This paper introduces the concept of Supply Chain Risk Management. It identifies various risks and explains the process of managing these risks. With technology in place, automation of some of the processes brings down the risks involved. Sadly, many companies are not adequately automated to address these issues. The paper also highlights how information technology can be adopted in certain areas in supply chain to ensure visibility and reduce risk occurrence.

1. www.niit-tech.com
Supply Chain Risk Management
Vinod Pisharoti
NIIT Technologies White Paper

2. CONTENTS
1 Abstract
3
2 Introduction/Background
3
3 Supply Chain Disruptions
4
3.1 Types of Risks
4
3.2 Risk Management Framework
4 Visibility – Uncertainty Exposed
5
4.1
Demand Visibility
5
4.2
Supply Visibility
5
4.2.1 Electronic notification of Shipments
5
4.2.2 End-to-end Visibility on the Supplier Side
6
4.3
6
Inventory Visibility
4.3.1 Tracking in Warehouse
6
4.4
6
Logistics Visibility
4.4.1 Alerts
7
4.4.2 Electronic Tagging
7
4.5
7
Where Technology can help?
4.5.1 Web Services
7
4.5.2 EDI
7
5 Conclusion
8

3. 1. Abstract
Businesses, today, are restructuring themselves to operate
globally. The ever increasing pressure to improve efficiency of
supply chains, demanding customers, competitive pressure and
ability to move material faster at lower cost have given rise to a
some of the processes brings down the risks involved. Sadly,
many companies are not adequately automated to address these
issues. The paper also highlights how information technology can
be adopted in certain areas in supply chain to ensure visibility and
reduce risk occurrence.
stream of new methods and initiatives. Modern supply-chains have
now become superior, with goods and information flow happening
in parallel, to ensure that the products are cost effectively delivered
in right quantities, to the right place, at the right time.
With pressure to deliver value every time, organizations constantly
face uncertainties and risks. Uncertainties occur due to
outsourcing, procurement from multiple suppliers, lack of
2 . Introduction/Background
Supply-chains, today, are becoming highly sophisticated and
vital for the existence of a company. The drive to make supply
chain more efficient has resulted in it becoming vulnerable and
exposed to a range of uncertainties and risks. Risks originate
from various sources including Supply, Demand, Disasters, IT
and Logistics [Figure 1].
integration with suppliers, globalization, demands from customers,
dependency on Information Technology, laws and regulations, and
Supply
security. Planning, measuring, controlling and managing this within
the supply-chain network is critical to remain competitive, reduce
the margin of error and maintain the brand image of the company.
Logistics
Demand
Sources
of Risks
Supply chains are vulnerable to various types of risks that mainly
originate from five different sources: Supply, Demand, Disasters,
Disasters
IT
Information Technology and Logistics. Unstable supply chain
increases the need to control, monitor and evaluate risks to
Figure 1: Source of Risks
maintain continuity, remain cost effective and maximize profitability.
Supply Chain Risk Management is an answer to minimize the
impact on profitability. According to an Aberdeen best practice
Supply chain is at risk when there is a threat of interruption to the
physical or information flow due to unwanted events. If companies
have to track these risks and address them appropriately then it is
research report conducted in 2005, supply chain visibility is one of
imperative to have visibility on the exceptions or unwanted
the most critical areas where companies are investing. Stan Smith,
happenings during
Risk assessment consultant from Q+E defines Supply Chain Risk
multi-faceted nature of risks and piece meal solutions the first step
Management as a “Systematic process of managing unwanted
is to have a proper supply chain risk management strategy and
events or unwanted change in the Supply chain”.
apply technology wherever possible to mitigate the risks.
This paper introduces the concept of Supply Chain Risk
Most companies lack automation and visibility which has resulted
Management. It identifies various risks and explains the process of
in longer lead times, more than required inventory buffers, supply
managing these risks. With technology in place, automation of
the
supply
chain process.
With the
imbalance and cost implications to name a few.
3

4. The Aberdeen Global Supply Chain Bench Mark report states that
3.1 Types of Risks
79% of the large companies lack supply chain process visibility
Avoiding and reducing risks is a big challenge for all the
which has now become a top concern, and 90% of all enterprises
enterprises. The risks to supply chains are numerous and
report that their supply chain technology is inadequate.
constantly evolving, and emanate from different sources.
3. Supply Chain Disruptions
Enterprises have identified and documented different types of risks
in the Supply chain.
Let us take a look at some of the supply chain disruptions that
Types of Risks
took place in the past.
Disruption
Scenario/Impact
Supply Related
A European consumer durable manufacturer that
out-sourced production of a component part to China
discovered that the first shipment of parts was
defective. By the time the further shipments could be
stopped, a six-month supply was already on its way.
The company had no option but to install them and
absorb the expense of warranty repairs.[Global Supply
Chain Risk Management, John T. Mentzer]
Information Technology
Inaccurate forecasts, Distorted information, Data protection. IT Infrastructure
breakdown, Failure of integration systems, Failure of IT applications
Demand Related
Disaster Related
IT Related
Logistics Related
Cisco in 2001 had to announce an inventory write-off
of US$2 billion due to decline in orders for their
network infrastructure products. All levels of supply
network had been heavily buffered because the
demand of these products was rising and supply of
components was getting affected. [Risk in Supply
Chain, Dr Shoumen Datta]
A fire in a factory that produced semi-conductors for
mobile phones in March 2000 had a major effect on
the supply of their parts. Nokia and Ericsson owned
40% of the market share between them at that time.
Both companies were highly exposed to potential
shortages of critical components for their products.
Nokia responded quickly with alternate actions.
Ericsson did not respond until early April, by which
time supplies were not available. As a result,
Ericsson lost sales of approximately $400m. [Risk in
Supply Chain, Dr Shoumen Datta]
Supply
•
•
•
•
•
•
•
•
•
•
•
Material non-availability
Supplier bankruptcy
Failure/miscommunication
Partnership breach
Lack of response to change
Poor Quality of materials
Late arrival of materials
Exchange rate fluctuations
Dependency on a single source
Price Increase by supplier
Shortage on arrival
Demand
Logistics
• Storing obsolete goods
• Excess Inventory
• Holding high value/short life
stocks
• Stock pilling
• Underutilized capacity
• Carrier unavailability
• Not meeting delivery schedule
• Delay due to accident
• Dispatch to wrong destination
• Pilferage
• Short shipments
• Damage to goods in transit
•
•
•
•
•
Lack of demand
Volatile demand
Fraudulent Customers
Changes in requirement
Failure/miscommunication
Disasters
Natural Disasters, Diseases, Political unrest, Political unrest, Terrorism,
Currency fluctuations, Goverment regulations. IT breakdown, Labour strikes
Figure 2: Types of Risks
Reports suggest that most companies are aware of the possible
risks in the supply chain and the impact they have. However,
companies wait for them to happen before acting on them.
Companies should look for a holistic approach to manage the risks
involved, and achieve greater flexibility and control. They should
In 1998-99, Hershey Foods spent more than $100
million on a new order management, supply chain
planning, and CRM system to transform the
company’s IT infrastructure and supply chain.
System had critical glitches and was not ready to go
live on time. As a result Hershey’s lost revenue due
to missed orders. [SCDigest]
build a risk management plan to quickly adjust and recover from
The on-line division of a leading toy retailer, Toys R Us
advertised and promised delivery by Christmas on any
orders placed before 10th Dec. The inventory was in
place; however, the company could not pick, pack and
ship the bulk orders immediately. Eventually the
shipping of the orders was outsourced to another
company; leading to huge losses. [SCDigest]
and analytical framework for the management of risks in supply
the anticipated and unanticipated risks.
Technical Aspects
3.2 Risk Management Framework
Roshan Gaonkar and N Viswanadham in their paper ‘A conceptual
chain’ mention two approaches (preventive and interceptive) to
build resilient supply chains.
The preventive approach reduces the probability of risk occurrence
in the supply chain. The interceptive approach takes immediate
The above examples highlight that if these problems were identified
action after the occurrence of an event to minimize the impact.
on time and managed properly, disasters could have been averted.
4

5. Providing visibility in a supply chain is one way of reducing the
4.1 Demand Visibility
probability of risk occurrence and therefore becomes a part of the
“Forecasting has never been cent percent correct and probably will
preventive approach. Supply chain consultants in various forums
never be”. There is no way one can know well in advance what
and papers have mentioned the standard processes that need to
and how much the customer wants unless he/she shares it.
be followed in order to proactively manage risks in a supply chain.
They are;
Years back, supply chain was not complex and technology was
• Identify unexpected events
virtually non-existent. At that time, vendors used to forecast based on
• Conduct root cause analysis
“intuition”. Vendors also started forecasting demand based on sales
• Assess and quantify impact of each risk
made in the past; which brought figures closer to actual needs but
• Assign probability of risk occurrence
were still not precise. This technique is used even today by most
• Build risk mitigation plan
vendors. Today, supply chain management has become a
• Assign owners and implement actions
sophisticated discipline and technology is available for forecasting.
Using proper data collection and forecasting techniques, vendors can
4. Visibility – Uncertainty Exposed
reduce the gap between the forecasted data and the actual data.
Risks can be transferred to a supply chain partner or can be
To get an insight on demand, an ideal demand visibility solution should
minimized but cannot be avoided. One way of minimizing the risk
capture demand history, customer orders, point-of-sale data, historical
is by having good visibility and control over the Supply chain.
sales data, market forecasts, any recorded seasonal variations,
information on weather conditions, promotions etc. Combined with
Companies should focus on the following to go a long way in
technology, different techniques can be applied to create demand
reducing the risks in the supply chain
patterns, forecasts and plans for an effective inventory management
• How well connected are you with the Suppliers and other
and cost-effective customer service.
trading partners?
• What is the current status of the order?
• Do you have specific details (dimensions, weight, type etc) of the item?
• Where exactly is the item at any given time?
4.2 Supply Visibility
According to an AMR Research, supplier failure is one of the top
supply chain risk factor. It is important to extract information about
the state of the concerned product and supplier to mitigate the
• Where is the item getting stored?
risk. Electronic Data Interchange (EDI) is one solution but Web
• How much of the item is available?
Services is preferred as a viable solution.
• Is the item being stored in the right environment?
• When is the item going to arrive?
Implementing Web services enable organizations to integrate with
suppliers and easily share or access information stored in disparate
• Are the goods received in full (or is there any shortage)?
systems operating on different platforms. Visibility to supplier
• Are the items in the condition it is supposed to be (damaged,
information reduces most of the supply related risks.
fake etc)?
4.2.1 Electronic notification of Shipments
Right information available at the right time ensures greater
Information on shipments or orders obtained through emails, fax or
visibility. End-to-end visibility allows companies to respond quickly
telephone is entered manually into the system. The process of
to issues that directly and indirectly impact the flow of goods from
entering information is laborious, costly, and error-prone. Suppliers
source to the consumer.
with EDI capabilities push the information electronically but it does
not necessarily reach on or before time.
There are several visibility solutions and technologies that can be
used in a supply chain scenario. Some of them that directly
contribute to operations are:
5

6. An alternate solution is to pull the information directly from the
RFID tag is attached to every item in the warehouse. Once the tag
supplier (on mutual agreement) at regular time intervals irrespective
is associated, all warehouse movements are tracked by readers.
of the format it has been stored. The information is then translated
Information about items movement can be immediately transmitted
to the required format (e.g. XML) before being used. It removes
to the driver. If the driver delivers the item to the wrong storage bay
dependency on the supplier.
or shipping dock, he immediately gets an alert. A real-time locating
28.8
14.4
12
system can also track truck’s movement and position.
4.2.2
End-to-end Visibility on the Supplier Side
Improved visibility is at the top of the supply chain strategy list. To
4.4 Logistics Visibility
achieve end-to-end visibility, it is important to leverage the Supplier
An order needs to be tracked from the time an order is shipped
portals that provide some level of visibility, and generates Advance
from the source (warehouse from a supplier or warehouse to a
Shipment Notifications and bar code label printing capabilities.
customer) to the consumer.
Building interfaces to access critical information and integrating it
to the end-to-end workflow of the supplier brings down a lot of
supply related risks.
4.3 Inventory Visibility
Some of the basic questions are;
• Have all the items and quantities been shipped as per the order?
• When will the shipment arrive?
In a supply chain, it is important to control inventory for countering
• Has the order been delivered to the customer?
risks. Companies in order to ensure availability of the product
• Has the order reached in-time at the destination in perfect condition?
without maintaining excessive inventory need an accurate picture
of the stock across distribution centers or warehouses. Customer
As long as there is visibility, an ideal logistics visibility solution
commitments can be met only if a company has real-time visibility
should cater to them. A logistics visibility solution should cover the
of the stock placed as an order, in a store/warehouse or in-transit.
following;
• Consolidate all shipment relevant information from internal
A perfect solution that provides inventory visibility should cover the
systems, suppliers, carriers, agents, customs authorities and
following;
other trading partners.
• Ability to provide real-time alerts on operations including short
receipts, no-shows or out of stock etc., inside the
warehouse/DC so that decisions can be made
• Ability to capture accurate data of items and stock
• Ability to extract information from within the premises by
consolidating data or integrating it with other systems
• Display relevant information through web portal so that stake
holders can access information and take decisions accordingly.
4.3.1 Tracking in Warehouse
• Provide milestone based shipment status i.e. each time the
shipment changes hands, relevant information - time of arrival,
departure and position - is captured.
• Keep track of the shipment quantity to ensure it matches the
expected order.
• Raise alerts each time there is an exception
• Provide inventory visibility
• Capture details of goods shipped for tracking purposes.
Radio Frequency Identification (RFID) can be used for real-time
• Provide electronic verification and confirmation of delivery
location tracking. It pinpoints items to their location.
• Capture supplier and carrier service level details for performance
improvement.
RFID is emerging as a key technology in applications as varied as
asset tracking, logistics and transportation, surveillance and
Information in the form of actionable data is extremely important
security. It reduces warehousing and inventory management costs
if one has to quickly react to the supply chain demands.
through effective asset and pallet tracking, and theft alerts. RFID
Visibility solutions display data that needs attention through
does not require a line-of-sight between the transponder and the
alerts, dashboards, reports, handheld devices, and emails. The
reader. It therefore works effectively in dirty environments and
solution presents data to the right people at the right time and
eliminates the need to manually scan each case or pallet's
in the right method.
magnetic cards and bar codes.
6

7. 4.4.1 Alerts
collection of operations accessed over the network through
Considering the global route that goods travel in the supply chain,
standardized XML messaging. A group of Web services interacting
logistics disruptions are bound to take place. Late arrival, shortage,
together defines a Web service application in a Service-Oriented
damage, dispatch to incorrect destinations, pilferage, loss in transit and
Architecture (SOA).
untraceable goods in the warehouse happen in a day-to-day supply
chain scenario.
This has led to unhappy customers and loss of
eBusiness Solutions from NIIT Technologies
credibility. Situations may go out of control not because the companies
NIIT Technologies service offerings help organizations keep pace
do not react, but due to unavailability of information at the right time.
with the rapidly changing dynamics of eBusiness. It provides
Supply chain event management can solve this problem.
end-to-end eBusiness solutions and services that include:
• Web Services solution and SOA consulting services
These are systems that discover “Exceptions” in the supply chain when
goods change hands. In other words, it keeps track of the actual
activity deviated from the planned activity. If there is any deviation, alerts
are sent to executives on personal computers, mobile phones, pagers
etc. The alert will trigger managerial action to mitigate the impact of the
disruption as quickly as possible. For example, if a shipment is carried
by an airline to a destination in a different country and for some reason
• Formulating eBusiness strategy, architecture, and process
automation
• Developing new Web-based applications and Web front-ends
integrated to legacy applications
• Integrating the enterprise value chain through Web
• Developing enterprise information portals
the airline does not depart at the scheduled time, an alert is sent to the
• Providing verification and validation services
concerned executive on mobile phone or desktop so that appropriate
• Maintaining Web applications.
action can be taken. In this manner, exceptions to the arrival and
departure of goods can be tracked.
4.4.2 Electronic Tagging
RFID technology can be used to tag a container consisting of
cartons or pallets. This technology helps in tracking assets as they
move through a supply chain. It minimizes the number of containers
lost. Similarly, if a pallet or a consignment was shipped to the wrong
location, alerts are sent to the transport management system, and if
necessary the pallet are re-routed.
4.5.2 EDI
Electronic Data Interchange (EDI) is a set of standards for structuring
and electronically exchanging information between and within
businesses, organizations, government entities and other groups.
EDI can be formally defined as 'The transfer of structured data, by
agreed message standards, from one computer system to another
without human intervention'.
Enterprise Integration from NIIT Technologies
NIIT Technologies Enterprise Integration services include integrating
4.5 Where NIIT can Help?
legacy and ERP applications using leading integration platforms
4.5.1 Web Services
such as MQ-Series, TIBCO, BEA WebLogic, and webMethods. In
IBM explains Web service as a technology that allows applications
addition, NIIT Technologies can also build custom-solutions based
to communicate with each other in a platform independent of the
on different standards.
programming language. It is a software interface that describes a
7

8. 5. Conclusion
3. Supply Chain Digest, “11 Greatest Supply Chain Disasters”
Considering the global nature of trading, competitive market,
4. Aberdeen Group, “Global Supply Chain Bench Mark
volatile
customer
demands,
multiple
constraints
and
uncertainties that come along with it, it is important to have an
agile and efficient supply chain management system.
The
paper described the various risks associated with the supply
chain
and
recommended
a
solution
to
minimize
the
occurrence. Information technology has helped reduce these
risks. Visibility through information technology can be used to
minimize risk in a supply chain.
A reduced risk and improved visibility provides;
• Reasonable reduction in inventory
• Lower material handling costs
• Reduced transportation costs
• Improvement in Order cycle time
• Increased fulfillment rates
• Reduced stock outs
• Provides better customer service
Report”, June 2006
28.8
14.4
5. InfinityQS International, “Mitigating Supply Chain 12
Risk
using Collaborative Technology, May 2007
6. John T. Mentzer, “Global Supply Chain Risk
Management”, Sep 2004
7. Martin Christopher and Hau L. Lee, “Supply Chain
Confidence”, Nov 2001
8. Prof Alan Harrison and Dr Andrew White, “Intelligent
Distribution and Logistics”
9. Supply Chain Europe, “Risk Management”, Nov 2007
10. Rob Handfield, “Reducing the impact of disruptions to
the supply chain”
11. Roshan Gaonkar and N Viswanadham, “A Conceptual
and Analytical Framework for the Management of Risks in
Supply Chains”,
12. AMR Research, “How Best To Measure Your Supply
References & Readings
Chain Today” by John Hagerty, Lora Cecere, and Joe
1. Cap Gemini, Ernst & Young, “The Transition from Tactical
Souza
to Adaptive Supply Chains, 2003”
2. Emily (Rong) Liu and Akhil Kumar, “Leveraging
Information Sharing To Increase Supply Chain
13. Dr Shoumen Palit Austin Datta, “Risk in Global Supply
Chain”
14. Stan Smith – Risk Management Consultant, “Applying
Configurability”, 2003 — Twenty-Fourth International
Risk Management to Supply Chain, LA Convention center
Conference on Information Systems
lecture, 2005
8

9. About the Author
Vinod Pisharoti heads the Logistics practice in NIIT Technologies. He has over 26 years of
experience in the Information Technology industry providing solutions in the area of Supply
Chain Management.
About NIIT Technologies
NIIT Technologies is a leading IT solutions organization, servicing customers in North America,
Europe, Asia and Australia. It offers services in Application Development and Maintenance,
Enterprise Solutions including Managed Services and Business Process Outsourcing to
organizations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and
Government sectors. With employees over 8,000 professionals, NIIT Technologies follows global
standards of software development processes.
Over the years the Company has forged extremely rewarding relationships with global majors, a
testimony to mutual commitment and its ability to retain marquee clients, drawing repeat
business from them. NIIT Technologies has been able to scale its interactions with marquee
clients in the BFSI sector, the Travel Transport & Logistics and Manufacturing & Distribution, into
extremely meaningful, multi-year "collaborations.
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