Supply Chain Risk Management Essay Example | Topics and Well Written Essays - 3750 words

Supply Chain Risk Management - Essay Example Therefore, the significance of supply chain management theories and their usage in all industry types has increased greatly. Supply chains are evolved by companies for fulfilling business needs and functions. Supply chains help business to survive and grow. Each business is a part of the supply chain completing the assigned task. A multi-tier supply chain includes various flows i.e. financial flow, Information flow and material flow. Third party logistics (3PL) services providers who manage and perform specific logistic functions for other companies arrange the inbound and outbound logistic functions of the suppliers or owners (Khan et al., 2010). The term â€Å"supply chain management† came into usage in the 1990s for earlier used terms like â€Å"logistics† and â€Å"operations management†. â€Å"A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into int ermediate and finished products, and the distribution of these finished products to customers.†Ã¢â‚¬â€Ganeshan and Harrison (1995)). ... The first level is completed via internal supply chain management activities associated with logistics and procurement. Procurement for companies’ stock can stockpile high inventory levels and additional transport costs if the inventory is not consumed due to lack of demand (Kannegiesser et al., 2007). The second echelon can help companies in optimizing supply chain processes via integrated management of supply chains. The central focus of supply chain management is to manage the risk of overflowing inventories and inefficient handling of information not only within the company but among all supply chain members, which could be original equipment manufacturers (OEM), maintenance, repair and overhauling (MROs) or third-party logistics (3PL) partners to minimize stock levels and achieving optimization in resource usage (Kannegiesser et al., 2007). As such, the aim of supply chain management is to cover the cost risk, to offer the desired service level and fulfill customer expect ations. Production and distribution functions have to be integrated to achieve optimum performance volumes. As decisions on quantity and price of stock can not be taken beforehand, any drawback in integrated approach can reduce the profit margins although cost-cutting has been used as a tool in supply chain management (Kannegiesser et al., 2007). Research Background -- Theory Before discussing the study outcomes on total logistic costs based on general modeling approach, some theoretical background on current literature is necessary. There are two types of studies on logistic costs. One type deals with strategic parts of logistics and the other with optimal logistic decisions. This is the second type, which helps in mitigating risks, the leading purpose of which is finding system costs, which