasons that have made supply chain networks morevulnerable is the raise of recent manufacturing practices such as Lean Manufacturing or Just-in-Time (JIT). Among other things, those approaches have tried to eliminate all the wastes in thesupply-chain, and focused a lot on cost reduction. These have led many firms to centralize theirassets, reduce their supplier base or decrease dramatically their stocks. Those concepts have led toimportant improvements in the supply-chain. For example, Martha and Vratimos (2002) estimatedthat inventory costs in the auto industry have been reduced by more than $1B a year thanks to JITtechniques. It would be absurd to totally abandon those practices, however the benefits must beweighed and balanced against the future risks of disruptions. Adjustments need to be made. Thismeans that firms should in particular consider the following alternatives: single vs. multiplesourcing, zero stock vs. safety stock, centralization vs. dispersion.7.1.3 Revisit single sourcing strategiesSingle sourcing has many advantages; it is cost-effective and permits the improvement of thequality of the relationships with the supplier. But it introduces an important level of risk since thesupplier can go out of business, be acquired by another company, or provide lower quality services.An extended shortage for key components could be dangerous for the firm that may have to closesome plants and loose business.A firm can envisage two different ways to tackle this problem.- It can deepen the relations with its supplier. The manufacturer relies on single sourcing butstrengthens disruption clauses in the contract and monitors the health of the concerning company. Itis important that the manufacturer keep full and continuous review of financial results andoperational stability of its partner, which allows it to monitor the probability of disruption. The firmmust only continue business with strong suppliers, and for example favor those with more than onemanufacturing site.- Second, the company can consider more flexible strategies and contract with back-up suppliers.68