Risk Management in Supply Chains

Risk Management in Supply Chains

Key Characteristics

Intense growth in business competition has forced organizations to improve efficiency in risks mitigation in all aspects, especially the production chain. Effective chain management has become a vital enabler in enhancing an organization’s effectiveness (Vanany, Zailani & Pujawan 2009, p.16). The modern industrial production is facing widespread uncertainties. Accordingly, businesses have to respond accordingly to ensure a sustainable production chain. As a result, the current organizations tend to spend a considerable amount of resources on identifying potential risks in demand, supply, and internal operations (Ye 2011, p.5). Since the turn of the century, organizations have majored in risk mitigation efforts due to increased competition and risks in normal business operations.

The modern supply chain is a very complex undertaking. Production units have to accommodate various physical and information flows. A seamless relationship is critical towards ensuring that products are delivered in a timely and economical manner. A supply chain at its purest form comprises the company, the supplier, and the customer directly involved with dealing with the products (Jüttner 2005, p.121). The drive to achieve efficiency in the supply chain factors of production has left them more exposed to disruption than ever before (Jüttner 2005, p.121). The concepts of supply chain vulnerability and management are still in their infancy. The idea of supply chain management, however, has quickly gained popularity in recent times due to its complexity (Sharma & Bhat 2012, p.17). Consequently, a sound chain risk management contingency plan has become a vital need for companies in the modern production environment.

Benefits of Supply Chain Management

The importance of the supply chain in the modern production environment translates to various inherent benefits for organizations which undertake it seriously. First, risk management is vital towards reducing incidences of wastage and stimulates other best practices with an organization (Tom 2019). Similarly, the method is critical towards averting the occurrence of risks by fostering communication. Strong communication keeps everyone at a firm aware of the flow of materials and products. Third, effective risk management helps an organization detect any form of unexpected risks which could prevent effective delivery of services to customers. Risk assessment helps a business identify the extent of harm caused by the occurrence of a particular threat. Accordingly, the organization also finds ways of responding appropriately. Lastly, the concept of risk management allows a firm to continue its business operations. Proper risk management ensures that an identification of the possible calamities. In the unfortunate event, the pre-identified disasters occur, the organization deals with it efficiently and quickly. That way, the business operations are rarely brought to a standstill. The volatile nature of the supply chain in modern production operations necessitates effective risk management.

Barriers to Effective Risk Chain Supply Management

Despite the importance of risk supply chain management, various barriers exist in any organization which hinders its effective implementation. First, the rewards associated with specific performance measures are misaligned with the expectations (Sharma & Bhat 2012, p.208). The incentives to achieve the goals for an effective risk chain management lack, hence inducing sub-optimal performances. One of the barriers to effective risk management in a chain production system is the lack of appropriate performance metrics. Each unit in the organization becomes only focussed on increasing its performance rather than the whole chain when common parameters lack (Sharma & Bhat 2012, p.209). Consequently, an effective method of implementing a risk chain management becomes ineffective when there is a lack of cohesiveness between different units in an organization.

The concept of supply chain risk management relies on the quality of information shared between various organizations. Reluctance to share information comprehensively could result in tendencies which disintegrate collaboration efforts within multiple departments of an organization (Sharma & Bhat 2012, p.209). People in an organization may be reluctant to share information for fear of retribution. The lack of proper relevant information in an organization means that it is always unprepared to overcome adverse effects of risks. Additionally, the process of executing an appropriate chain of risk management is contingent upon the availability of useful information. A restriction on the flow of the data becomes a resolute barrier to conducting risk chain management.

Sustainability of Risk Management for Supply Chain

Supply chain sustainability is fast gaining recognition as an essential creator of business value. Organizations, therefore, have to find ways of increasing efforts towards building a sustainable supply chain model. The primary objective of the supply chain management is to ensure that the long-term environmental, social, and economic value for all thrive despite unfavorable conditions (Chorn et al. 2010, p.3). The case for sustainability depends on various factors including the industry sector, the region of operation, stakeholder expectations, and business strategy, among others. The durability of supply chain management is achieved when organizations control costs, reduce risk premiums, and protect their market share (Chorn et al. 2010, p 3). Sustainable risk management in the supply chain is about reducing the adverse effects of a particular risk in a cost-effective manner.

The loss of revenue for an organization could result from delays from the supplier due to various challenges. The business can reduce the incidence of these risks by only sourcing for those suppliers with a track record of regulatory compliance (Chorn et al. 2010, p.6). Also, the organization could source for potential suppliers who have robust management systems to mitigate risks associated with the supply chain. Working with a specific cadre of suppliers is vital for any organization to ensure they minimize any form of undesirable outcomes arising from environmental, social, or economic shortcomings (Chorn et al. 2010, p.6). As such, companies ensure a sustainable approach to risk management in the supply chain by protecting their market share and controlling their costs.

Development and Analysis of Nissan Motor Company Case Study

The 2009 earthquake which struck Japan had catastrophic effects on the country’s corporations. Nissan Motor Company was among the most affected of Japan’s automobile production plants. The calamity was felt the most along the east coast, where reports contend that it hit a 9.0 posting on the Ritcher Scale. The quake that affected the majority of Nissan’s production facilities was among the five worst recorded in the country. Tsunami waves over 40 meters traveled over 10 kilometers into dry land, resulting in a severe meltdown at production plants at Fukushima Dai-Chi (Price Waterhouse Coopers 2013, p.3). The overall economic losses from the natural disaster were estimated to be in the region of $200 billion. Nissan Company was affected the most within the automobile industry. The tsunami destroyed six of its production facilities. Additionally, over fifty critical suppliers affiliated with the firm suffered substantial damage. The apparent result was a reduction in the company’s automobile production levels. Ultimately, Nissan lost a production capacity equivalent to an estimated 270, 000 vehicles (Price Waterhouse Coopers 2013, p.3). The renowned automobile manufacturer still overcome the setback due to a robust risk management plan for itself and its vital suppliers.

The production numbers in the six months which followed the tsunami showed a marginal decrease. The smaller than proportional reduction in production capacity portrayed a testament to the robust risk management plan employed by Nissan. According to Price Waterhouse Coopers (2013), the company’s decline in production in the six months after the 2011 tsunami was 3.8% (p.3). These figures pale in comparison with an industry-wide decrease of 24.8% during the same period (Price Waterhouse Coopers 2013, p.6). So strong was the recovery program that Nissan posted an overall increase in production costs turning to 9.3% (Price Waterhouse Coopers 2013, p.6). Comparatively, the automobile industry in the Asian country posted a decrease in production by the same figures. Despite the devastating events as a result of the tsunami on the Japanese east coast, Nissan showed remarkable resilience recover.

The company swiftly responded to the calamity in various ways to minimize the adverse effects. Nissan first set up the Global Disaster Control headquarters in Yokohama within fifteen minutes (Shiga 2011, p.8). The first task was to start with the salvaging activities for each of the business locations while also verifying the safety of employees, vendors, and suppliers. The company benefited immensely from the drills and simulations designed to anticipate any form of outcome practiced every year. Next, the company embarked on a mobilization plan for all workers in all the other unaffected plants countrywide (Shiga 2011, p.8). These employees helped swiftly to rebuild the destroyed production areas. The swift and efficient response to the natural calamity was a result of complete adherence to supply chain management principles.

The Nissan plants spread all over Japan quickly returned to pre-disaster levels of production in record time. Remarkably, the majority of the production plants affiliated with Nissan declared a normalization of production facilities within a month after the March 11th disaster.  The Iwaki Plant, which was the most affected, resumed full production in May 2011 (Shiga 2011, p. 8). The Japanese auto manufacturer relied on its Global Disaster Control Headquarters to supervise the production recovery efforts around the country and abroad. The quick decision making by the company management was also instrumental in building a strong recovery pathway. Nissan motor company was prepared to handle any eventuality emanating from a natural disaster. Consequently, the company recovered in impressive style.

Nissan Motor Company was able to navigate a disruption of such proportions by using several techniques. First, the organization adhered to the tried and tested philosophy of risk management (Price Waterhouse Coopers 2013, p.3). The firm focussed on identifying risks as early as possible and actively engaging these adverse outcomes using a series of drills and simulations. The firm successfully planned countermeasures from the various simulations. Eventually, Nissan implemented the measures quickly and rapidly when the calamity struck. The result was that the majority of the plants affected by the March 11 disaster recovered as soon as possible (Schmidt & Simchi-Levi 2013, p.12). The Japanese country was safe from a potential economic slump originating from the tsunami. Also, investors had minimalized their losses due to the quick and decisive action of the planning authorities at Nissan Motor Company.

The tsunami disaster of 2011 crippled the vehicle production unit of the Japanese economy. Majority of the producers, the suppliers, and personnel were left stranded by the advent of the unfortunate incident. Nissan recovered extraordinarily well as it had earlier prepared a comprehensive readiness plan encompassing even its suppliers. The Japanese auto manufacturers incorporated the disaster simulation training regimes to their suppliers before the March 11th calamity (Price Waterhouse Coopers 2013, p.3). Similarly, the organization made it a requirement for all its suppliers to submit a disaster response plan and undertake disaster simulation training. The motor vehicle manufacturer applied these advanced risk management plan consistently before the calamity struck. When the tsunami happened, the preparations helped the suppliers affiliated with Nissan resume operations quickly and efficiently. Consequently, the company made giant strides forward regarding recovery and resumption of production capacity within a month.

Resumption of a healthy capacity for production needed a robust supply chain capable of withstanding setbacks such as the one experienced in March 11th. The supply chain of Nissan was flexible as the management team was keen to decentralize the core functions of the supplier (Price Waterhouse Coopers 2013, p.3). However, Nissan Company maintained a firm central control as and when required. The rationale was to ensure the strict standards for the system were implemented entirely in the event of a possible calamity. The automobile manufacturer had to be sure that its suppliers had could handle the problems emanating from a potential disaster. The company ensured strict adherence to its risk management standards. As such, the firm’s chain of production was always functioning to its optimum best especially with regards to disaster preparedness. Eventually, after the March 11th catastrophe, the company successfully regained its production capacity in record time.

The reason the Nissan Automobile manufacturer successfully resumed production is also due to sound management systems. For example, the local management at the production plants spread all over Japan was empowered to make quick decisions without lengthy consultations. The prompt unit of ensuring the decisions was made when it mattered enabled an immediate resumption of business activities (Price Waterhouse Coopers 2013, p.3). Also, there was widespread visibility across the extended Nissan Motor Company enterprise. The brand already had a strong market presence, a factor which enabled Nissan to overcome the limitations posed by the occurrence of the tsunami. Sound management enhanced effective decision making which proved fundamental in getting back to full production within two months of the tsunami.

Nissan Motors enjoyed proper coordination of both the external and internal functions. Its organization of functions was instrumental towards the business making significant progress so shortly after the earthquake. The capabilities Nissan enjoyed regarding risk management in chain supply allowed the corporation to allocate parts on higher margin products (Price Waterhouse Coopers 2013, p.3). Additionally, they could cost-effectively adjust production.  Overall, Nissan Motors enjoyed a high-level organization of business functions which reduced the general confusion companies experience when recovering from a disaster.

Several factors enhance the capabilities of the various organization to deal with risk management in the supply chain adequately. Companies need to match their disaster preparedness against these seven factors to assess their maturity levels. The set of questions used by the various companies to test their preparation is an empirical framework (Coelho 2017, p.31). Organizations need advanced capabilities along two primary dimensions, the supply chain, and risk management. Nissan Motors demonstrated that this was the only way companies could successfully overcome the calamities quickly and efficiently. Assessing the organization’s ability to respond accordingly to any form of disaster is a prerequisite to its ability to recover rapidly and efficiently.

Several factors determine whether or not companies are mature enough to manage risks in the supply chain. One of these factors is risk governance. The enabler is defined as the process of risk management structures, methods, and culture (Price Waterhouse Coopers 2013, p.10). The second factor measures whether the organization has the right level of flexibility and redundancy to absorb various types of shocks and disruptions across the value chain. Crucially, it also assesses the ability of the company to adapt to change profitably. The third factor is the orientation between the various partners in the supply chain. The enabler is a measure of the essential value dimensions, identification of emerging patterns, and the advancement towards high-value propositions. The facilitators provide organizations with a blueprint for measuring how mature they are regarding risk management in their supply chain.

The forth enabler of the seven-point empirical blueprint to measure the maturity of an organization to deal with risks in supply chain management is upstream and downstream chain integration. The disaster preparedness dimension provides a platform for analyzing the flow of information and brand visibility. Additionally, it also shows the collaboration between the upstream and downstream supply chain partners in an organization. The fifth factor is concerned with the configuration and addition of internal business functions on a functional and tactical level (Price Waterhouse Coopers 2013, p.10). The sixth dimension is the complexity management/rationalization. It measures the ability of a company to rationalize and abridge its network and processes, interfaces, and product architecture. The last enabler is data models and analytics. The factor indicates the ability of a company to effectively balance its intelligence and analysis capabilities in the mitigation functions of risk management in the supply chain. The priorities of these factors may change with time vary, but they collectively show the position of the company regarding dealing with risk within the chain management system accordingly.


The mitigation factors regarding risk management in chain supply are necessary to allow the organization to remain competitive in the modern market. The current supply chain is a very complex undertaking. Production units have to accommodate various physical and information flows. As such, risks increase and the need to ensure that the organization successfully maneuvers when calamity strikes also becomes imperative. Several benefits are inherent to an organization regarding its ability to effectively manage risks in the chain supply. For example, a company could benefit from reducing wastage, improving communication among various departments in the organization, and anticipating the occurrence of certain adversity. Barriers to an effective strategy also exist, for example, a misalignment between the measures and expectations in an organization and the lack of appropriate performance metrics. The recommendations to any organization intent on improving risk management in the supply chain are to allow for effective communication between different supply units.

The March 11th disaster in Japan had the most devastating effects on the Nissan Motor Company. The company recovered from the massive setback as a direct consequence of its sophisticated disaster preparation mechanism. The automobile manufacturer was so impressive in its recovery efforts that they posted an increase in the production units at the end of the year. Various factors were critical for the quick recovery of the productivity of the firm. First, the automobile manufacturer enjoyed robust management of internal and external function. Second, the organization concentrated on identifying the risks as early as possible and engaging in drills and simulations to boost preparedness. Additionally, the management had a robust preparedness plan which it relayed to its suppliers consistently even before the tsunami occurred. When catastrophe eventually struck, the company seamlessly navigated it due to its previously tried and tested response techniques.







References List

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Coelho AY 2017, ‘Supply Chain Risk management: Understanding and Facing the Main Risks on the Supply Chain.’, Bachelor’s Thesis, South Eastern University of Applied Sciences.

Jüttner, U 2005, ‘Supply chain risk management: Understanding the business requirements from a practitioner perspective’, The international journal of logistics management, 16(1), pp.120-141.

Price Waterhouse Coopers 2013, ‘Supply chain and risk management: Making the right risk decisions to strengthen operations performance’, Price Waterhouse Coopers, pp.1-29,

Sharma, SK & Bhat, A 2012, ‘Potential barriers in supply chain risk management: an empirical exploration in Indian automotive industry’, International Journal of Business Continuity and Risk Management, 3(3), pp.206-220.

Schmidt, W & Simchi-Levi, D 2013. Nissan Motor Company Ltd.: Building Operational Resiliency’, MIT Sloan management review, pp.13-149.

Shiga, T 2011, ‘Disaster Response at Nissan’, Nissan Sustainability Report, pp.8-9.

Tom, K. 2019, ‘What are the Benefits of Supply Chain Risk Management’, Lean Supply Solutions.

Vanany, I, Zailani, S & Pujawan, N 2009, ‘Supply chain risk management: literature review and future research’, International Journal of Information Systems and Supply Chain Management, 2(1), pp.16-33.

Ye, Z., 2011, ‘Supply chain risk management on natural disaster: A study of global supply chain influence by 2011 Tohoku earthquake’, retrieved from <https://pdfs.semanticscholar.org/b097/fc102bfc2507a99c6d14896f13bfb1c534c0.pdf>