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NIIT Technologies White Paper

Supply Chain Risk ManagementSupply Chain Risk ManagementVinod Pisharoti

CONTENTS

1 An Overview 3

2 Background 3

3 Supply Chain Disruptions 4

3.1 Types of Risks 4

3.2 Risk Management Framework 4

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 Inventory Visibility 6

4.3.1 Tracking in Warehouse 6

4.4 Logistics Visibility 6

4.4.1 Alerts 7

4.4.2 Electronic Tagging 7

4.5 Where your Technology Partner can help? 7

4.5.1 Web Services 7

4.5.2 EDI 7

5 Conclusion 8

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1. An Overview 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.

2 . 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].

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

imperative to have visibility on the exceptions or unwanted

happenings during the supply chain process. With the

multi-faceted nature of risks and piece meal solutions the first step

is to have a proper supply chain risk management strategy and

apply technology wherever possible to mitigate the risks.

Most companies lack automation and visibility which has resulted

in longer lead times, more than required inventory buffers, supply

imbalance and cost implications to name a few.

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

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

integration with suppliers, globalization, demands from customers,

dependency on Information Technology, laws and regulations, and

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.

Supply chains are vulnerable to various types of risks that mainly

originate from five different sources: Supply, Demand, Disasters,

Information Technology and Logistics. Unstable supply chain

increases the need to control, monitor and evaluate risks to

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

research report conducted in 2005, supply chain visibility is one of

the most critical areas where companies are investing. Stan Smith,

Risk assessment consultant from Q+E defines Supply Chain Risk

Management as a “Systematic process of managing unwanted

events or unwanted change in the Supply chain”.

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

Figure 1: Source of Risks

Supply

Demand

DisastersIT

LogisticsSourcesof Risks

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Technical Aspects

3.1 Types of RisksAvoiding and reducing risks is a big challenge for all the

enterprises. The risks to supply chains are numerous and

constantly evolving, and emanate from different sources.

Enterprises have identified and documented different types of risks

in the Supply chain.

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

build a risk management plan to quickly adjust and recover from

the anticipated and unanticipated risks.

3.2 Risk Management FrameworkRoshan Gaonkar and N Viswanadham in their paper ‘A conceptual

and analytical framework for the management of risks in supply

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

action after the occurrence of an event to minimize the impact.

The Aberdeen Global Supply Chain Bench Mark report states that

79% of the large companies lack supply chain process visibility

which has now become a top concern, and 90% of all enterprises

report that their supply chain technology is inadequate.

3. Supply Chain DisruptionsLet us take a look at some of the supply chain disruptions that

took place in the past.

The above examples highlight that if these problems were identified

on time and managed properly, disasters could have been averted.

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]

Demand 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]

Disaster Related 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]

IT Related 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]

Logistics Related 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]

Figure 2: Types of Risks

Types of Risks

DisastersNatural Disasters, Diseases, Political unrest, Political unrest, Terrorism,

Currency fluctuations, Goverment regulations. IT breakdown, Labour strikes

Supply Logistics Demand

• 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

• 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

Information TechnologyInaccurate forecasts, Distorted information, Data protection. IT Infrastructure

breakdown, Failure of integration systems, Failure of IT applications

4.1 Demand Visibility“Forecasting has never been cent percent correct and probably will

never be”. There is no way one can know well in advance what

and how much the customer wants unless he/she shares it.

Years back, supply chain was not complex and technology was

virtually non-existent. At that time, vendors used to forecast based on

“intuition”. Vendors also started forecasting demand based on sales

made in the past; which brought figures closer to actual needs but

were still not precise. This technique is used even today by most

vendors. Today, supply chain management has become a

sophisticated discipline and technology is available for forecasting.

Using proper data collection and forecasting techniques, vendors can

reduce the gap between the forecasted data and the actual data.

To get an insight on demand, an ideal demand visibility solution should

capture demand history, customer orders, point-of-sale data, historical

sales data, market forecasts, any recorded seasonal variations,

information on weather conditions, promotions etc. Combined with

technology, different techniques can be applied to create demand

patterns, forecasts and plans for an effective inventory management

and cost-effective customer service.

4.2 Supply VisibilityAccording 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

risk. Electronic Data Interchange (EDI) is one solution but Web

Services is preferred as a viable solution.

Implementing Web services enable organizations to integrate with

suppliers and easily share or access information stored in disparate

systems operating on different platforms. Visibility to supplier

information reduces most of the supply related risks.

4.2.1 Electronic notification of Shipments

Information on shipments or orders obtained through emails, fax or

telephone is entered manually into the system. The process of

entering information is laborious, costly, and error-prone. Suppliers

with EDI capabilities push the information electronically but it does

not necessarily reach on or before time.

Providing visibility in a supply chain is one way of reducing the

probability of risk occurrence and therefore becomes a part of the

preventive approach. Supply chain consultants in various forums

and papers have mentioned the standard processes that need to

be followed in order to proactively manage risks in a supply chain.

They are;

• Identify unexpected events

• Conduct root cause analysis

• Assess and quantify impact of each risk

• Assign probability of risk occurrence

• Build risk mitigation plan

• Assign owners and implement actions

4. Visibility – Uncertainty ExposedRisks can be transferred to a supply chain partner or can be

minimized but cannot be avoided. One way of minimizing the risk

is by having good visibility and control over the Supply chain.

Companies should focus on the following to go a long way in

reducing the risks in the supply chain

• How well connected are you with the Suppliers and other

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?

• Where is the item getting stored?

• How much of the item is available?

• Is the item being stored in the right environment?

• When is the item going to arrive?

• Are the goods received in full (or is there any shortage)?

• Are the items in the condition it is supposed to be (damaged,

fake etc)?

Right information available at the right time ensures greater

visibility. End-to-end visibility allows companies to respond quickly

to issues that directly and indirectly impact the flow of goods from

source to the consumer.

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:

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RFID tag is attached to every item in the warehouse. Once the tag

is associated, all warehouse movements are tracked by readers.

Information about items movement can be immediately transmitted

to the driver. If the driver delivers the item to the wrong storage bay

or shipping dock, he immediately gets an alert. A real-time locating

system can also track truck’s movement and position.

4.4 Logistics VisibilityAn order needs to be tracked from the time an order is shipped

from the source (warehouse from a supplier or warehouse to a

customer) to the consumer.

Some of the basic questions are;

• Have all the items and quantities been shipped as per the order?

• When will the shipment arrive?

• Has the order been delivered to the customer?

• Has the order reached in-time at the destination in perfect condition?

As long as there is visibility, an ideal logistics visibility solution

should cater to them. A logistics visibility solution should cover the

following;

• Consolidate all shipment relevant information from internal

systems, suppliers, carriers, agents, customs authorities and

other trading partners.

• 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.

• Provide electronic verification and confirmation of delivery

• Capture supplier and carrier service level details for performance

improvement.

Information in the form of actionable data is extremely important

if one has to quickly react to the supply chain demands.

Visibility solutions display data that needs attention through

alerts, dashboards, reports, handheld devices, and emails. The

solution presents data to the right people at the right time and

in the right method.

An alternate solution is to pull the information directly from the

supplier (on mutual agreement) at regular time intervals irrespective

of the format it has been stored. The information is then translated

to the required format (e.g. XML) before being used. It removes

dependency on the supplier.

4.2.2 End-to-end Visibility on the Supplier Side

Improved visibility is at the top of the supply chain strategy list. To

achieve end-to-end visibility, it is important to leverage the Supplier

portals that provide some level of visibility, and generates Advance

Shipment Notifications and bar code label printing capabilities.

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 VisibilityIn a supply chain, it is important to control inventory for countering

risks. Companies in order to ensure availability of the product

without maintaining excessive inventory need an accurate picture

of the stock across distribution centers or warehouses. Customer

commitments can be met only if a company has real-time visibility

of the stock placed as an order, in a store/warehouse or in-transit.

A perfect solution that provides inventory visibility should cover the

following;

• 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

Radio Frequency Identification (RFID) can be used for real-time

location tracking. It pinpoints items to their location.

RFID is emerging as a key technology in applications as varied as

asset tracking, logistics and transportation, surveillance and

security. It reduces warehousing and inventory management costs

through effective asset and pallet tracking, and theft alerts. RFID

does not require a line-of-sight between the transponder and the

reader. It therefore works effectively in dirty environments and

eliminates the need to manually scan each case or pallet's

magnetic cards and bar codes.

collection of operations accessed over the network through

standardized XML messaging. A group of Web services interacting

together defines a Web service application in a Service-Oriented

Architecture (SOA).

eBusiness Solutions from NIIT Technologies

NIIT Technologies service offerings help organizations keep pace

with the rapidly changing dynamics of eBusiness. It provides

end-to-end eBusiness solutions and services that include:

• Web Services solution and SOA consulting services

• 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

• Providing verification and validation services

• Maintaining Web applications.

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

legacy and ERP applications using leading integration platforms

such as MQ-Series, TIBCO, BEA WebLogic, and webMethods. In

addition, NIIT Technologies can also build custom-solutions based

on different standards.

4.4.1 Alerts

Considering the global route that goods travel in the supply chain,

logistics disruptions are bound to take place. Late arrival, shortage,

damage, dispatch to incorrect destinations, pilferage, loss in transit and

untraceable goods in the warehouse happen in a day-to-day supply

chain scenario. This has led to unhappy customers and loss of

credibility. Situations may go out of control not because the companies

do not react, but due to unavailability of information at the right time.

Supply chain event management can solve this problem.

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

the airline does not depart at the scheduled time, an alert is sent to the

concerned executive on mobile phone or desktop so that appropriate

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 Where your Technology Partner can help?

4.5.1 Web Services

IBM explains Web service as a technology that allows applications

to communicate with each other in a platform independent of the

programming language. It is a software interface that describes a

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3. Supply Chain Digest, “11 Greatest Supply Chain Disasters”

4. Aberdeen Group, “Global Supply Chain Bench Mark

Report”, June 2006

5. InfinityQS International, “Mitigating Supply Chain 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

Chain Today” by John Hagerty, Lora Cecere, and Joe

Souza

13. Dr Shoumen Palit Austin Datta, “Risk in Global Supply

Chain”

14. Stan Smith – Risk Management Consultant, “Applying

Risk Management to Supply Chain, LA Convention center

lecture, 2005

5. ConclusionConsidering the global nature of trading, competitive market,

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

References & Readings1. Cap Gemini, Ernst & Young, “The Transition from Tactical

to Adaptive Supply Chains, 2003”

2. Emily (Rong) Liu and Akhil Kumar, “Leveraging

Information Sharing To Increase Supply Chain

Configurability”, 2003 — Twenty-Fourth International

Conference on Information Systems

About the Author

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Write to us at marketing@niit-tech.com www.niit-tech.com

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.

NIIT Technologies follows global standards of development, which include ISO 9001:2000

Certification, assessment at Level 5 for SEI-CMMi version 1.2 and ISO 27001 information

security management certification. Its data center operations are assessed at the international

ISO 20000 IT management standards.

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

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